The Good, the Bad, the Ugly in the Junior Mining Space

Publisher's Note: At the recent New Orleans Investment Conference, Outsider Club's Gerardo Del Real sat down with SmallCap Power's Rachel Lee to discuss a workshop the two of us held called “The Good, the Bad, the Ugly in the Junior Mining Space.” In this transcript of the interview, Gerardo discusses some of the "red flags" you'll find in junior mining stocks, along with two of his top stock picks in the space.

To your wealth,

Nick Hodge Signature

Nick Hodge
Publisher, Outsider Club

Rachel Lee: Gerardo, for our audience who's never heard from you before, can you tell us what you do and what your experience is?

Gerardo Del Real: Absolutely. I write for the Outsider Club, which was founded by Nick Hodge. I write two premium newsletters, Junior Mining Monthly and Junior Mining Trader, and those are subscription-based newsletters, but the Outsider Club website also includes a free editorial that I write every week, so you get to hear some of my opinions about the resource space.

Rachel Lee: All right. What are you talking about here at this conference that investors have been very interested in?

Gerardo Del Real: Nick and I actually had a workshop yesterday, and the title of the workshop was “The Good, the Bad, the Ugly in the Junior Mining Space.” We spent about an hour, nearly, going over some red flags, some things you want to look out for when you're considering an investment or speculation in the resource space.

You want to look at share structure. You want to look at jurisdiction. You want to look at insider ownership. You want to make sure that management has skin in the game. It was a workshop really about some of the good people in the business and what they're doing the right way, and some of the people that are maybe good people but just are not doing it the right way.

Rachel Lee: Right. Well, I want to know about the ugly. I know you called out some companies, so let's put it on camera here.

Gerardo Del Real: Sure. We picked on one, and again, I'm sure it's a great group of people, it's a talented management team, but Alexandria Minerals (TSX-V: AZX). They had an excellent, excellent set of results recently, I believe it was something like 18 meters of eight grams per tonne gold. And you would expect that in this market, where people are a bit more optimistic, there would have been a better response than a half-a-cent increase in share price or a penny increase in share price, and it just didn't happen.

It's funny because we kind of predicted that it wouldn't happen based on the share structure. They have, I think, nearly 500 million shares outstanding. They have almost 100 million warrants. I understand we're coming out of a brutal bear market, but at some point you've got to give consideration to the retail side of the shareholder base, and when you have that many warrants outstanding and hanging over the stock, it's never going to move past that six-, seven-cent mark.

So, that was an example of maybe the right people, maybe great assets, but definitely an ugly share structure.

Rachel Lee: Well, thank you so much for that insight. Let's move on to talk about what you've written about recently on the Outsider Club.

Gerardo Del Real: Sure.

Rachel Lee: You compared Mawson Resources (TSX: MAW) to Novo Resources (TSX-V: NVO). Why did you do that?

Gerardo Del Real: I did. You know, the inspiration for that piece was actually me thinking out loud. Novo, every time there's a video, a YouTube video or a video at the Denver Gold Forum...

Rachel Lee: People are interested.

Gerardo Del Real: ...the stock moves 15%, 20%, and that's not inconsequential when you have a market cap of over $1 billion. You're adding $200, $300 million on every news release. Mawson Resources has a district-scale land package in Finland, and they put out a release where they're sampling over 2,000 grams per tonne in outcrop.

I just wondered out loud if Novo had put out that release, how much would have been added to their market cap? Would you have seen a $200 or $300 or $400 million increase in the market cap? It was interesting to me because Mawson's entire market cap is $50 million.

Rachel Lee: Oh, much smaller.

Gerardo Del Real: When you look at the difference between an investment and a speculation, I thought it was a fair point to write the article and just think out loud what would have happened had Novo released these results, and maybe Mawson is undervalued and an opportunity to look at.

It's a good group of guys, in an area that they haven't been able to drill for years, and now they got their permits back and they're back exploring, and they're turning up some amazing numbers.

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