Financial Sense Newshour Interview With Brent Cook

Although the Financial Sense Newshour podcast is still maintaining its focus on energy, there was an eye-opening interview in the third segment with Brent Cook of Exploration Insights about gold-exploration stocks. [.mp3 file; interview starts at 38:00.] Cook is convinced that juniors, as a whole, are overvalued right now. It's easy for most junior exploration companies to find money through private placements.

More particularly, companies with huge gold discoveries in Alaska and British Columbia have seen their share prices skyrocket to the point where they trade at near-done-deal levels. That's great for the shareholders who bought in early, but it leaves a certain headwind to deal with. Getting even a huge deposit into production is difficult, time-consuming and expensive...and the financing might not be forthcoming. The shares of those companies are too expensive to make a takeover by a major worthwhile. Consequently, they're going to be in a bit of a spot.

Regarding huge deposits, Cook said that the only ones likely to be found now are porphyry deposits with copper-gold. Any major wishing to replenish its reserves faces the dilemma of becoming a copper-gold company if it chooses to take over such a deposit, or if it finds one on its own.

One underappreciated area that the exploration market hasn't caught on to yet is Mexico, with some deposits in the million-ounce range that aren't considered exciting. Cook believes that there's a real opportunity for a company, one with a financial orientation, to take over and consolidate the exploration companies in the region and make a new major producer out of them. He mentioned a junior producer, Minefinders, in another context but left it open as to whether that company could be the consolidator.

As far as the senior producers are concerned, Cook said that their earnings came in strong and their multiples are reasonable.


From what I've seen of the little corner of the exploration-junior market I watch, the companies are beginning to have a tough slog. Perhaps that's because I naturally gravitate towards the out-of-favor; perhaps I'm seeing the early stages of what will turn into a slide in exploration juniors as a whole. As a class, they performed extraordinarily well last year. The valuation question, and the slim chance of one spectacular year turning into another, suggests the entire sector will have tough sledding over the course of this year.