Don Durrett, investor specialized in gold mining, has kindly answered our few questions. As a reminder, Don has more than 20 years of experience in the field and is the author of the book : How to Invest in Gold and Silver.[Read the interview in French]
Don Durrett, can you introduce yourself in a few words?
I have been investing in gold and silver mining stocks for about 15 years. I consider myself an expert at analyzing mining stocks. I have 800 gold and silver mining stocks in my database on GoldStockData.com and have analyzed all of them (most of them annually since 2012).
I started my website to provide gold and silver mining investors access to a database that included all of the miners. I wanted the database to be searchable so that they could easily find for example all of the silver producers or all of the gold mid-tier producers. I have succeeded in creating a searchable database that is extremely flexible.
You have written the only existing book on gold mining analysis, do you have any other projects?
I wrote this book because when I started investing in juniors in 2004, I could not find a book that explained how. I waited until I had enough knowledge and then wrote my own. My book is basically a textbook that shows you how to invest in mining stocks. There really isn’t anything quite like it that I am aware of.
You are known as very bullish on gold. You even made forecasts at $ 2500 an ounce. Do you really think gold could reach $ 2,500 in the next few years?
Yes, I think it is inevitable. It’s really the only reason I am an investor in gold and silver miners. If you invest in the miners without an expectation of much higher gold prices, then it doesn’t make a lot of sense because of the high risk. I consider this a once in a lifetime trade. You get in and wait for the break out in gold and then get out. I expect that break out to reach at least $2,500.
All you need to do is look at what is occurring in the U.S. with regards to their debt accumulation. The U.S. is the largest economy, with almost 20% of global GDP, yet it is has been living off of debt. We are adding nearly $1 trillion in debt every year. Plus, without manipulation by the Federal Reserve Bank of interest rates and electronic money printing, the economy would not be growing.
Anyone who has enough economic sense should realize that the U.S. economy is a train wreck in the making and gold will be one of the largest beneficiaries. Once the U.S. debt bubble pops, I would expect to see at least $2,500 gold. This is why that is the number I use to value gold miners.
Can you tell us in summary what to pay attention to when buying gold mining stocks? What are the most important points?
I would avoid exploration stocks because the risk/reward is not very good. All you are going to end up doing is chase momentum and chase drill resuts.
I would be very careful on development stocks, because it is very difficult to build a mine and quite often they get bought out by a larger company before production.
I would focus on quality producers and near-term producers. I can’t tell you everything to look for in a short article, but I’ll mention a few things.
What is a quality producer?
- Good management team with a history of good execution and being investor friendly.
- Good projects. This means long-life mines that are economic at $1,200 to $1,300 per oz. or less. Located in countries that do not add excess risk.
- Good balance sheet. Not too much debt.
- Good share structure. Not too much dilution.
- Good buzz. This means that investors like the stock and the company has a good reputation.
The gold/silver ratio exceeds 90. Do you think it could reach 100? Is silver more interesting to buy than gold right now?
No, I don’t think we will see 100. I think it is just about maxed. Yes, silver and the silver miners are very attractive because of this high GSR. I have been accumulating physical silver this year because silver is both cheap (sub $15 per oz.) and the GSR is very high. Silver seems like a no-brainer at these levels. It might be the best risk/reward investment at this time.
European investors no longer have access to the SIL tracker. Are there any silver mines that you find particularly interesting at the moment?
Most of the silver miners have been buying gold mines because they have less risk and are easier to make money. For this reason, there are very few silvers miners left. Here are some that I like :
- Pan American Silver
- First Majestic Silver
- Fortuna Silver
- Endeavour Silver
- Silvercorp Metals
- Mag Silver
- Great Panther Silver
You are an investment specialist in “mid-tier” gold companies. Do you have a top 5 based on risk/reward ?
I invest in explorers, developers, and producers. My investment strategy is to use a pyramid approach, with the bottom of the pyramid with less risk and the top of the pyramid with more risk.
I like to load up on producers because I think they have the best risk-reward. In hindsight, I wish I would have focused more on producers and less on the explorers and developers. Most of my gains have come through companies obtaining increased cash flow and I think that will continue.
Here are 5 gold mid-tiers that I like at the moment:
- McEwen Mining
- Argonaut Gold
- Coeur Mining
- Leagold Mining
- Guyana Goldfields
Thanks to Don Durrett for the interview !
Fondateur du blog, Nathanaël Dumortier est aussi investisseur de moyen/long terme en actions et trackers. Il se base surtout sur l’analyse fondamentale pour faire ses achats. Suivez-le sur :