Gold Mining Juniors: People, Not Projects

Despite 2,000 junior gold miners digging for gold, only 15-20 have been bought in the last 5 years...

ECONOMIC REBOUND? Not with 22% unemployment. Banking reform legislation? Loaded with pork. Bankrupt nations? Rock-solid, lead-pipe cinch, says the Gold Report.

"We need to start all over," says the inimitable Bob Moriarty of 321gold.com in this Gold Report interview. "And in the end, we will."

Meanwhile, he's keeping an eye out for the few-and-far-between Gold Mining juniors that manage to get things exactly right...

The Gold Report: Just in time for President Obama to meet with the leaders of the G20 nations in Vancouver over the last weekend in June, Congress finalized a sweeping bill to overhaul the banking system. These reforms are touted as the most ambitious rewrite of financials since the Great Depression. What impact will this legislation have on protecting us against another financial meltdown similar to 2008?

Bob Moriarty: Not a person I know, including myself, can actually say one thing of significance about this bill because no one actually understands what it says and what it does. Congress is voting for bills, while they have no clue as to what's in them. Senator Dodd from Connecticut says, "Well, we'll have to see what the effect of the bill will be." Well, I'd like my representatives in Washington to understand the effect of a bill in advance of writing the damn thing. It's going to be another bill totally loaded with pork, totally out of control. Accomplishing nothing.

Actually, what we need is another Glass-Steagall Act. We need to take banks back to being banks instead of casinos underwritten by the United States government and with their losses paid by taxpayers. If they actually reported their assets, you'd see every bank in the US underwater financially.

The biggest of the big banks are doing something called High Frequency Trading. Basically, they are getting data a half second before the rest of the market and they are front-running their own customers. HFT is 70% of the market trading and it's stealing. Congress didn't even address the issue. Because they have been bought and paid for by Wall Street and the biggest of the banks. It's all corrupt and nothing is going to get fixed until we demand an honest monetary system.

Banks are supposed to be conservative. When I go down to the bank and deposit a check, I want to know that money is going to be there a week from now. I don't want those guys flying to Vegas shooting dice with my money. That's what they're doing. We are at a pivot point in world history. The people in Greece understand they're being screwed by government. The Greek government made all these promises they can't possibly keep. People in the US are waking up to the fact that we're $150 trillion in debt and we only have $50 trillion in assets in the US

We need to go back to Economics 101. We need to put people to work doing real things rather than make-work. We need to get government off the backs of taxpayers. We need to declare bankruptcy. We need to reduce the size of government. We need a lot less government and we need to start all over. And in the end, we will. Individuals around the world understand that we are at a turning point in world financial history. Governments don't.

TGR: You mentioned Greece. China came in and bought a bunch of its debt, helping bail them out. The government is also doing some massive restructuring and cutting.

Bob Moriarty: Have you ever seen the guys playing the shell game in New York? Shuffling the three walnuts and there's supposed to be a pea under one of them? This is a shell game. Nobody is addressing the issue; there's more debt in the world than money. It's simple. It cannot be paid. It makes no difference who's on the hook for it. There's not enough money in the world to pay down the debt. Greece is bankrupt. Spain is bankrupt. Italy is bankrupt. Ireland is bankrupt. The UK is bankrupt. The US is bankrupt. Japan is really bankrupt. Those are the issues we need to address – the issues for which governments are giving lip service. They're just as effective at solving this financial disaster as they are the Gulf of Mexico oil spill.

TGR: Is this a house of cards? Where finally one nation declares bankruptcy and others follow suit?

Bob Moriarty: Of course. This is an instant replay of 1931. An Austrian bank went bankrupt and, when it did, it took everybody else down. You can think about it as a circle with say 10 people in it. One guy has $1 million and loans it to the next person. He loans it to the next person. He loans it to the next person, and on and on. The last guy in line is a crack addict who goes out and blows the money. When he defaults, how many people lose a million Dollars?

TGR: Nine others.

Bob Moriarty: Exactly. So we have this incredibly leveraged system that cannot possibly pay the debts down. When Greece or Spain goes, there's going to be a cascading default and everybody is going to go. This is not a "prediction." It's a rock-solid, lead-pipe cinch. There's no other possible alternative.

TGR: Where will the first card fall?

Bob Moriarty: It's really hard to tell. A whole flock of black swans is circling and we aren't exactly certain which one will land first. But who cares who defaults first? They're all going to go in the end. I think 20 states in the US are functionally bankrupt right now and are very near the point they tip over the cliff.

TGR: Some people say we've seen a rebound from the depths of the recession. Others are talking about a double-dip recession. Where do you stand on that?

Bob Moriarty: There was no rebound. You can't have a rebound with 22% unemployment. In my entire life we have never had 22% unemployment. There was the appearance of fewer problems, which was total fiction. We're in a depression.

You have to get to where government revenues equal government spending. Nobody wants to do it, but we'll do it in the end because believe it or not the law of supply and demand does work. Economics 101 does work. Governments fight it tooth and nail, but you have to balance your books sooner or later.

TGR: Are we looking at decades of depressions while we transition from overspending to balanced budgets?

Bob Moriarty: It didn't take very long in Iceland. The government will get very attentive when there are riots in the United States. When people understand their life savings have been destroyed, their pensions are gone and their jobs have all been exported to China, they're going to be furious. Guys like Peter Schiff and Gerald Celente and I have been calling for it for years. When Americans understand how big a mess we've got down in the Gulf and the government isn't doing anything about it, they will be furious.

TGR: The Gulf of Mexico – that's obviously a situation that's nowhere near under control.

Bob Moriarty: That's an understatement. I went through flight training in Pensacola 45 years ago. It had the most beautiful 15-mile-long beach of gorgeous white sand. It's covered with tar balls now. There is nothing you can do about it. It doesn't make any sense to even clean it up, because nobody's done anything about the spill.

TGR: What can be done?

Bob Moriarty: That's where it really gets scary. Probably the best guy I know, the real expert in the business, is Matt Simmons. He says we need to do what the Russians did – go in and nuke it in the hopes that'll seal the wellbore and it will stop leaking. Unfortunately, there's a 40% probability that it won't work; and if we pop off a nuke, we'll have something that goes on for 10 years and we'll be going four feet deep in tar balls in England. This is beyond stupid. This is truly catastrophic.

TGR: Was it stupid? Was it cutting corners? Was it just bound to happen at some point with deepwater drilling?

Bob Moriarty: They were on the edge of the envelope, they were cutting corners and there was greed and stupidity involved. The impotence of government is just laid out for everybody to see.

This is not just environmentally catastrophic. They may have to evacuate New Orleans, Pensacola, Tampa. What happens if they decided to evacuate Tampa? The US would go into a third-world country literally overnight.

We're talking about 100,000 barrels of oil a day. That's 4.2 million gallons. It's serious and it's out of control. The knock-on effect to the economy? If we were in great shape financially this would cause a depression. BP doesn't have the resources to pay for this.

TGR: What about the impact on future drilling?

Bob Moriarty: That's a really interesting question because, obviously, we need more regulation – some effective regulation. We didn't have it. In this situation, everybody involved was guilty. There will be far more rules on offshore drilling in the future and it will drive the cost of energy up.

TGR: That sounds odd coming from you. Normally you're sort of an anarchist and oppose regulations. You're anti-government – you call government impotent, useless and stupid. But in this case, if we'd had better regulations this wouldn't have happened.

Bob Moriarty: If you want to live in a country with no government regulation, move to Zimbabwe. Government regulation is appropriate in some situations. But it has to be efficient. We are at an end of empire. It couldn't possibly be any clearer – we are losing three and a half wars. We want to go nuke Iran, which is not the enemy of anybody, under the theory that they have nuclear weapons when 16 US government agencies agree they don't. It's end of empire.

We are in a state of entropy. Entropy is when something physical degrades into a state of chaos. A tropical depression hitting Grand Cayman could turn into a hurricane in the Gulf of Mexico. We could be raining oil on Louisiana, Mississippi and Florida in a week. We could kill everything – all the crops, all the trees, all the fish in a half a dozen states in a week. If we don't do it this week, we'll do it next week or the week after. Oil, literally, is raining on Florida already.

TGR: Will this be the rallying cry to really usher in an era of alternative energies?

Bob Moriarty: Alternative energies are a 3% solution. We have too many people. Look at the curve of energy production and the curve of the population growth. They're identical. Sooner or later, we're going to run out of cheap energy. In fact, we're there.

TGR: Let's shift to some more solid ground – gold. In our last interview, when you were talking about junior Gold Mining stocks, you said, "The more projects I go to, the more cynical I tend to get. I don't believe for a minute that every scam artist in the world is in Washington or New York City. There are tons of them in Toronto and in Vancouver, too. The basic business model of most juniors is flawed." Can you explain what about it is flawed?

Bob Moriarty: The most common business model is to raise a lot of money, spend it, raise a lot more money, spend it, raise a lot more money and spend it. If you don't run out of people willing to invest, eventually you'll have one million ounces, two million ounces or 50 million ounces of gold, and sell out to a major.

TGR: Doesn't sound so bad...

Bob Moriarty: The problem is that 2,000 juniors believe they're going to do this; there have been maybe 15 or 20 deals in the last five years. Mathematically, the odds are about 100-to-1. If the business model is to develop a resource, raise money to put it into production and put it into production at a profit, that's a business model that works.

But 60% or 70% of these companies exist for the benefit of management. People with no experience whatsoever go in raise a bunch of money and have a good time with it. They have no intention or ability to actually produce anything at a profit. There is so much demand for resources, and the price for resources is so high it's created the illusion that a lot of these guys who have no sense, no cents and no experience in running companies can succeed. They only succeed in running these companies right into the ground.

An ideal environment would be a company that pays its president or CEO say, $100,000 a year with a boatload of options – not a quarter million Dollars a year plus unlimited expense accounts plus a boatload of options, where they make out no matter how much money they destroy for others.

TGR: So when you invest in Gold Mining juniors, you choose from among the 40% that have decent people trying to do something effective.

Bob Moriarty: Here's the deal. The mistake most people make, myself included, is focusing on the projects. It's easy to do, because you can see good ones, so-so ones and bad ones. The most money you'll lose is on the very best projects because you start to believe that nobody could screw up such a great project. But they can and they do.

TGR: So you say investors need to focus more on management.

Bob Moriarty: 100%. That's the only thing I've learned in the last 10 years. You have to go in and ask, "Is there any chance whatsoever that these guys actually will succeed?"

TGR: If your only focus on is management, why fly around to all these sites instead of just hanging out in Vancouver, Toronto and New York?

Bob Moriarty: Because I want to see these people in their environment, and I want to see what they're doing. I want to see if they have any chance of actually accomplishing something. I get to see some really good management teams and some really good projects, too.

TGR: What's your view of Silver Investing vis-à-vis gold as we face a deeper depression, oil rain and the financial devastation you see on the horizon?

Bob Moriarty: Funny you should ask. I know of no other commodity where the experts – and I use the word "experts" in big quotation marks – are so full of crap. They've been touting the stuff for 10 years, talking about some shortage of silver, saying silver is going to go 10 times faster than gold. It's never happened and they've never changed their tune.

Silver is a commodity. It is not money. Gold is money, as well as being a commodity. Silver will go up relative to everything else only when it becomes a monetary metal. My belief, my opinion, is that we will go back to a silver and gold standard. When we do, silver will go up relative to gold. But these guys who say silver will go from 70:1 to 16:1 have always been wrong and always will be wrong. Silver's not going to change relative to gold until something changes in supply and demand. That something is using silver as money.

TGR: Your investments are primarily in gold and platinum?

Bob Moriarty: Pretty much gold. Platinum's a really tough area. Interestingly enough, Del Steiner has a platinum project in Montana, near Stillwater. I would love to see that advanced. Really big potential there.

TGR: In terms of price points, can he develop that project at current platinum prices?

Bob Moriarty: Oh, yeah. $1,500 or $1,600 platinum is a lot of money. $1,230 gold is a lot of money. $19 silver is a lot of money. For all the guys who are running around saying, "Oh it's a catastrophe. It's controlled," those are pretty good prices. Anybody with a silver, platinum or gold deposit who can't make money at these prices is running a scam. I'm serious. If you can't make money at $1,230 gold what are you doing? Wait until it hits $10,000...?

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