-- Posted Thursday, 17 November 2011 | | Disqus

Thom Calandra, a long-time journalist and mining investor, knows what risks to stomach in search of jaw-dropping returns. Geopolitical risk, for one. Karen Roche of The Gold Report caught up with him at The New Orleans Investment Conference to see what this 30-year veteran of analyzing financial markets took away from the event. In this exclusive interview, Calandra revealed why he'll never invest without setting foot on a project first.

The Gold Report: Thom, you've been able to identify some tenfold-return candidates in Ghana, Colombia, Sierra Leone, Quebec and Ethiopia. What creates a candidate that can give you a 10x return and how does one find these candidates?

Thom Calandra: Karen, I've been a financial journalist for 30 years. I've focused entirely on natural resources for the past 12 years. I'm also a very heavy investor and I do some investor relations on the side. That combination gives me the ability to meet people a retail investor might not. I like to think I know most of the companies out there with interesting projects.

I've always had my favorite jurisdictions, but my one overarching rule is—and I know this is going to sound bizarre—ignore geopolitical risk. I'm not here to determine where the gold, silver, copper or platinum price is going. I'm here to find extremely undervalued prospectors and producers. By ignoring geopolitical risk, for example Colombia in 2007, I was able to get stuff cheap. Same thing with Ghana in 2002.

Ignoring geopolitical risk doesn't mean there won't be a price hit if there is a government change in mining doctrine or a revolution. Tanzania tax talk concerns me right now, for instance. But it does mean you're going to get in a lot cheaper than if you invest in a more mature economy.

TGR: That infers that the primary reason these companies are so undervalued is the geopolitical risk.

TC: Karen, it's absolutely the perception of geopolitical risk. Let's take Colombia. If you told someone you were going to Colombia, they would think you might be coming home in a body bag. The same applies now for Sierra Leone, Cote d'Ivoire or Liberia. Often perception of risk is not reality. The only way to find value in any investment class is to set aside the macro risk, whether it's geopolitical, investment, currency or any other larger factor.

TGR: What other risk factors do you evaluate when investing in junior mining?

TC: The higher the stakes are in commodities, the more likely there will be fraud. Investors need to be on guard when investing in natural resources more so than when investing in a biomedical company, for example.

There are at least seven mining or prospector risks: geopolitical risk, bad luck, geological risk, fraud, broad investment risk, incompetence and the risk of the commodity markets themselves. I will never invest in any natural resources project unless I get to walk it. I learned my lesson with a tiny Mozambique company in the tantalum space; I still own it, but now, after almost running out of money, the shares are a fraction of what I paid. If I walk a project, I like it, I know the people, and I can understand the structural geology, then I will invest. If I can't go see it, I'm not in.

TGR: To what extent do you think there is purposeful fraud in the metals marketplace?

TC: There's an old joke that natural resources, more than any other industry, have a high probability of companies going to zero, yet they keep coming around the racetrack again and again. I constantly come across companies that have been resurrected from the ruins of a silver mine in Colorado, a potash operation in Saskatchewan or a failed uranium operation in South Africa, and now they're a gold company, a molybdenum company or an iron ore company.

Natural resource businesses are so susceptible to being resurrected because the startup costs are far lower. Someone can more or less start up these companies out of a file cabinet and put them on an exchange. I'm most wary of the Over-the-Counter Bulletin Board dirt-bags in the U.S. and the hundreds of companies and millions of dollars of cheap paper that gets created for seed investors everywhere. Still, I do respect the regulations that Australia and Canada have in their markets.

TGR: What have they done differently than the U.S.?

TC: The NI 43-101 process has become much more rigorous in Canada. The various regional exchanges in Canada, even though they're not well coordinated, do a good job of monitoring press releases, websites and the information that's filtered to investors. Regulators in Canada could do a lot more, but they are more aggressive and attentive to the issues that affect natural resource investors. Australia is similar: very proactive on protecting The People. Also, no four-month hold on private placements, so people will back mostly entities that are a long-term hold and not a four-month trade with warrants on the side.

TGR: Since so many companies come back around the track, wouldn't one of the highest potential risks for investing in the sector be management?

TC: Totally. There is a saying that anyone in this business has many faces, and very few people in this business—whether they are geologists, bankers, financiers or mining engineers—have 100% approval from everyone you ask. There are a lot of rivalries and intense competition. Lots of trash talk. There are a handful of investors, bankers, financiers and geologists whom I trust and who are respected by 99.9% of the people whom I vet them against. That's where I start in my due diligence.

TGR: Can you point to those you believe are the real leaders?

TC: Let's take finance. I have great respect for Ari Sussman in Toronto. He's very active in Colombia. He's in his late 30s, but he's all business. He knows more about mining finance than anyone I know his age.

On the staking side, Robert Allen from Grupo de Bullet S.A. has done a terrific job accumulating millions of hectares of properties, mining rights and claims across Colombia since 1981. He has a tremendous amount of integrity. I consider him a friend and a mentor.

Paul Zweng, who has a doctorate in geology from Stanford University, is a savant on the geological side.

TGR: Some people may question your reliability because of an issue you had with the Securities and Exchange Commission (SEC) in 2003 related to your ownership and coverage of companies while with MarketWatch. How would you react to that?

TC: I don't have any excuses about what happened. MarketWatch was on the forefront of many things on the Internet. We created it and we made a lot of money for a lot of investors both in technology and natural resources; but at some point in that cycle, I flew too close to the sun. I paid the price.

I consider it a one-off, and personal circumstances were involved. It is all out there for those interested in the blow-by-blow. I apologize. You can't examine these things without placing them in context. Back then, the commodities markets were flying high, as was Internet publishing, and I was intoxicated by some of the people whom I was covering. That is no excuse for a trained journalist.

I acknowledge my errors from back then. But I might add, my research and my ability to forecast, assess and analyze any position and property have never been questioned. I'm proud that we made a ton of money for a legion of people. I am still making money. A lot of it. My run-in with the SEC made me aware of the conduct required for serving individual investors who desire both high-risk returns and a walking-talking tour guide of the world's nascent metals projects.

TGR: What do you look for on a site visit and how does that influence your investment position?

TC: When I went to see Dr. Amit Tripathi in Colombia's mid-Cauca Belt, I spent at least three hours with him discussing how structural geology affects drilling. It's very important in that area. You really want to keep your drilling expenses as low as you can.

How do companies demonstrate that? It means looking at cross-sections and some information that companies almost never share with investors. As long as I'm comfortable with the structural geology and I get to walk the property extensively, I can start examining other issues, including the quality of management and some of the economic and market issues.

TGR: Your first filter in investing is the project.

TC: That, and it has to be dirt cheap. There are very few things in my world right now that are not below $300 million (M). Some, which I still own, were a great deal smaller when I started my research and visits.There are some companies that I follow that are quite larger these days than when I first started visiting them.

Let's face it. I've always been high risk. With tech in the '90s. Aluminum and S&Ls in the '80s. Far East Internet companies listed in Hong Kong in the early 2000s. DNA and genomic diagnostics down in La Jolla, California. I know sometimes it drives my family crazy, but high-risk tolerance never disappoints long-term investors who buy companies with market caps of $20M–40M and are fortunate and tranquil enough to see them triple, quadruple and even quintuple their market caps over a couple of years.

TGR: Thom, thanks for your time and getting together.

Thom Calandra was the founding editor-in-chief and marquee columnist for CBS MarketWatch.com and FT MarketWatch until 2004. He currently travels the world visiting mines and exploration camps and writing up his findings for free at Stockhouse.com and at BabyBulls.com. Calandra has been a commentator on investing topics for almost 30 years. He was the San Francisco Examiner's daily investing columnist. He has appeared on the CBS Evening News, CBS Radio Network and the CBS MarketWatch Weekend television show. Calandra was a London-based columnist for Bloomberg News and was the first financial editor of USAToday's Internet editions. He co-founded Ticker Trax for Stockhouse.com in Canada. He holds a master's degree in English from the University of Arizona and a bachelor's from City University of New York at Brooklyn College. He is a principal of Torrey Hills Capital in San Diego, California. He lives with his wife and two children in Tiburon, Calif.

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-- Posted Thursday, 17 November 2011 | Digg This Article | Source: GoldSeek.com

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