His portfolio was down just 12% in a horrible year

Geologist Brent Cook, editor of Exploration Insights newsletter, has earned a reputation for recognizing which juniors have the best chance of beating the odds and where rocks have the greatest potential for producing profit. In this exclusive interview with The Gold Report, Brent shares some of his insights about which juniors have upside potential in this volatile market. Brent has examined properties in more than 60 countries and learned the investment side of the business from master Rick Rule.

[Editor’s note: For Part I of this interview, please click here]

TGR: Do you have any companies that are both the pure gold plays and also have margins?

BC: I don’t spend a lot of time on the big cap mining companies. There’s too much to really understand to get an edge over the competition. You need an edge in this business and for me that is understanding the fine geologic details that will either show up a fatal flaw or indicate a true discovery. So I stick pretty much to the smaller cap gold companies and, in fact, mostly the exploration-stage companies. Not many people put the time in to figure these early stage companies out.

I was very, very cautious last year and I will be again this year. I think it’s going to be very tough out there. The problem we’ve got is that it’s no longer a market where someone’s going to buy your mistake. You’re going to live with your mistakes. There’s a lot I’m following, a lot of things I look at and keep on my radar screen and watch, but there’s not that many companies I actually buy. Over the whole of last year, we purchased 13 stocks in the portfolio and right now we own 10. Just to plug myself here, I was down 12% on the year.

One company that I have recommended in the newsletter is Sangold Corporation (TSX: V.SGR, Stock Forum). This is a small company in Manitoba. They’ve got a small reserve that doesn’t justify the market cap, and a good resource in the order of 1.2 million ounces. But most importantly from my perspective, a new discovery called the Hinge Zone #4 that is adjacent to the current operations—well, a kilometer away—and readily accessible. And this thing will run probably two to three times the average grade of the mine they’re currently working on. So we’ve got a small mining company that’s moving towards production with a lot of upside in terms of future discoveries. So I like that one.

TGR: If they’re moving towards production, do they have the capital to bring it into production or are they anticipating selling this?

BC: It’s in production right now but not up to speed. They’ve got the capital to improve production —I think they’re targeting 900 to 1,200 tons a day as things get going over the next few years. So it’s a small operation. These are underground veins. You can’t mine that much anyway without a lot more buildup of infrastructure.

The advantage is that they’re permitted, they’re in production, they’ve got a work force, they’re in Canada, and they’ve got fantastic potential to discover new higher grade bodies. If I’m a mid-tier to large producer, this is the sort of property I would want to buy. I think someone will look at this as an acquisition to add on to their current production because it’ll be high margin with lots of exploration upside.

TGR: How about a company like AuEx Ventures Inc. (TSX: T.XAU, Stock Forum)?

BC: That’s a pure exploration company. I visited their project a couple of months ago and, actually, I recommended buying that one subsequent to the visit. These are very, very smart guys with something