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The Outsider Club’s Nick Hodge on His Due Diligence Process and a Few Stock Picks

October 20, 2017

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is co-owner of this website, founder of the Outsider Club, editor of several publications, a man that wears many hats, and usually does not need an introduction. The world famous, as someone just said recently, Mr. Nick Hodge. Nick, how are you today?

Nick Hodge: I'm doing well, Gerardo. Thanks for having me. How are you?

Gerardo Del Real: I'm doing excellent. I'm doing excellent. I'm glad that you took the time for the interview this morning. I know we just caught up a couple of days ago in Idaho. That's actually where you were referred to as the world famous Nick Hodge. We were there to visit a company called Revival Gold (TSX-V: RVG). I'd love to start out with your thoughts on the project and the company in general.

Nick Hodge: Well, I think Revival Gold is eponymous. I think they named themselves well considering that they're not only resurrecting a brownfields project, but they're doing it at a time that many see a revival in the gold space coming, and perhaps already beginning. I think Revival is a great vehicle for speculative gold investors to invest in that trend, given that it's a past producing asset and it came from a major company, and it's being run by someone who has vast experience in the major gold world, and who has a vision for his current two projects in Idaho, Arnett Creek and the recently acquired Beartrack.

Gerardo Del Real: Excellent. Now, you, I mentioned that you wear many hats and one of the services that you run is a service by the name of Nick's Notebook. Can you explain to those who may not be familiar with what you do just a little background, and a little context on some of those many hats that you wear?

Nick Hodge: Yeah. Nick's Notebook is a service meant for accredited retail investors who want to play with the big boys, in a nutshell. It allows people who otherwise wouldn't know about these private placements, and certainly wouldn't have access to them, to deploy capital into companies that I vet and that I view as high quality, and that typically come with not only a discount to market, but with warrants that allow for significant upside if these plays work out and if the trends cooperate with us.

I see a lot of deals come across my desk, I look at a lot of slide decks, and if I deem the company to be worthy of investment, then I put my group of accredited investors in contact with the company and allow them to fund it. Which was, I think, something quite novel in the space. It's been duplicated recently but when I started Nick's Notebook in 2015, there weren't a lot of folks that were ushering retail investors into private placements so I'm proud to say I was one of the first to do that.

Gerardo Del Real: Excellent. Now, you've raised tens of millions of dollars if I'm not mistaken. Is that correct, Nick?

Nick Hodge: That's correct.

Gerardo Del Real: Excellent. Now, a prime example is Revival Gold actually. I believe that on the non-brokered end of it, you helped expose or give exposure to some of the accredited investors in your group in the Revival Gold deal. I think shares are trading at 70 cents Canadian right now. I believe the deal was done at 60 cents. You visited the project firsthand. Is that a part of your due diligence process? Is that something that you do often?

Nick Hodge: Yeah. I mean, we financed Revival Gold at 30 cents, in fact, in the first financing with warrants at 45 cents, and then we financed it again at 60 cents. You're correct, it's trading at 77 cents, and I think it's still really early days. To answer your question directly, yes, I think boots on the ground is a very integral part of my process, and not only boots on the ground but hands on the hands. That means shaking hands with management, actually going out and not just seeing the projects, but talking with and seeing the people who are involved in developing them.

Revival Gold has Hugh Agro and he's got a great track record and history coming from Kinross, but there were some people who I didn't know were a part of the project. I think you know we met Pete there, who's a jack of all trades. He wears many hats, and he's been with the assets there in Idaho for I think something like three decades through three separate owners, and so those are the people who sway me to like a stock or to like a story more.

I mean, just talking to Pete you can tell that he knows the mineralization. He has a vision for what's there. He knows how many ounces are sitting on the leach pad, for example. Those are things that you can't find just by reading the press releases or by chatting with some IR representative on the phone. I think you do really need to go out there and see the projects firsthand. Because I know I came away with much more information than I had even before we financed the company. Now I like Revival Gold even more.

Gerardo Del Real: Yeah, I couldn't agree more and I think you're referring to Pete Blakeley, the General Manager who was with the project prior to, in the Meridian/Yamana days. Now, a takeaway that I had and something that really surprised me was just how many people in the local community are really clamoring for this mine to come back online. Everybody from the lovely woman that drove me back to the airport to some of the friendly people there at The Shady Nook where we had dinner and drinks. Everybody was asking about the rumors of the potential for the mine to come back online and what an economic boost it would be.

That's not often the case. Often times there's opposition and there's questions, and people are suspicious, but I think when you have somebody that's there locally like Pete Blakeley, who's got the experience, who does things right, who's a part of the community, it really speaks well for the path to production that Revival Gold is looking to lay out.

Now, another part of your due diligence process, I mentioned you were referred to as world famous. You actually will be at the New Orleans Investment Conference, my favorite conference of the year, put on by Brien Lundin and the group there. Can you talk a bit about your speaking engagements there and just what benefit you get out of these conferences? I know for me it's a good opportunity to do some due diligence and meet with other companies.

Nick Hodge: Yeah, sure. So, I'm giving an individual talk to the entire crowd. I'm going to talk a little bit about what I've come to view as "Bizarro World," things that I view as fake. Just in general, whether that's news or whether that's companies that aren’t doing things the correct way, or whether that's, as I wrote about recently, 100% Parmesan cheese that's allowed to be 5% fake somehow. I think there's just a lot of things in the world right now that are askew. My talk is going to focus on how to cut through some of that nonsense and where you should put your capital in the weird times we're living in.

Then, of course you and I will present on some things you should look for and avoid in junior mining companies when you're doing your due diligence. I'll also sit on the Mining Shares panel. But I think for me what I take away from it is one, I get to talk to subscribers and I think that's a great experience. I get to hear their feedback and their successes, and sometimes their troubles, and that's all good stuff. I also get to talk to, of course, industry veterans and companies that I'm following. It's good to get many people from the mining sector all together in one space. I think it just facilitates the flow of ideas back and forth, and it's good to catch up in general.

Gerardo Del Real: Excellent. Now, you mentioned Bizarro World. I mentioned the many hats that you wear. You are the Founder of the Outsider Club and I believe “Bizarro World” initially was an article that you wrote for Outsider Club. It's one of my favorite articles, it's something that I reread literally every couple of months and share with friends and people that I think may find it of interest. I thought it was a wonderfully written piece. Can you explain what Outsider Club is and how people can find it, Nick?

Nick Hodge: Yeah, Outsider Club is a free retail newsletter for investors and anyone looking to get a leg up on the market. Specifically, for those of us with a contrarian, and dare I say even a Libertarian bend to our worldview. It's just all about how to manage your own capital and cut through the mainstream spin from both the left and the right, and do what's best for you on your own terms.

I think that message has really resonated since I started Outsider Club in 2013. We've grown to well over 300,000 investor subscribers and on the backend of that, we provide a bunch of paid newsletters as well, some of which you write Gerardo, that are geared toward helping those investors who resonate with our message, put their capital to work in specific sectors. Whether that's the cannabis space which we have a letter for, or the resource space which you write letters for, or Nick's Notebook for private investments which you already mentioned.

Gerardo Del Real: Excellent. People can find Outsider Club at OutsiderClub.com. Is that correct?

Nick Hodge: Very straightforward, yep. OutsiderClub.com. You'll see all the editorials there, free reports, and about sections for all our paid publications.

Gerardo Del Real: Wonderful. Now Nick, I've got to say, in traveling several times with you and doing several conferences, you inevitability see a lot of deal flow, and a large part of that obviously is due to your experience and the reputation you have in the business, but the second part of that, of course is with Nick's Notebook, you have the ability to raise capital for quality projects. Can you tell me a bit about the deal flow that you're seeing now, specifically in the resource space, and how that compares with past deal flow? Maybe two years ago.

Obviously we're in a slightly different market. It seems to be a more optimistic market. Is the quality of the deal flow following that optimism, or do you see dilution as far as the kind of deals that are coming on your radar?

Nick Hodge: Well, I think it depends on how people ran their companies for the past couple of years. There are definitely some companies who were mismanaged, that are raising funds at a dilutive manner, but I would say all things being equal, I'm seeing more quality deals now, and more particularly, I'm seeing some more quality people than I've seen before.

What I mean by that is we're seeing lots of people with major experience, not just junior mining executives, but people who really have decades of experience in the industry, that know the cyclicality of the resource space, that are saying that now is finally the time after five or six years of a brutal bear market that the metals prices are going to start to pick up. That's been reflected in the deals. I mean, whether it's Revival, we've already talked about, or I mean look at this, the Integra deal.

I know I'm going to date myself and timestamp this interview, but this week there's a company called Integra Resources raising money. Same management from Integra Gold that was bought out this year by Eldorado. So that's a successful team putting together again, a brownfields asset in Idaho. So, I think we're seeing quality money and quality people put together deals that are flowing to brownfields, and I think that's how the cyclicality of the business goes.

Right now we're investing in brownfields, and I think in a couple of years you'll see greenfields start to be attractive again. But I think it's just typical of the bottoming out process and new deals being put together that are higher quality than we've seen in the past six months or year. That's only starting to surface, and it's quite exciting I think.

Gerardo Del Real: Excellent. Now, lastly, I'd be doing listeners a disservice if I didn't ask you to comment on maybe two or three stock picks that you like. It'd be great if they could be confined to the resource space, being that this is ResourceStockDigest.com, but if you have opinions or thoughts, or feel strongly about a company outside of the resource sector, I'd definitely invite you to go ahead and comment there.

Nick Hodge: I like to answer this question with where I put my own checkbook so I'll just talk about two stocks that I've owned for a long time, and that I own a fairly large position in. One of those is Midas Gold (TSX: MAX). That's a company with six million ounces in Idaho, as well, run by Stephen Quin who's just a top-notch gentleman and industry executive. They're in the permitting phase right now so it's kind of at that “boring” spot in the story, but I think that people will start to get excited about this, especially as gold prices start to heat up.

It's a very large and robust resource and I think it's going to grow quite significantly once they do get permitted, and once they get it to operation and continue to do some more exploration. And not to mention they have a big antimony credit which is a critical element that there's not much production of in the United States. That's used in military and electronic applications for fire retardants. I think that's a nice bonus that they have a large antimony resource. Midas Gold is definitely one stock that I'd recommend people take a look at.

Then, jumping commodities to uranium, I think that the uranium sector is just undergoing a brutal bottoming out right now and has been for years ever since Fukushima. But the fact of the matter is, 10% of baseload of electricity generation isn't going anywhere and nobody in the world is making money right now at $20 a pound of uranium, and so I think uranium prices definitely have to begin to rise here in the next couple of years. The way I'm playing that is a company called Fission Uranium (TSX: FCU). I've owned that stock for a long time. It's been touted time and time again by third parties as the best undeveloped asset in the world. Not just of uranium, but it's also been proclaimed the best undeveloped asset of any commodity in the world.

It's a hundred million pounds, it's going to grow from there. They have a resource estimate out that doesn't include some new zones they found. It's extremely shallow for the Athabasca Basin that starts basically at surface and it's incredibly pure. Several times the purity of the uranium that's being mined in Africa. So, Fission Uranium is definitely a company I own. The Chinese, Chinese General Nuclear, CGN, is one of the largest nuclear utilities in the world. They took a significant stake in the company at higher prices last year and I'm content just to own those shares and in fact buy more until the uranium sector turns around, because I know I'm putting my money into an asset that's one of the best in the world.

Gerardo Del Real: Excellent. Now, I initially asked you to go ahead and keep it to the resource space, but I'm going to make a U-turn on that, and ask you to give me a non-resource sector related pick, because I think the due diligence process that you go through when you look at companies outside of the resource sector is just as thorough, and it'd be great I think for people to be exposed to some of that due diligence and what that looks like and that sounds like with another product type. Is there a company outside of the resource space that you really like right now?

Nick Hodge: Yeah, sure. As a generalist, I'm looking at different things all the time and I'm a big fan of trends. One of the trends that I really like now is the craft distilling trend. I think it's following the same exact blueprint as the craft beer trend did over the past decade or so, where we saw Sam Adams come out with a couple of funky brews 10 years ago, and all of a sudden there's brewers from Baltimore to San Diego that are turning out all kinds of different craft beers. Whether that's Porters or Saisons or Sours. I think everyone knows that when they go to a bar or a restaurant now, they see many more beers on the menu than there were 10 years ago, besides Budweiser and Coors Light. I think that very same thing is playing out in the distilling space right now, and just like in the beer space, there's not many ways to publicly invest in craft distilling.

One of the ones I found that's very high quality is a company called Eastside Distilling (NASDAQ: ESDI). They trade under the ticker ESDI. In fact, they just went on the NASDAQ. It's just a craft distiller based in Portland, but they're on a very firm trajectory for fast paced growth. They're in about half the states right now. They've hired some veteran spirits executives to make a sales push to get into the rest of the states, and also Canada and China. They've hired a very strategic branding firm called Sandstrom Partners that has been responsible for the launch and branding and advertising of some of the most iconic beer and beverage brands in the United States. From Miller to Bulleit Bourbon to even Diet Coke.

That rebrand of all their products is rolling out now and just to convey to the listeners what a rebrand means in a liquor space, I'm sure everyone is familiar with a liquor brand right now called Fireball Whisky, the famous cinnamon whisky that's everywhere. But it didn't always used to be the case. About 10 years ago, that cinnamon whisky that's now known as Fireball was called McGillicuddy's. It had hardly any sales. I think it was doing something like five to seven million dollars a year, and low and behold, a branding firm rebrands it as Fireball, launches it out on college campuses, and I think at last check it's doing something like $700 million dollars a year in sales, when you include all the bar sales as well. So, I just think it's an exciting space to be in and not many ways to publicly invest in it. So, once investors finally wise up to this trend, I think dollars will flow to Eastside Distilling.

Gerardo Del Real: Well, McGillicuddy's certainly does not roll off the tongue as well as Fireball. That's for sure.

Nick Hodge: That's exactly right. Branding matters in the liquor space.

Gerardo Del Real: Fantastic. Nick, how can people get ahold of you?

Nick Hodge: Well, OutsiderClub.com is the easiest place to find me. We have a contact page there if you want to send me a note or ask customer service a question, but that's where all the about sections for my paid publications are housed, and that's where you'll see my weekly columns.

Gerardo Del Real: Excellent. Both Nick and I, as we mentioned earlier, will be at the New Orleans Investment Conference. If you are there, please stop by and say hi, say thank you, or vent your frustrations. Nick, thank you so much for your time today. I appreciate it.

Nick Hodge: Thanks, Gerardo. Look forward to seeing you in New Orleans next week.

Gerardo Del Real: See you then.

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