Published March 03, 2017

The First Thing Doug Casey Looks for in a Gold Stock

Justin’s note: Casey Research founder Doug Casey has hit dozens of home runs during his career. His success in the market has made him enough money to last him many lifetimes.

You see, Doug has a proprietary system for finding small stocks with big upside. And he's spent the last four decades perfecting it. He calls this method the Nine Ps of Resource Stock Evaluation.

To better understand Doug’s Nine Ps, I sat down with Louis James, editor of International Speculator. In the interview below, Louis and I discuss “People,” which is by far the most important “P.”

Justin Spittler: Louis, why’s it so important to invest in the right people?

Louis James: Well, without naming names, there are "ethically challenged” people in the resource business. I have had management teams lie to my face. I have been offered “future consideration” in exchange for a write-up. I have been asked many times how much a write-up costs, openly, without shame, making it clear that it’s “normal” for those asking to be able to buy favorable coverage.

So the No. 1 issue with people is making sure we do what we can to avoid falling in with crooks. It’s rarely as bad as in the new movie, Gold, based on the Bre-X scandal, but Bre-X really did happen, and a scam is the ultimate People failure.

But while actual malice is rare, stupidity and incompetence are not. Anyone can pad a resume to look impressive. Many geologists have worked at successful companies—that doesn’t mean they were a positive help to that success and not a hindrance. The best rocks in the world can be ruined by the wrong people. High-grade gold mineralization can be rendered uneconomic (“sterilized”) by the wrong mine plan, or a poorly implemented mine plan. There is no business or market in the world in which it’s safe to assume that everyone in it is a genius. Natural resource extraction is no different.

Justin: What do you look for in a management team?

Louis: I start with direct, relevant experience. A bunch of lawyers and accountants who suddenly want to play with big trucks does not impress me. But it’s more than looking for a geologist to lead exploration, or an engineer to lead construction. A geologist who’s spent their career exploring for big disseminated copper deposits in South America has little experience directly relevant to a high-grade gold vein project. Not only that, but the geology in the Andes is different from, say, the Abitibi region of Ontario and Quebec. I look for People who have succeeded in doing something very similar to what the company in question is looking to do now.

I also meet with management and look for signs of shiftiness, or inability to answer questions any competent person in their field should be able to handle. I also have my team search for past successes and failures on their track records.

And I never, ever, forget anyone who’s lied to me or failed to do what they said they would do. I’m working on my second decade in this business now, and I remember a lot of people I avoid, as well as people who have delivered for shareholders in the past.

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Justin: Speaking of track records, how do you judge past success?

Louis: Well, the company won’t usually have past success, but individuals on the team will. If it’s an exploration company, I want to see that the key people driving the program have made or participated in significant discoveries before (equivalent to a million ounces of gold or more gets my attention). It’s hard to prove how valuable any given person was to any given discovery process, but when a person is involved in several, the pattern supports a positive conclusion. When they’ve never been involved in any significant discoveries, it doesn’t. Same with mine-building; I look for successful mine-builders. Same with production; I look for People who’ve run profitable production companies before.

Justin: Obviously, you’re very plugged in to the resource sector… How can everyday investors “get to know” management teams in the mining business?

Louis: If they even bother to try—going to conferences and meeting with management teams, for example—they will immediately be in the top 20% of investors. If they call companies they are interested in, ask questions, and even ask if they can visit the company’s projects, they’ll be in the top 1%. But even those who can’t travel are not helpless. They can do Google searches on key company people to see if the results have more success stories or lawsuits, etc. In time, relationships can be built (even over the phone) and everyone can start tracking the People who deliver on what they say they’ll do.

Justin: Who are some of the top management teams in the industry right now? Are there any superstars out there we should know about?

Louis: Our Explorers’ League is the simple answer to that question. There are new guys coming along who may be invited to that club of the very few serially successful mine-finders in the world. Anything any of these people do gets my attention right away. Among the more active of these today are Lukas Lundin and Mark O’Dea. Both of those guys have game-changer projects going in some of their companies.

(Editor’s Note: The Explorers’ League is our unofficial Hall of Fame for the world’s top mining professionals. Every member of this exclusive club has repeatedly proved that they can find or develop profitable mineral deposits. They’ve also generated considerable wealth for their investors. According to Louis, these people are as close as you’ll find to a sure thing in the mining world.)

Justin: Thank you for your time, Louis.

Louis: You’re welcome.

Editor’s note: Good people are the first thing to look for in any speculation. But there are eight other Ps that you should evaluate before putting any money into a resource stock. They're all critical to Doug's proven "Casey Method.”

You can see exactly how this method can help you make huge gains in the resource market by watching this new presentation. This video also reveals how to access the nine best resource stocks you can buy right now. Click here to learn more.