Gold and silver mining stocks - potential winners

0:09Hey, everyone, Daniel Snyder from Seeking Alpha. Thank you for taking the time. We are diving into the world of gold and silver with none other than Don Durrett, who, well, he's been writing for Seeking Alpha for years and years and years. But today we're going to dive deeper into this because there's so much going on between weakening macroeconomic data, central banks buying gold, the ETFs being leveraged in that as well. So Don, I want to kick things off first. Welcome. Thank you for giving us the time today. I know your time is very valuable. You've got quite the portfolio that must be doing extremely well right now this year specifically, even the last few years.

0:45If we look at three-year returns of gold and silver, which I just pulled up on Seeking Alpha, it's doing really, really well. How do you find these gold and silver stocks that you like to invest in? And then how do you value them? I'll give more of an overview of kind of what you're looking for, if you will. In a bull market, you want elasticity. Elasticity means that when the gold and silver prices go up, your miners go up. You want them highly elastic. Gold goes up$100, you want your stock to go up in a percentage-wise more than that. You want your stocks to participate in a big way. So in that regard, the stocks that are going to participate the most are the producers.

1:32The reason why is because the producers are going to benefit in a variety of ways. The first way is just as the price of gold is up, their free cash flow will go higher. And as the free cash flow gets higher, their stock will go up. And then as their free cash flow goes up, their balance sheet will improve. As their balance sheet improves, their multiple will improve. So let's say a company has, I don't use PEs, I use free cash flow multiples. So let's say that we have a free cash flow of five. So that would mean, let's say the free cash flow is 100 million. That means the market cap would be times five of that would be 500 million.

2:11Now, if that multiple doubles to 10, they go to a billion dollar valuation and nothing else happened. And it was just the only thing that pushed it up was sentiment. People wanted to own the stock. You hear about, you know, the PE multiples expansion, right? So you get that. So producers are going to benefit from as the price goes up, better free cash flow, better balance sheet. Then the other way that they can benefit as their balance sheet improves and they have all that cash in their balance sheet, they can use that to drill existing projects, buy new projects, build new mines. So they have all of these levers, if you will, to grow the company.

2:51So producers have huge elasticity. I think I'm going to make 80 % of my returns on producers. The second one that has huge elasticity is developers who investors think are going to benefit from future free cash flow. So when investors say, OK, this particular project, when it gets built, it's going to be worth a fortune if gold prices maintain where they're at. So you want quality developers. Those are the two groups. As a matter of fact, I have on my website, I have a favorites list with 83 names. There's only one exploration stock on there. 82 of them are either producers, near-term producers, or developers.

3:34Only one exploration. And that one exploration company is unique. It's unique in the fact that it's an optionality play where insiders own 50 % of the stocks, and they're not selling. They're waiting for a big return. So it's a unique. So optionality plays. OK, so I'm so those are kind of the three groups you want to look for. Now, I'm going to show you how to find them. I mean, what when you how to analyze them? Excuse me, I'm going to share my screen. So the first one is your producers. So what I do is I use rules and my rules are you got they got to pass this checklist. So the first thing you're going to do is you're going to look at the properties and you're going to make sure that it basically, kind of passes is kind of a quality so you can rank these like them from one to ten and you're looking for problems and so the better the quality properties the better then the next one is location issues then financing issues if any management team the valuation so this is basically your upside and then the balance sheet by the way you can read my book and get a better understanding on how to analyze these data point here my book's kind of a textbook on how to do this stuff Six is a balance sheet.

4:43Seven is the margins and the cost. Eight is expiration, the pipeline. Nine is share structure, share dilution. And then 10 is the overall risk reward. So you're trying to find one that basically has everything, has these 10. Chapter 10 of my book goes over this stuff. And if you can find a producer that basically checks all these boxes, you've identified an edge you have an edge only thing that you really need is the gold price to go higher and what we're trying to do here is we're trying to get an edge we're trying to find really high quality potential stocks you're not trying to pick winners you're trying to pick potential winners people have said tell me the best five you don't know which one's going to be the best i always tell this story about this one stock that i bought i had no idea you you have no idea what they're going to do who's going to buy them what projects they're going to acquire which what they're going to discover your big winners are always going to be surprises so don't try to pick winners just try to get quality quality potential winners okay so that's producers checklist now now we do developers so strong project and this is similar to the properties but you're looking for a specific project here on a developer just one strong project and then high upside potential you want it to be at least a 10 bagger you want to have room for error because these will these will disappoint you you don't want a developer that prints as a five bagger that's just not enough juice you want you want some significant juice because things can go wrong and they usually do and on the high upside i'm an unusual investor in that i project out into the future.

6:28Currently, I use$5 ,000 gold and$100 silver. And I actually think those are conservative right now. I think they both need to be pushed up a little bit. Good location. Location is very important. Strong management. Well, all six are important. You need all six. Strong management team. They need to have experience, a good team, a good board. A path to production. This is usually what's missing. You want a company that has a really strong plan and they're telling you exactly what they're going to do. I get really comfortable when When I see a strong management team, well, when I get all six, I can't.

7:00One thing doesn't work. You need all six. But when they give you a really strong path to production, that gets me excited. And then you got to have strong insiders. You know, sometimes I'll gamble. If they don't have all six, you're gambling. And so once in a while, I'll gamble on one. But I don't really like to, if they don't have strong insiders, the chances are they're going to get acquired or they're going to sell. which is kind of the same thing now the next one is the exploration and this is the one where where people um are making making a big mistake today remember i said earlier that you need elasticity exploration stocks do not have elasticity what if you have an explorer that makes a discovery nobody cares about the gold price or the silver price what they care about is the next drill hole.

7:50And so, and that's why people love them because they're not elastic. And so exploration stocks, they always work. They work in a bear market. They work in a bull market, but in a bull market, you have better risk reward and producers and the developers. You don't need to mess around with explorers. But if you use, you can use my rules, my two rules for exploration at any time, because if you use these rules, you're basically going to get an edge. And that's what you want as an investor. The first one, there's two rules. Rule number one is optionality plays. And this is where you only want to buy explorers if it follows one of these two rules.

8:24Rule number one is if you can find an exploration stock that has gold or silver in the ground, that's highly undervalued, and it's kind of a significant amount, you don't really want to do an optionality plan, a 1 million ounce gold deposit. But 1.5 million and above, it can work. So let's say you have one that's 1.5 million ounces. Now, if it was at$100 an ounce, it would be valued at$150. But if it was at$10 an ounce, it would be valued at$15 million. So if you find one at$15 million or less, that would be a good optionality play. And there's several of them today. I've done videos on optionality plays that I like.

8:58The thing that's nice about optionality plays is it's like free money. Because eventually, that gold or silver in the ground is going to get valued higher. A good example is like Banyan. Banyan Gold was valued at$8 an ounce like, I don't know, a month or two ago. Today, it's valued at$32. So if you would have bought it at$8, there's like no way you're going to lose money. It's just a matter of how much money you're going to make. So a lot of these optionality plays is like printing money. Okay, rule number two, and I'll be done here, is the Lassonde curve. And what the Lassonde curve tried to teach people, and everybody ignores it, is that the best time to buy an exploration play is at the very beginning of the discovery.

9:39So that's early in the Lassonde curve. And all you have, the Lassonde curve basically is the share price. And so the share price initially is very low. So they haven't made a discovery. And then they make an initial discovery. That's when you buy it. And it's early in the Lassonde curve. And then you just follow it up the Lassonde curve. The way the Lassonde curve is like a mountain. So you climb up to the mountain and then you go down. So you want to sell when you get to the top of the mountain or close to the top of the mountain. And the only time you want to buy is you have your early on the sun curve and you have an excellent drill hole.

10:10This is the one thing people miss. If a company makes a discovery of anything like gram meter over 200 and it's early on the sun curve, you can chase that one. Or silver more than 2 ,000. And if you find one with a stellar hole, those are the ones you really want to jump. or if it's close to stellar, those are the stocks that have the inelasticity that works. So if you follow my rules, and so I have one caveat, the gold-silver price is really important. So even if you follow these rules, we're still betting on the gold-silver price. You at one point had missioned the importance of free cash flow specifically for these companies.

10:48Would you mind diving into that a little bit and why it matters so much for the gold space and silver space as well? Yeah. So this is a cash business. So you constantly have to reinvest. If you're a producer, you have sustaining capital. So if you're not generating a profit, you're in trouble because you have that sustaining capital to keep ongoing monthly sustaining to keep your business running. In other words, it doesn't run for free. And so you have basically what are called margins. So your free cash flow is your margin. Now, until about, I don't know, a year and a half ago, margins were not that high.

11:30Now margins are very high for gold miners. And they just finally, in August, they finally got high enough for the silver miners. But the silver miners have been struggling because their margins were so low and they didn't have enough free cash flow to basically make any money. And so not only do you have sustaining capital, but you also have to spend money on future expiration to replace your reserves. So you have the cost of sustaining capital and the cost of expiration. And then you have the GNA, of course. So you need to have margins. And some companies have debt on their balance sheet, which they have to service.

12:07And so it's basically a highly cashed business because you're constantly having to spend money, if you will, to stay in business. And so the more free cash flow you have, the higher the margins you have, you can start cleaning up your balance sheet. So, for instance, if you look at all the majors today, there might be one like Lundin that has no debt. But most of them have significant. There you go. I mean, you look at their debt. If you look at you're looking at Newmont there, they have like six billion dollars in debt and we need to get that balance sheet cleaned up. So if we look at long term debt, so long term debt, current long term debt, one point nine billion.

12:49And then and then long term debt, seven point five billion. I was in 24. So it's down. So they have massive debt, massive. And all the majors do. And the reason why is because we haven't had high margins until recently. And so it's going to take them, you know, probably two years to clean up these balance sheets. And as they clean them up, their multiples will start expanding. I actually think that Newmont's multiple will go from a 10 to 25. So you're basically buying Newmont today at less than half off if you buy it. My target price for Newmont is$300. I think it's about$86. I said it was going to go to$300 when it was at$30.

13:32And people are like, no way. Newmont's going to be a nine-bagger? And I'm going, yeah, it is. And so here we're at$86. Next year we'll be at$150, and all you need is a one-bagger to get to$300. So is it a$500 for$300 by the year 2028, or is it by 2028? Yes, at$5 ,000 gold. It could happen in 27. 27 or 28 is kind of my target for$300 gold for Newmont. What's another, I mean, we talked about Newmont here, but like what's maybe one of the undercover ones that we could look into real quick, whether it's a gold miner, a silver miner, one that you'd like to be saw about? Well, I've said this publicly many times.

14:19So we just got back from Beaver Creek. And I'll tell you my top three stocks at Beaver Creek. And let's bring up a chart. The first one was 1911 gold. And people are really apprehensive of 1911 because the previous mine went bankrupt. It was sand gold. But what people don't realize is that the only reason why sand gold went bankrupt is because the price of gold dropped. That mine would still be in business today if gold would have been high. They didn't have a cost problem per se. They had a gold price problem. And so now you're$3 ,800 gold. It's not going to be that difficult for them to restart this mine.

15:00And I've always loved this story. And basically nobody, so nobody wanted to touch it. I mean, you look at that chart. Nobody wanted to touch it until recently because now this company will be back in production in 27. And so next year, 26 is all about prepping. I think Q1 and 27 will be back in production. It's in Canada, which is beautiful. It's very cheap. i mean you look at the market cap um so 200 million for you know canadian producer uh i i i my target price for this one's ten dollars so that's that that that's one so that they're a near-term not quite a near-term producer yet but they'll be a near-term producer you know in about six months it'll be about a year out i consider a near-term producer within one year um but they check all the boxes the way that i remember i showed you my development checklist these guys definitely check all the boxes.

15:53The next one you can bring up is Talisker Resources. So one thing I like is location. So 1911's in Manitoba. The next one's Talisker, and they're in British Columbia, another Canadian play. And, you know, both of these, they actually have a bigger mind than 1911. They're going to be producing, they're producing right now, I think, about 15 ,000 ounces, and they're going to produce in 50 ,000 next year. And you can see this one was at 25 cents and now it's up to a buck. And it's still, these stocks have come up, but they're really, really cheap still, believe it or not. I mean, like I said, I got$10 target, you know, for 1911, it's trading at what, 75 cents US.

16:37Same with Talisker. Talisker has the same potential upside as 1911. They're actually a bigger mine than 1911. 1911 is about, I think, 1.5 million ounces. And this one's more 2, 3 million. They're going to be mining 50 ,026 and then 90 ,000 to 100 ,027. And then they're going to build their own mill. So the first two years, they're going to be using toll milling. Then they're going to build their own mill, and they're probably going to grow to 150 ,000 ounces. Now, 1911 has strong insiders. Talisbury has a bit of a red flag. They don't have high insiders. So I think they could get taken out that which which concerns me.

17:21If I was a company like if I was Artemis Gold, I'd be taking these guys out. Anybody that's in the neighborhood. Yeah. So their insiders are a little bit weak there at Towsker. So that's that's the risk there. Now, the third company, I was going to mention three was Jaguar Mining. Jaguar Mine, let's bring up his chart, it's actually a very cheap producer. They have three mils at 2 ,000 tons each. So it's starting to trend up. And only one of them is being used. And the other one, it's only been half. So out of the 6 ,000, only 1 ,000 tons is currently being used. And they're going to fill up all 6 ,000 tons per day.

18:04so they're going to go from 40 ,000 ounces to 150 to 200 probably let's say 175 to 200 ,000 ounces a year so they have this huge growth ahead of them plus that's just on their existing minds and the new the new ceo who i really like is very aggressive he he basically has a plan on how to basically fill up those mills. And I trust me, this guy's going to he'll pull it off. So those are the three minds, three stocks that I walked away from Beaver Creek saying, you know, you know, I got to buy these ASAP kind of thing. Well, yeah. Jaguar here with a 50 % ownership, as I know you were. Yeah, yeah.

18:48It's beautiful. Yeah, it's absolutely beautiful. That's all Eric Sprott. Eric Sprott owns half the company. So he's got it in his best interest. Thank you, Don, for providing these names. This is insightful for us. Sure. I wanted to see if we could go ahead and transition. There's been a lot of questions coming into the chat, and I just want to take the duration of our time that we have left with you today. There's one big question that's been coming up time and time again, and that is, what is the difference between explorers and developers and producers or miners? Can you kind of categorize those for the people watching?

19:19Well, I already did on a risk-reward basis, right? I said producers have the best, developers have the second best, and explorers are not so good in a bull market. You can kind of avoid them except for those kind of those two rules. You want to keep your developers in a very small little group. I have about 8 % in my portfolio, and I feel like I have too much, but that 8 % is mainly optionality plays. But I kind of went over this a little bit. But I talked a little bit about how producers, you know, it's all about margins, free cash flow. And it's about how you grow the business. We always, as a producer, I always want an aggressive management team.

20:03I want them to always be thinking about how do we grow production. It's the growth companies where we make baggers, if you will. We don't want companies to just sit there and mine 100 ,000 ounces. Like Jaguar Mining, I mean, they were content to mine, you know, 60 ,000, 70 ,000 ounces just year after year, just plod along. Now they have a new CEO and he goes, oh, I'm not content at all at that. I'm off to the races here, people. And all it took was a new management team. One thing I found in this business is that good management teams are actually pretty rare. I mean, even the good companies do not have good management teams, believe it or not.

20:41I mean, I couldn't get people to buy. I created a group called the Mormons, which were the eight prettiest girls in the silver place. I don't really like all the Mormons because you normally don't marry a stock. But in this instance, you want to marry all eight of them. They're called the Mormons. Just marry them all and don't divorce them. And I couldn't get people to buy Hecklin' Cork down at two bucks. They're like, I'm not buying that piece of crap. It never performs. And I was like, you're looking at this thing wrong. Heckler and Coor, yeah, their management team, they've never really focused on shareholders, but they do really well in bull markets.

21:20Just go back to 2009 to 2011 and then go back earlier. So Heckler and Coor, so people are like, I'm not touching it. I'm not touching it. But the guys that got in at$2, now bring the Coor chart up. Now Coor is at, I think,$18. It's like an eight-bagger since I mentioned it. the mormons since i cde core mining cde so since since i um yeah so you can see when i created it in 23 look at look at how low is it two bucks and now it's at 18 so it's how's that for a return guess what my target is on this 70 my target my exit price on core is 70 so if you would have bought it at two it would be a 34 bagger i think um so 30 bagger for coor a high quality silver producer believe it or not if we get to 100 silver but people wouldn't buy heckling coor i'm not touching that that those because of management they're like i'm not going to do it so it's you know i can i can mention a few other companies that you know people won't touch because of management so you're always trying to find that elite management team that quality management team And I really like them.

22:31I call these companies like sharks because and I also call them buy and build companies. And I want these companies as soon as they build a mine, they go buy and build another one. That's what I really want. G mining is what like that or the mining Perseus. I mean, these are companies SSR mining. They don't they don't mess around. I mean, they just buy and build, buy and build or buy an existing mine. that it's already in operation. So we want to find these aggressive companies. The thing that really absolutely blows my mind is we have not seen a single, this is unbelievable, we have not seen a single silver development store get taken out.

23:11Now we've seen three producers. We have MAG got taken out. We got Gatos taken out. We got Silvercrest taken out because they were all the creative deals, but nobody will overpay. Like nobody will overpay. Nobody will pay for these development stories. There are 15 quality silver development stories out there that have been out there for five years and nobody's touched them. Like, when is there going to be when are they going to start acquiring these development stories? I mean, these stories like Abra Silver, you know, Go Gold, Vizsla. You know, there's a lot of a Minorum, Silver One. There's tons of these silver development plays out there.

23:51Nobody's buying them. They're like, no. The reason why, I'm sure there's been offers, but nobody and even the big Karani, Bear Creek, and even some of these exploration companies, nobody's going after them. And they're cheap. I mean, if you look at like Southern Silver valued at 35 cents an ounce in the ground and nobody's buying it, it's like nobody believes in the silver price going higher. Now, I do think that once we get above$50 silver, everybody's going to, they're going to, they're going to go, oh, these are accretive. Okay, now we can buy them. Now we can buy them. But nobody has any vision.

24:28When Avino was at 40 cents, 40 cents, I basically said, this is the best buy on the planet. And then bring up Avino, ASM. And I was telling everybody when it was at 40 cents, I said, buy this stock to the bottom. That's my favorite way to do it, buy it to the bottom. them and i i i can i always nail these bottoms because they're so obvious to me once a stock starts bouncing on the bottom you know it can't get any lower this box this is when i've been a 10 bagger coors been a nine bagger but and these stocks are still cheap i mean a vino and the thing that blew my mind was nobody nobody would buy a vino none of the none of the mormons they're like well i don't want it i'm like you have no idea what you're passing up here and the thing that's crazy is Aveeno doesn't have any insiders.

25:1580 % of the companies owned by retail. 80. So they're sitting duck. If Heckler went in there and said, okay, we want to do a 30 % premium, the retail crowd would say, sure. The retail crowd would buy it in a heartbeat. There you go. 78 % retail. There's no way in heck they could fend off Heckler if Heckler wanted to buy them, Akua wanted to buy them, First Majestic wanted to buy them. But they don't care. They're like, it's not accretive enough. It's amazing to me how conservative this sector is. Now, if I was on one of these boards when Avena was at 40 cents, I'd be pointing my finger going, go buy that company right now.

25:56I mean, they're sitting on 350 million ounces of silver equivalent, 350 million ounces. That's why they're still cheap. And it's like, you could have bought that thing for two, you know, it's unbelievable. 20 cents an ounce on the ground. 20 cents, you could have bought Aveeno if you wanted to back in the day when it was cheap, but nobody would touch it. They're like, no, it's not accretive. Now, okay, so he wanted me to tell the difference. So development stories, I went over producers, development stories, those are highly risky and they'll break your heart over and over again. The reason why they're going to break your heart is because they have high upside.

26:34You can find these development stories that, I mean, there's a bunch of them that I own and a bunch of them are going to break my heart. And the reason why they break your heart and they have high risk is a lot of things can go wrong. You have cost overruns. You have ramp up problems. You have grade issues. You have dilution issues. Management doesn't perform. So many things can go wrong with these developers. I always say that it's an 80-20 rule. Only about 20 % of them are going to be your 10 baggers. The other 80 are going to disappoint you and maybe 30 % break even and 50 % break your heart.

27:14Um, but if you can, I, you know, if you can find enough of these, you know, home, I call them home runs, those are 10 plus baggers. Then it makes it, then it works. Um, but again, the best risk reward is going to be your producers. Yeah. Thank you so much, Don. I just want to mention real quick, cause I know we're getting towards the end here. If you like everything you've heard today, you like, I mean, the explanation Don has provided today has been next level to me, especially some of these names I've never even heard of before. I would highly encourage you. He does run gold and silver mining ideas here on Seeking Alpha.

27:47You do have a promotion going on as well, where it's$30 for that first month. You get access to all of his analysis articles on Seeking Alpha. You have the active live chat, so you can actually ask him more questions and engage with his community there on the portfolio with exclusive ideas as well. But also, I want to encourage you to follow him on Seeking Alpha if you haven't already. This is one of the greatest ways to just get these updates that he's been putting out. I mean, that's the easiest way just to stay in Don's circle here. So I just wanted to take a second to mention that. Don, I wanted to go back because there was a question about when we talked at the beginning of this webinar here today that you're going to sell in 2028 or towards the end of the decade.

28:22As an investor yourself, when you sell, are you going to look to put that money to work elsewhere? Or is that just kind of like you're riding off into the into the sunset at that point. Yeah, I'm going into retirement. So at that point, it's about protecting my capital. So yeah, it's going to be difficult to figure out where to where to move that money off to off to figure it out. As we've been talking about today, gold's on a on its hair, right? Increased volatility within this sector. You know, gold historically has had moments of volatility going both ways for various reasons. Do you feel the conviction right now that this is a very sustainable rally to the upside?