Silver Stocks and Rookie Mistakes – Adrian Day

Silver Stocks and Rookie Mistakes – Adrian Day

This is part two of my interview with Adrian Day. This is the guy who runs Peter Schiff’s Euro Pacific gold fund. He’s been in the industry for a very long time and he’s very, very knowledgeable. In part one, we talk mostly about gold stocks. And in this video we talk about how to avoid scams, how to avoid crappy companies, how to start out as a beginner investor in the industry, and also towards the end, we talk about silver stocks. So with all that, let’s get right into it. I had this mining stock company, I’m not going to name the name, but they contacted me wanting to advertise, pay to advertise on the channel. Before saying yes, I looked into them a little bit and their market cap was sub 10 million. The CEO was being paid about a million dollars a year. The CEO was receiving over $400,000 a year as a consultant or, well, to a consultancy company that he owned. Their G&A expense was $6 million a year. They had, if I remember right, 1 million in current assets, 8 million in current liabilities. And they had other red flags as well. This is what we would call in the US a dumpster fire. I wouldn’t touch this thing with a ten foot pole. But they’re advertising all over YouTube. And I know there’s inexperienced investors getting suckered in to buying their shares because they’re advertising. "Hey, look how low our market cap is. And look how many ounces we have in the ground. Look how cheap we’re trading. This is an incredible opportunity!" But after I looked into this company a little bit, I called my dad because he’s interested in mining stocks. I just called him to make sure that he doesn’t own this horrible company. And he asked me, how do we stop these guys? How do we stop them from doing this? And my answer was, don’t give them money. But do you have any advice for the inexperienced investor of what they can look for to make sure they’re not buying companies like that? Yeah, no, it is sad, but I’m honestly not sure what we can do about it. I really don’t want to see more government regulation because if you have government regulating what a company can say, that goes down a slippery slope pretty quickly. We’ve all made mistakes in our time and we all realize a lot of those mistakes were out of naivety. And I guess people just have to realize that things are never quite as simple or as easy as it appears. I mean, it’s pretty obvious, but if a company’s stock price is so cheap, or a company’s dividend is so high, there’s normally a reason for it. And the reason is normally not a good one. People just have to learn. And the truth is, we learn most by our mistakes. You know, I can give advice to people I don’t put too much money into. When you’re starting out, don’t put too much money into each company. So. But I mean, we learn as we go along, and we learn from our errors more than we learn from our successes. Obviously, as you say, it depends if it’s an exploration company or a royalty company or a major miner. But if we’re talking about smaller exploration companies, again, to me, there’s two critical things, people and money. For me, the properties that they have are a distant third, because good people with money will kill a bad property and move on, and they’ll be successful eventually. Bad people, even if they have money, I don’t care how good the property is, they’ll manage to find a way that investors don’t succeed. So, to me, people and money are the two most important things. Money is a little easier to quantify. You’ve got to have, as I said, a Runway, an exploration company. I want to see at least an 18 month Runway. So whatever plans they have, including G&A, whatever plans they have, they can execute those plans comfortably with the money they have. Again, you don’t want to see all the money. You don’t want to see three quarters of the money raised going into G&A. And the example you gave. I mean, I can give, I don’t know the company you’re talking about, but I can give, you know, similar examples where 75% of the money raised simply goes to paying salaries and overhead, and you don’t want to see that, obviously. So the financial end is a little easier than the people end. I think, with people, one thing would be to, if you know people in the business, if you use a broker who’s, who’s in, let’s say you have an account with Sprott resources, where those people know the mining business. Just ask what the person’s reputation is. If you know someone at a mining company, ask what the person’s reputation is. If you go to a mining show, for example, you can always ask people at other booths. You see a Quebec explorer, ask a CEO of another Quebec explorer. And frankly, if a CEO won’t tell you because nobody wants to be going around bad mouthing, go back when the CEO is not there and just talk to, you know, the booth, whoever’s handling the booth. Because they probably know and they’d be more happy to tell you. So just ask around. So the reputation of the person. Frankly, whether they’ve been successful or not, you know, the first question I would always ask is what’s your track, what’s your history in the business? What other companies have you been CEO or COO of? And then just look at what happened to those companies. That’s a pretty good… because the person that’s been successful once and twice will probably be successful the third and fourth time. And the person that’s been a total failure for ten years will probably continue to be a failure. A failure from our point of view, the investor’s point of view. So I think those things are important. I mean, for me, people is critical. I’m in the business full time, of course, but I don’t make significant investments in exploration companies unless I get to know the people and spend time with them. And if they have mining projects, I like to see how that person interacts with the local community. Do they have a good relationship? Do people welcome the CEO coming into the mining camp? I’ve been on mining trips where, you know, the cook of the mining camp will come running out and we’ll hug the CEO and oh, you know, how’s your wife, how’s your children? And he will say, how’s your little girl doing now? Because he knows the people. I’ve been on other mining trips where the guy goes down literally with Gucci shoes and is sort of going like this, stepping over the mud and there’s a sort of silence falls on the camp and this guy can’t tell you the name of anyone there. Well, that’s not a good sign because if you’re in the mining business, particularly the exploration business, you’ve just got to have good relationships with the local people. Now I can’t, you don’t expect everyone who’s going to make an investment in a junior company to go on a mining trip. But you can ask around if you know people. And of course, the obvious advice is don’t take your investment advice from an advertisement, no offense, because you have, you know, that’s how you pay for your channel. But, you know, an advertisement or promo in the mail or whatever should only be a starting point. Sure, sure. So obviously people are really important to you. Who’s the team behind the company is the single most important thing to you. But let’s say that I’m a novice investor and I don’t have an experienced money manager like you. We’ll, we’ll get to what you offer in a little bit here. But I don’t have someone like you to ask, hey, what’s this person’s reputation? And I haven’t been to any mining stock conferences and I’m so new into the business that I don’t know the name Ross Beaty, I don’t know the name Robert Quartermain. I don’t know all these other superstars who have been around with success after success. So I don’t know the difference between somebody who’s really good and somebody who has no experience whatsoever. Do you have any resources, any specific resources that beginner investor could look into to see that person’s history and what they’ve done? Yeah, a little, and unfortunately not as much as you might think. But I’ll come to that in a second after I say, you know, if I would say for people who really don’t know much about the business and recognize because the first rule of life is to know by self you know, know what you know and know what you don’t know, know what you’re good at, know what you’re bad at. But most people don’t have that self knowledge. But if you know that you’re new and you don’t really understand much, then I would say just stick with the major companies. Just stick. I don’t particularly like Newmont, but I mean you’re better off with Newmont than you are with Consolidated Ajax, which is my fictional junior. So stick with the seniors. And I do that when I’m investing in a new area. If I want to buy biotech. Yeah, I mean there’s hundreds of biotech companies promising you 100 to one returns. But I just don’t know enough about that business, that sector. But I’m not going to invest in those companies and I’ll stick with the larger companies, the solid companies that have been around. And I’ll miss out on the ten for one and 100 to one returns. Same in uranium. There’s people I know who are very strong on uranium, but Lobo Tiggre, for example. But I’m not as knowledgeable on all the smaller uranium companies as he is. So I tend to stick with the bigger ones, with the physical uranium, Sprott physical trust, with Cameco, with Denison, with companies like that. And I don’t go very far down the food chain, so that would be the first thing. There’s a newsletter called Exploration Insights which is run by now it’s run by Joe Mazumdar. He took it over from Brent Cook and they have it’s an expensive newsletter. It’s for investors who are serious in the junior sector. I subscribe. It’s good. But they do have a lot of free stuff on their website, articles on how to read press releases that will be a good one for a beginner. Just whatever red flags in a press release to warn you that what you’re being told may not be the whole story, because often it’s not that the people are lying, it’s just that they’re not telling you the whole story. Right. And that’s important. So they have a lot of good articles on their website. Yeah. It’s. There just simply aren’t that many good resources, frankly. I wrote a book. Oh, my gosh. It’s been. Oh, my gosh, it is exactly ten years now. It’s called investing in resources. And the first half of the book had a lot of the more, you know, long term, fundamental way of looking at and analyzing different resources. The second half of the book is just so totally out of date, it’s not worth reading. But the first half of the book is still, I think, you know, there’s a lot of good advice in there, but, yeah, there just aren’t that many, you know, good… There’s no one book I can recommend. There’s some books on how to buy gold, but, you know, they tend to talk about whether it’s better to buy gold coins or gold bars and, you know, that kind of stuff. The other thing I should mention. Yeah. My friend and fellow Puerto Rican Lobo Tiggre, he has a free newsletter that comes out once a week. I think it’s Saturdays. I mean, the newsletter is expensive, but he has a free Saturday service. You know, the beginner should definitely sign up for, and over a few months, you’ll begin to get a lot of good advice and good information. He’s not going to tell you specific stocks to buy or specific stocks to keep away from in that free service, but he will give you a lot of advice. Okay, well, thank you for those resources. And by the way, earlier you mentioned, no disrespect to your channel, That’s partially how you make your living with your channel. Well, like I do, but I don’t. Because, like with that particular company, after I looked into them, I told. I politely told them to pound sand, and there’s no way I’m letting you advertise to my audience. Well, I appreciate you doing that because there’s too many people in this business, frankly, who will turn a blind eye and say, "hey, it’s not my, you know,…" conferences that will just accept anyone as an exhibitor if they pay a check. And I think that’s a huge mistake because to some extent or another, your reputation gets reflected onto everybody who advertises. If you’re a conference organizer, your reputation gets reflected onto everyone that’s exhibiting and vice versa. Yeah, for sure. Kudos. I have a hard time finding a silver company that trades at a good value, a value that I’m willing to pay. And I feel like the silver companies get a premium just because they have silver in their name. Do you agree and do you think they deserve that valuation? I cant justify paying it in most cases. Well youre right. Silver companies. Lets just say silver companies for now. Silver companies do have a premium, theres no question. And you have to go all the way back to the fundamentals of the silver market. Everybody focuses on the fact that they have industrial demand and the demand is different from it was and so on. But the other side of the equation is the supply. You go back 40 years and something like 80% of world silver production was primary silver production. Today something like 75% of silver is byproduct and some of it is byproduct… And this has implications. Some of it is byproducts of gold mines of course, but most of it is by product of zinc mines, lead mines and other base metal mines. The reason that’s important is because it means that silver production is not responsive to changes in the silver price in the way that say gold production is. We all know that it takes time to slow down production or build up production, but if the gold price collapses to $400 people will put expansions on hold and exploration budgets will go down and everything else. But that doesn’t happen with silver because it’s all by product. The zinc producer in Peru is not going to cut his zinc production because the price of silver goes down and conversely he’s not going to increase his production of zinc because the price of silver goes up. Silver tends to be very, very, very leveraged as we know. Now The problem with all of this, the problem with 80 75% of silver production being by product, is it means that there are very few pure silver mines. There’s some in Mexico, most of the ones in the Coeur d’Alene region and Idaho, you know, they’re either too small or they’ve closed down. Mexico has a lot of pure ones, Bolivia has some pure ones. Russia has some good silver mines, but there’s not an awful lot of them. And that also translates to the companies. So you look at Fortuna Silver or Pan American Silver or Hecla silver, and they get, in varying degrees, a minority of their revenue is from silver. As low as 20% in some cases, as you know. So they’re not silver companies at all. But because they have silver in their name, they tend to still respond when the price of silver goes up. I don’t know if this is laziness on the part of investors or brokers. I mean, I suspect it’s just a matter of, you know, I’m buying pan american silver and Fortuna silver because when silver goes up, they’ll go up, you know, and I know they’re not silver, but when silver goes up, they’ll go up. So I’m buying them. I think also, you know, the other thing is, person who’s not very knowledgeable on this sector, if he has a broker, he calls a broker and says, I’m going to buy some silver stocks. And the broker just pulls out from his memory bank will buy Hecla and Pan American thinking they’re silver companies. So yeah, I know it’s a real problem. So do they deserve… So they certainly don’t deserve a silver premium. Although as I said, when the silver price moves, people will go to those stocks with silver in their name. There’s no question about it. And that’s going to carry on for the foreseeable future. I don’t see that changing. Pan American, of course, if, when Escobal comes on, that will double their silver production. So I think that will make them a little bit more of a legitimate silver company. You did see what happened with Fortuna silver when they bought Roxgold, which is all gold, as well as West Africa. But it’s all gold. The stock got significant pushback from investors on that. So I mean, I think people are paying attention. But in answer to your question, do they deserve a premium, a silver premium? The answer would be no. That’s not to say I don’t like Pan American and I don’t like Fortuna. I don’t want to give that impression. But they don’t necessarily deserve. Well, they don’t deserve a silver premium. Sure. My personal favorite silver company doesn’t even have silver in the name. It’s Wheaton Precious Metals. And they’re way more silver than Fortuna or Pan American. It’s funny you say that. Because I was just going to say that, but I thought I’d rambled on long enough. Yeah, Wheaton. Wheaton of the major companies. Other than, say, Fresnillo, which obviously is silver, of the major mining companies. Yeah, that’s the one with the largest percentage of silver. I do like silvercrest, not exceptionally cheap but solid balance sheet, good management and it is silver. So it is appropriate that that responds to higher silver prices. But I get a lot of silver exposure frankly through other companies. Orogen I mentioned earlier. So Orogen’s only producing royalty at the moment is Ermitaño, that is silver. So it’s legitimate when the price of silver goes up that the price of Orogen responds to some degree because theyre getting revenue from silver. This has all been about precious metals. But I know you invest in a lot more than precious metals. Is there anything outside the precious metal space that is appealing to you today? Its a good question and frankly we all know whats happened to global markets over the last five years and most things frankly are just terribly overvalued right now. Yeah I’m not finding a lot of value. I’m buying. So I’m buying a few areas. One will be really solid global blue chips like Nestle that are not super, super cheap but nor are they expensive. And they’re just rock solid companies that have consistent growth. So Nestle for example over 50 years has increased its revenue every single year and has increased its dividend every year except two when it kept it stable. So good long term track record and obviously very diversified and strong balance sheet. So that’s number one. But they’re few and far between because most of those companies are very overvalued. We’re looking opportunistically at various markets that are undervalued on a historic basis. There’s two that seem attractive to me right now. One is the UK market. And even though the UK market is actually at an all time high in british pounds, if you price it in us dollars, it’s down 50% from 2011, so it’s down meaningfully. And those obviously some good quality companies in Britain, it’s obviously well regulated. It’s a well regulated market, but they tend to, you get a lot of companies that pay decent dividends in Britain. So these are not quick short term trades, but I think you can find, you know, good, good companies. And then the third place, the other place we’re looking at is Hong Kong and Singapore. Hong Kong, there’s some incredibly cheap companies there. But of course with Hong Kong we have the big risk of China, whether the US is going to increase sanctions and I mean ultimately, ultimately, is China going to invade Taiwan? And that would hurt all the stocks. But some of the stocks there are incredibly undervalued. Some of the Singapore companies that don’t have the same risk are also pretty cheap. So that’s the second thing. And then the third thing. I like some of the high income stocks in the US. Excuse me. So there’s a company called Ares Capital, for example. It’s a business development company. Business development companies lend money to small and medium sized businesses, typically private companies. Sometimes they get equity kickers, but the main business is lending money to these people. And a company like Ares, for example, despite the fact that it’s the largest of the BDCs, despite the fact that the stock price has gone up a lot, the current yield is still almost 10%, 9.7%. They have high yields because they don’t pay tax at the corporate level. Like a REIT. It flows through to the shareholders who pay tax on the dividends, but there’s no tax at the corporate level. So you’re getting a 9% dividend yield, which is fully covered by net investment income, which is the metric the BDCs use, it’s fully covered. And in fact, in the case of Ares, they have three quarters worth of dividends in reserves. So they’re always three quarters behind in distributing the dividends, which means there’s a cushion if there’s a temporary downturn. So, in COVID, for example, when a lot of companies, small companies, small businesses, were unable to service the debt, they didn’t have to cut the dividend because they had the cushion. So, you know, I think that’s… And there’s several of those (business development companies), but I think are solid companies for people looking for… Looking for income, but knowing that the stock prices tend to be volatile. So Ares, for example, has gone from 14 to 20, to 16, to 21, to 18, to 22 to 18 to 20 over the last two years. They’re very volatile, but as long as you like the dividend you’re getting and they keep on paying the dividend, I don’t care too much about the volatility. Okay, excellent. That gives me a lot of places to start looking and start doing some research. Earlier, I mentioned your asset management service, and also I’ve been a loyal paid subscriber to your newsletter for a few years, and I’ve been very happy with that. Why don’t you tell people about how they can contact you, how they can find you, and what services you offer. The best place to look is adrianday.com, the website. And then you can swipe left, bit like Tinder right, swipe left for the newsletter and swipe right for the money management. They’re two separate services. The money management obviously is personalized. So we offer a very personalized service. We don’t manage to a model, but we personalize the accounts depending on people, whether people want income, whether they’re concerned about tax losses, you know, et cetera, et cetera. And then the newsletter, which is obviously not personalized. Yeah, and we’ve got a lot of videos, a lot of articles up there people look at. I’m surprised you know the Tinder reference. The dating scene must be pretty good in Puerto Rico. No, (laughs) I’m way past that. All right, well, thanks for joining me today, Adrian. I really appreciate it. It’s been very informative and hope we can do it again soon. Yeah, thank you very much, Jordan. But come down and visit. Adrian mentioned that novice investors often have to make a lot of mistakes before they can end up being a successful investor in this industry. And that was definitely true for me. I started investing in this industry a little after high school, and I’ve been doing it for about 17 years. But my first ten years, it was mostly me losing, mostly me making a lot of mistakes. I’ve made a lot of mistakes along the way. I’ve learned a lot of lessons. And the truth is that that has made me a better investor today. Now, that’s one of the reasons why I started this channel, because I thought that I had a lot of knowledge that I could share with people. And that’s also why I started my newsletter. For $9.95 a month, you can get my 200 hours a month of mining stock research. This is all I do. I basically don’t have a life. I research mining stocks all day long, every day.

Want to start investing in mining stocks but worried about scams and bad companies? Watch my interview with experienced investor Adrian Day.
My newsletter: https://miningstockmonkey.com/products/vip

In this video, we discuss:
– How to identify red flags in mining companies
– The importance of management teams and financials for success
– Tips for beginners investing in mining stocks
– Silver stocks: are they worth a premium?
– Adrian’s insights on investing beyond precious metals

Learn from Adrian’s decades of experience and start your mining stock investment journey with confidence!

0:00 – Intro
0:28 – How to avoid bad companies
2:33 – If it’s too good to be true…
3:16 – The two most important thing for junior miners
4:25 – How to know if the people are good
6:12 – What to look for in a site visit
7:23 – Resources for a novice mining stock investor
12:11 – What I told a company that wanted to advertise
13:08 – Do silver companies deserve a premium valuation?
17:36 – My favorite silver company
18:36 – Good investments outside of precious metals
19:45 – Why the UK market is a good place to look
20:30 – Hong Kong and Singapore
20:58 – Big US dividend stocks
22:57 – Adrian’s Services
23:46 – Puerto Rico dating scene
24:08 – My Newsletter

Never make any investment decisions based on my videos. This sector is very risky and this should not be considered investment advice. Always do a lot of your own research before investing your hard earned money.

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