TGR: In that core position of 75%, do you have a certain percentage in seniors versus juniors?

DM: I do, but not really in percentages. Very much of the big money goes into the major companies that have huge potential. A lot of times I actually write options against my position, as I'm doing now. I think that we are at an intermediate top. These stocks have gone up substantially. I can rent my stock for about a 17% yield for maybe an eight-month write. And if the market comes back, as I expect it will, somebody has rented my stock from me and the premium comes out of that. I keep the option premium, and I also keep my stock.

I use that option premium as my fun money. I take that money and put it into some of my favorite juniors. But I advocate small money for smaller companies that are highly speculative. You really want to bet money you can afford to lose. In other words, if you put a lot of money in a junior and it's going to ruin your life if it fails, you're doing the wrong thing.

If you want big money, serious money goes into serious companies. Fun money goes into fun companies. That's the way I approach it.

TGR: Mines Management Inc. probably would be characterized as being in the advanced exploration stage. What's the story there? Is that a place for some fun money?

DM: Full disclosure, I own Mines Management. I was the first one to write it up back in the early 2000s. It's a company that I've gone back and forth on. It has a project called the Montanore in northwestern Montana. Historically Montana was notoriously unfavorable to mining, but that's the past. Montana has become much more favorable to mining. I believe that with about 150-plus million ounces of silver and well over a billion pounds of copper that Montanore will become a mine.

They have continued to work on the project, but it's going to take some time. The Environmental Impact Statement public review period just ended. Whether it gets approved on the first round or not doesn't necessarily mean it won't be approved ultimately. The price of silver and capital requirements for development are other factors that may affect the timeline. Although the company has fairly strong cash and line-of-credit balances, they may opt to curtail development activities to conserve cash until conditions improve.

In any event, Mines Management is a rather conservative speculation. It doesn't trade a lot of volume. We basically recommended the stock around the $1 level and recommended taking profits around $8. As the stock came down, I continued to watch it and we reentered around the $2.60 level.

TGR: What do you expect for the final phase or leg of the precious metals market?

DM: I think what we just saw into early June is a pretty good precursor to it, meaning that these metals keep going up in price; they can't go any higher and yet they do continue to move up. In the final leg some of your gurus like me might be saying they've peaked and they continue to go up. At that point, people start getting greedy and think it can continue forever. This is known as a blow-off top but sooner or later the bubble does burst.

It's just like what happens in all markets. It happened in the housing market, it happened during the technology boom. People were buying stocks there that were cheap at the top because they were cheap and these companies had absolutely no merit whatsoever. You'll see the same thing happen in the gold and silver sector, especially with the mining stocks in my view. The problem this time is selling gold or silver (the actual metal) might not be wise this time and I will address my readers at the time on strategies I have already developed to keep them profitable and safe at the same time.

TGR: When silver is frothy and there's some summer slump, many times you'll see a pullback in exploration. Minefinders Corporation and Kootenay Gold Inc., for instance, seem to be relying a lot on exploration. Could they weather a longer-term slump in the silver price?

DM: Well I consider Minefinders well past the exploration phase; in fact, if you understand the "discovery" cycle, Minefinders has a chart pattern that is almost textbook perfect. This is one we got in and out of when the "overvaluation" hit during the initial discovery. Regardless, you have to ask yourself two simple but fundamental questions: 1) How much money do they have in the treasury?; and 2) What is their burn rate? You really have to look at that and find out whether your favorite exploration company can weather another year or so of downtrend. I doubt it's going to take that long, but it may be two years. In any case, at the end of that time, you still want to have a fair amount of cash to proceed onward, because without cash you can't continue a drill program. So you have to ask the right questions.

There are, undoubtedly, some very good exploration companies out there that are out of cash and basically unable to raise any more. The really, really good ones will be cherry-picked by companies that maybe don't have as good a project but do have the cash to buy them up and thus make a better combined company for their shareholders. If I were on the board on any mining company, that would be my recommendation—use cash wisely to strengthen shareholder value.

You have to be very careful, I think. The heyday of easy money in the mining sector is over. You can't just blindly buy any company that has gold or silver in its name and expect to make 500% anymore. You have to be much more careful about where you place your money from here on out.

I do need to give a caveat, though.

TGR: What's that?

DM: When the public rushes into the market, you will see any company that has gold or silver in its name start to move. But it's a very, very short period of time before it peaks—similar to what happened to the technology boom. At the end, the public was buying some really ridiculous companies because they were technology stocks, but not for any other reason.

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