Ask The Expert - Frank Giustra - May 2022

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Craig: Well, greetings once again from everybody at Sprott Money News, sprottmoney.com. It is now May of 2022, and it's time for your "Ask the Expert" segment. I'm your host, Craig Hemke. Joining us this month is Frank Giustra. If you've had any connection to mining sector, mining industry over the last couple of decades, you, no doubt, know who Frank Giustra is. He is a mining expert. He is an industry expert, a mining finance expert. He is currently the CEO of the Fiore Group of Companies, but also, even more, important than that, he's an international philanthropist. He is a fantastic new guest for us here at "Ask the Expert," so it's a pleasure to welcome him. Frank, thank you so much for your time.

Frank: Hey, Craig. Great to be on.

Craig: And, of course, before we get started, just the reminder we always give you, this content is produced and put out on the internet by Sprott Money. So, you want to keep Sprott money in mind anytime you're in the market looking for any precious metal or storing your precious metal had quite the month and pull back in price. May not quite be done yet, but, gosh, price is certainly less expensive than they were a month ago. If you're looking to add to your stack, go to sprottmoney.com. Of course, you can call them at (888)-861-0775. Frank, as we get started before I get to the questions that we've collected for you, tell us a little bit about what you're doing lately because I know the international philanthropy part is keeping you busy, but you're also still got your hands in the mining sector.

Frank: Yeah. I can't help myself. It's an old habit, it's hard to kill. Yeah, no... Every five or six years, I started new gold mining company, and I've been doing that the last 20 years. The first one was Wheaton River, which became Goldcorp that we started in 2001 when gold was $2.50 an ounce and nobody cared. And we built a major gold mining company. I think at its height, it had a $50 billion market cap in 2010, I think it was. Then in 2009, I started Endeavor Mining, which was focused on West Africa and we started that from scratch. And over the years, built that into a five-mine company in different countries in West Africa. We exited that in 2016. I think it currently has about an $8 billion market cap.

Then 2016, we started Leagold, which had mines in Mexico and Brazil and we merged that with Ross Beaty Equinox. I'm still a big shareholder of Equinox, and it's probably got a market cap of around $2.5 billion, $3 billion. And then a year and a half ago, we started the fourth one, which I hope is my swan song. I'm getting older. And it's called Aris, A-R-I-S, Aris Gold. And we're gonna build that into a major gold mining company. I've got Neil Woodyer who ran both Endeavor and Leagold as CEO and got Ian Telfer who was the CEO of Goldcorp when we did that. He's chairman and a number of other people on the board, Peter Marrone and David Garofalo, Serafino Iacono. And right now, it's got about a $230 million market cap.

We have two deposits in Columbia, a combined 10 million ounces of gold to our credit, and very good grades. And we'll be moving those towards production over the next year or two. And that will be the beginnings of what we're gonna do. We're gonna create, obviously. Our model and approach was always to buy and build using the capital markets, and that's...we've done that very well. We're very experienced with that. So, we're hoping to build that to a million ounce a year producer over the next... We usually give it three to five years to build these things out. And so, that's the next one I'm working on.

Craig: And the track record is undeniable. And that, you know, whenever we talk about mining companies on my side, it's always jurisdiction and team, you know. And if the team's done it before, it's pretty likely they know how to do it again. And who would say that's true of your team.

Frank: Yeah. Given the business model that we use, which is to buy and build using M&A, it's all about the jockey. The jockey's paramount in this because that's, you know, it's the expertise that you need to make all these things happen because they're not easy. This is not easy work. It's very, very hard. And sometimes it can be very heartbreaking. You get disappointments along the way, but, you know, we always get there in the end.

Craig: Yeah. Yup. And it's funny. Aris Gold is in... You know the symbol off the top of your head, Frank?

Frank: It's A-R-I-S on Toronto.

Craig: There you go. And for all... Everybody go check that one out, that's for sure. All right, Frank. The folks at Sprott Money have been soliciting questions over the internet. I've got, let's see, seven of them. If you're ready, we'll start with number one.

Frank: Let's do it.

Craig: All right. Actually, one has a sister question of number two. And you'll see what I mean by that when we get done with number one. But number one is, what are the key criteria that you're looking for to signal much higher prices for gold ahead?

Frank: Well, yeah. This is an interesting question. And as you know...as I'm sure everybody's seeing, gold is under a bit of pressure right now. What's happening is, and if you look back in history, this is always what happens. When you are in the initial stages of a market meltdown as we are seeing today, there's a rush to cash. And the initial reaction is to liquidate every asset class, go to cash, and it's indiscriminate. So, gold gets pounded with everything else at the beginning. There's also rush to the relative safety of the U.S. dollar and the liquidity of the U.S. dollar. So, that gets the U.S. dollar index going up, which has an inverse relationship with gold. So, you know, that's putting some pressure on. And I think a lot of people still share the belief that the fed will actually raise rates.

And this is where I've been pounding on the table since before the 2008 crisis and definitely, after the 2008 crisis, they cannot raise rates. They've tried, they can talk about it all they like, but they will never pull it off. My guess is they'll get rates up to about 1.5%, 2% and then they will back off again. And you will see, mark my words, you will see quantitative easy again in the near future. And so, once that charade rate is over, I think that's when gold will bounce back. You know, keep in mind that real interest rates are still very deep in negative territory. You know, if you got a 1% interest rate and 8.5% inflation, it's got a long way to go. So, I think inflation's here to stay, which is gonna be good for gold. And I think that once the dust settles after this meltdown, you're gonna see a focus back in the gold sector.

Craig: All right. Then here comes question two, the sister question that I mentioned. What are the signals that would convince you that lower gold prices were coming?

Frank: If the fed actually did what they are talking about doing, which I think is absolutely impossible without imploding the whole global financial system. But if rates started to really move towards say 2.5%, 3%, 3.5%, then I'd be worried. It ain't gonna happen.

Craig: Yeah. And actually, we'll get back to that. There's a later question. We're gonna get back to that topic. So, I wanna dig into that a little bit deeper. But for now, let's move on to question three, which actually is 3A, 3B, and 3C. Now, when I get asked questions like this, Frank, I always forget like, "And what was the third one?" So, don't feel bad if we got to double back. I'm gonna hit you with all three and just let you run with it.

Frank: All right.

Graig: All right. So, this kind of gets more into just your personal journey. From an early age, what factors drove your success? How did you get involved in the mining sector? How'd you choose mining to be such a focus of your life, and who were your primary influences and mentors?

Frank: Okay. Well, what drove my success was poverty. You know, we grew up in a family of very little means. My parents were immigrants, came to this country, and so, we had very, very little money. And so, you know, I started working at the age of 12 first mowing lawns and then catching chickens in the middle of the night, and then throwing hay bales, construction work, worked in a store, worked in a gas station, anything to make money because I didn't like being poor. And so, at the age of 19, I read a book called "Think and Grow Rich" by Napoleon Hill, which I think influenced many, many people throughout the decades. And it just gave me this inspiration, I guess. And I realized that I wanted to be wealthy, I wanted to be successful.

And so, how I got into this business was really interesting. My father and I never got along, he and I were just always butting heads. And I wasn't doing well in school because I didn't care. I just had no interest in school, in high school. And although late at nights I would read an encyclopedia set because I wanted to learn, but I just didn't wanna do it in front of everybody. And so, one day I walked into the breakfast room and he was reading the quote section of the newspaper, and I made the mistake of asking what he was doing. And at first, he wasn't terribly impressed that I asked, but then I said, "No. Really, I'm serious. I wanna know."

And so, he sat me down and started explaining. He was very proud to explain how it all worked because he was working in the mines. He worked throughout all the mines in Canada as a driller and a blaster. So, he knew the, you know, what was going on in the stock market with respect to discoveries, this and that. So, he was a real gambler. He loved to play the junior mining stocks. And so, about a week later, he took me in to see his broker. And I remember walking into this broker's room, I was 19 years old and the ticker tape was on the wall and everybody was on the phone and yelling and screaming, and I knew that I wanted to be a broker. I had no idea what a broker did at that point, but I was convinced I wanted to be a broker.

Craig: And then I guess further, you just focused on the mining because that's kinda where you worked?

Frank: Yeah. Because I started at Merrill Lynch in Vancouver and they put me... Because I was so young and inexperienced, they put me on the Vancouver trading desk at the time because Merrill Lynch didn't have a seat on the stock exchange. So, all the orders for the Vancouver stock exchange in those days, back in the late '70s, from all over the world, from Merrill Lynch's entire networker had to come to our desk. And that's how I got exposed to the whole mining game. And two years later, I was hired away by a very small firm, it was like a two-man operation called York to Securities. I went in there as a junior partner, very junior, and slowly over the years, ended up living in Europe and opening up the London, Zurich, and Paris offices. Came back in 1990. Spent my entire '80s in Europe and came back in the '90s and became president of the firm then eventually, I became chairman and CEO. And we specialize in mining. I created a mining team much like the mining teams that existed in London at the time and then I brought it all back to Canada. And we, you know, during the mining boom in the first half of the '90s up until the Bre-X scandal, we were the go-to firm for junior mining finance.

Craig: All right. Well, let's... I'm gonna go off in a totally different direction. I mentioned in the intro, of course, Sprott Money has a bullion storage program. And this gets a bullion storage, I mean, and especially in the world that we live in, Frank, so, I value your opinion on this one. Question four is, what in your mind is the safest bullion storage jurisdiction?

Frank: Yeah. That's a really good question. And I'm not blowing smoke here, but here's... I get asked often, "How does one invest in gold?" I say, "Well, it depends on your objective." To preserve wealth, you need to own physical gold, okay? Not paper gold but physical gold. But there's always limitations on, you know, how much you can own, and storage, and all those things. If you wanna trade the gold market, trade the ETFs, you know, the GLDs. If you want to make money by the gold mining stocks and if you wanna get rich and take some rest, then buy the junior mining stocks. So, it really does depend on your motivation. But going back to your question, you know, I would never... With the money that I wanted to be used as preservation of wealth, I would not put it in the GLDs because I don't know whether that gold is there or not. I don't know how many times that gold is sold and, you know... I just don't trust it.

I know Sprott has a much safer way of storing gold where you feel more secure that that gold is there. The other one is the ZKBs which trade on the Zurich Stock Exchange which are convertible into gold. You know, it's the Zurich or Cantonal Bank in Zurich, which is... They issue these... They trade on the Zurich Stok Exchange. You can buy them and sell them like you can with the GLDs, but you can also walk in with your certificate and ask for your gold, and it's sitting in the vault in the bank in Zurich. So, I would look at the Sprott, I would look at the ZKBs, or if you have a safe somewhere and you feel like going physical, or coins, or bars, or wafers, or whatever, do that.

Craig: Yeah. Maybe the safest jurisdiction is always your personal safe.

Frank: Yeah. Me too.

Craig: Well, we are already more than halfway done. I promised I would get back to this whole Powell Pivot idea. So, question five. We had a couple of people write in about this. You know, it seems like the gold and silver as we record this are really focused in on this notion is, you know, Bill Dudley has said driving fed funds to 5%. The last time... The fed has done this a couple of times now since the great financial crisis, Frank, because you know, they've kind of spun this yarn that they're gonna run off the balance sheet and put everything back to normal, whatever that is. Last time they tried this in '18, you know, the stock market broke 20% and we got Powell Pivot number one. So, I think there's a long lead-in to the simple question of many analysts expect Powell Pivot number two in the months ahead. Do you agree, and if so, when would we start seeing signs of that?

Frank: Yeah. No, I absolutely agree because as I said earlier, it's mathematically impossible to raise rates substantially. You will implode the entire system. Since the great financial crisis, global debt has doubled to $300 trillion. How are you going to raise government debt? The federal debt in the U.S. is $30 trillion. Using normalized rates, they would implode the whole system. And what gets me is that they know this, they understand this. They know that if you combine household debt with corporate debt and government debt, all the developed countries have about higher than 250% debt to GDP ratio. That's unsustainable. And there's no way you can have normalized rates. Anything above 2% is gonna implode the entire system. My guess is that they will use because they have no tolerance for a recession. So, when a recession hits, and it will hit, they will back off. You know, Wall Street will screen, they'll throw their toys out of the crib and have their tantrum. And you can already see the media campaign starting, you know, warning that, you know, we're gonna go into a recession. And I guarantee you that the fed will back off again because they have no choice. They're in a box. It's an inescapable trap that they created post-2008 and they will never get out of it.

Craig: You know, and the three times they've tried this when the curtain's been pulled back and it's been revealed that they were pulling your leg all along about this stuff, that's when gold and silver really soared.

Frank: Yeah. That's right. And so, once they blink, that's when gold will take off. So, I don't know, you know, there's probably another rate hike coming. My guess at around 1.5%, certainly at 2%, that's when things will really start to crumble and they will back off.

Craig: Do you think the stock market will be the key, Frank? Will they like, if you get down 20%, 25%, 30% in the S&P, will that be an important factor?

Frank: Well, not necessarily if it falls in an orderly way, but, you know, with all the debt out there, Craig, there's an accident that's bound to happen, okay? There's so much leverage out there that you will... There's, you know... And all the crazy speculation that's taking place and, you know, whether it's the tech stocks, the meme stocks, the specs, the cryptocurrencies, NFTs, buying real estate in the meta-universe, all of this stuff is lunacy. It's lunacy. And this is the biggest bubble in history that you're witnessing the air coming out of right now. And I think that there's bound to be an accident in one of those categories somewhere along the line, and that's when the fed will come to arrest you because they cannot afford to employ the entire financial system.

Craig: Yeah. Yeah. Okay. Let's move on to question six. And this really, I think, gets right to the heart of your experience, Frank, and I'm excited to get your answer for it. Since silver prices have not kept up with inflation, whether it's the last decade, you know, the last 20 years, whatever. Will silver mining companies ever be a good investment?

Frank: Yeah. But, you know, listen. And I've been watching the gold and silver prices my entire life. Like I said, I started in the... 1978, I got into this industry. And remember when the Bunk Hunter, Bunk...what his name? Bunker Hunt started the corning that took silver up to $50 an ounce and, you know, and then it all imploded. I've been watching it since then. And silver will always track gold. Okay? So, you're gonna ask me the same question about gold. Silver will always track gold. Sometimes it'll underperform, sometimes it will overperform. But gold will always take the lead because it is the one that is also a currency. So, in my experience, you know, silver has its moment in time. When gold really runs, that's when silver outperforms. But you have to see a real run in gold first. Silver will not take off by itself.

Craig: All right, my friend. And this is the last question. I think this is particularly timely given that, what? Silver had fallen, let's see, 16 days in a row? And now 17 out of 19, it's down $6 in four weeks. Gold is down more than 10%, more than $200 in four weeks. And so, we kind of stand at this crossroads. It's like, "Okay. Looks like this is a dip to buy." So, again, long intro, short question. If I handed you, let's say, U.S. dollars, let's say about 2,000 USD right here in this instant, would you buy yourself an ounce of gold, or would you buy yourself whatever that is, 10 ounces of silver. Or 100 ounces of silver.

Frank: Those are my only two choices?

Craig: Yeah. Gold or silver. Right now.

Frank: Gold or silver. Honestly, right now, I would buy gold because it will lead the charge. You can always rotate in silver later if you're still bullish about your precious metals, but I would put it in gold right now because gold has to lead the charge. And I know there are a lot of silver fans out there, and I get it, but I'm just looking at it from the perspective of my experience over 45 years.

Craig: Yes. And, again, you feel certain that the Powell Pivot is coming, and that'll light a fire under gold and then eventually drag silver with it.

Frank: Oh, absolutely. There's no doubt in my mind that that pivot is coming. And, listen, to all your listeners, and here's the one message I wanna get across because I've been through this so many times, and every time you go through it, you feel like...it feels desperate. It feels like it's over. It feels like it'll never recover. And, of course, it always does. So, don't panic. If you believe in precious metals because you believe what the fed is doing is destroying the Fiat currency, which they are, you have to have your core holding of gold and silver, hang onto that. Don't let go of it. It'll go up and down over time, but the trend will always be up. And there will be a day when you wake up, I believe, and we'll have a reset of the global monetary system. And that's an entirely different story. And when that happens, I think gold is gonna play a very important role.

Craig: Yeah. Yeah. No doubt about that. I agree with you there. Again, we've been speaking with Frank Giustra, our "Ask the Expert" guest here for May of 2022. Again, just a reminder, please keep Sprott Money in mind anytime you're in the market for precious metals. And if anything, if you enjoy this information that Sprott Money puts out month after month, at least give them a like on whichever channel you're listening this or a subscribe so you can get notified every time they put out something new. That will help them. That's how that search engine stuff works. That'll help them broaden the net and get this information distributed as widely as possible. So, give us a like or a subscribe if you can. Frank, thank you so much for your time. It's been fascinating and it's been a pleasure to get a chance to visit with you.

Craig: Hey, Craig. Great meeting you.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening. We'll have another "Ask the Expert" segment next month.