Once we broke support a few months ago in the metals market, I began pointing to much lower levels b...
Meet Mining Guru Gerardo Del Real
06/15/2016 10:00 am EST
Gerardo Del Real is the mining sector expert behind the just-launched advisory service, Resource Stock Digest Premium. Here, we talk with him about his stock selection process—focused on junior mining stocks—and look at one of his initial stock recommendations.
Steve Halpern: Joining us today is Gerardo Del Real, the newest investment expert at the Outsider Club family of financial newsletters and the editor of the new Resource Stock Digest Premium. How are you doing today, Gerardo?
Gerardo Del Real: I’m wonderful, Steven. Thank you very much for having me on.
Steve Halpern: Well, congratulations on the launch and thank you for joining us. As a research specialist, you’ve been advising institutional investors, high net worth individuals, even millionaires. Can you tell our listeners a little about your background and how you came around to launching the new Resource Stock Digest?
Gerardo Del Real: Absolutely, Steven. If you remember, a little over a decade ago, anybody with a pulse could get a home loan; and so a little over a decade ago I saw that as an opportunity to invest in real estate and build a small portfolio and put away a few pennies.
Luckily I was able to see that the days of using a pulse as collateral were not going to be sustainable. I began looking for a new opportunity to allocate the little capital that I had.
The resource space absolutely fascinated me with its booms and its busts and the risk/reward proposition that the juniors offered really resonated with me.
I learned as much as I could as quick as I could, and then I took what I learned and put it to the test the old fashioned way by investing my own money. I was very, very fortunate.
Early into that process I was able to meet people that were very generous with their knowledge and time, and so despite my best efforts to send the little capital I had to “Money Heaven” as Rick Rule calls it.
I’ve been able to do reasonably well, and largely in part to what I learned very early on from the people who decided to invest their time in teaching me the ropes. That’s the short version of kind of how I got into the resource space and where we started.
Steve Halpern: Now since then you’ve developed a reputation for a very disciplined approach and what you call an exhaustive boot on the ground focus. You also emphasize the importance of experienced management with a proven track record. Could you walk us through some of these factors and explain the steps you take in selecting stock?
Gerardo Del Real: Absolutely, Steven. It’s important for anybody listening to realize that the junior resource space is one of the most exciting spaces to try to invest and speculate in; but it’s also probably one of the riskiest, and time has shown that out many times over, right?
The first thing that I do — the very first thing that I do — is I figure out the story that the company is trying to tell me. I go to their website, I click on their presentation, and I see what the best case scenario is because their corporate presentation is usually the best case scenario, right?
Once I see what the story is, then I start digging. Who are the people running the company? What experience do they have? Have they done what they’re trying to do? I then dig into their share structure; and this one is very important for me.
There are a lot of companies that can find or are lucky enough to find a significant deposit of let’s say gold, a 4 million ounce deposit, a 5 million ounce deposit, and the margins look great and the deposit is in an area that’s supportive of mining.
But the share structure is out of control and there are so many shares outstanding, and the financing becomes so dilutive that although the company continues to grow and the paychecks continue to be collected by the execs running the company, the average you and me shareholder doesn’t see the benefit translate into a higher share price.
Share structures for me are very, very important. How many shares are outstanding? How many warrants and options? When do they expire? Who owns them?
Are the people that are invested in the company long-term strategic shareholders, or are they four month and a day shareholders, as I call them, who get into the financings and as soon as the shares come free they’re selling in the open market.
It’s important to know who’s who and who has what when you plan on investing in a sector as risky as the junior resource space. If all of that seems reasonable, I start looking at the asset or the assets.
Where is it located? What’s the jurisdiction look like? What are the property laws like? What are the tax rates? A lot of this can be found in the company’s manager discussion and analysis, the MD&As, which are filed quarterly.
If you have the time to go through those, I encourage, before you invest or speculate in this space, take 20, 30, 40 minutes and read through that. There’s a lot of really good information in there. It’s important to get it right from the beginning, much like real estate, right? A lot of your money is made by buying right, meaning do your due diligence before not after.
Steve Halpern: You also favor companies with what you call multiple catalysts on the horizon. Can you explain what types of developments you’re most interested in seeing?
Gerardo Del Real: Absolutely, Steven. I think in the environment that we’re in now, one where I see lots of volatility and an environment where a lot of stocks are up double and triple digits. It’s really important that companies I buy have multiple catalysts in the near to midterm.
I don’t buy into a company under the assumption that a higher gold price will take the stock price higher. I need to know that there are catalysts that the company is working toward that can add value.
That can take the form of exploration. That can take the form of acquisitions. That can take the form of one of my favorites, drilling programs, right? The truth machine. There’s nothing like adding value via the drill bit.
It’s exciting and it’s very, very tangible. A pending feasibility study that can demonstrate good margins. All of these are potential catalysts that I look for when I’m considering an investment or speculation in a company. Again, it’s not enough to just count on a higher gold price to take share prices higher.
I think that if you look at the Resource Stock Digest Premium portfolio right now, there are five companies in the portfolio; and it’s not a coincidence that of the five all of them are or will be drilling this summer. I don’t need a higher gold price for those companies to multiply in value. That’s what I mean by catalyst.
It’s very important that companies that are doing good work earn your capital. Do not invest or speculate in companies that simply want to take your money and pay the lease and pay the checks and aren’t doing any consistent considerable work towards adding value in the share price.
Steve Halpern: For our listeners who fully understand the risks as you’ve clearly outlined, can you discuss how these specific stocks currently meet your investing criteria?
Gerardo Del Real: Absolutely. I’ll share one, just out of respect to subscribers I want to make sure we don’t dilute their subscription; but I’ll share one that I think should be on everybody’s radar, and it’s a company by the name of Almaden Minerals (AAU). Almaden Minerals is, in my opinion, probably the next buyout target.
It at least checks all the boxes for what a mid-tier or major company would look for if they were looking to buy a company. Kaminak was bought out recently.
The one thing that Kaminak had is it had great people, it had great management, they were about to embark in a very aggressive drill program that was going to add more value, they had a good share structure, and they had long-term strategic shareholders that supported the company.
Almaden Minerals is a very similar company. It’s run by some of the smartest people in the business. It’s got what I consider a district scale property with a great asset to put a floor beneath it. They have an approximately, I believe it’s 4.3 million gold equivalent ounces already there in a district that’s largely under-explored.
The company, Morgan Poliquin’s done a phenomenal job on a blind discovery of developing that asset; and again, they have a database that gives them about a 23-year head start on anybody in that part of Mexico, in eastern Mexico.
And I think that if I were a mid-tier or a major looking to buy an asset, I wouldn’t want them to begin to drill again looking for more because the likelihood of them finding more somewhere is pretty reasonable.
I think you may see news from Almaden stating that they have exploration plans. I think they released something about a week ago that spoke to that.
Hopefully we’ll have more details on that soon; but I would not be surprised if that’s a company that’s not around for very much longer. Almaden Minerals is a company that checks all the boxes for me.
Steve Halpern: Again, our guest is Gerardo Del Real of the just-launched Resource Stock Digest Premium. Thank you so much for your time today.
Gerardo Del Real: Thank you, Steven, for having me.
By Gerardo Del Real, Expert Analyst at Resource Stock Digest Premium
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