Buy, Sell or Hold - Andina Minerals (ADM:TSXV)

Andina Minerals (ADM:TSXV)



Investment Update

Andina has commenced a 50,000 metre drill program, of which 32,000 metres will be concentrated on increasing the measured, inferred and indicated resource base at Dorado.

Dorado is part of Andina’s 100% owned Volcan Gold Project (in Chile), whose resources currently stand at, “62 million tones grading 0.99 g/t gold for 1.98 million ounces of gold in the indicated category, and 46 million tonnes gtrading 1.0 g/t gold for 1.46 million ounces of gold in the inferred category” according to a research note put out by Haywood Securities on September 27 and authored by analysts Andrew Kaip and Nicholas Coutoulakis.

Kaip expects a resource update in the fourth quarter of 2007 that would ‘demonstrate resource growth to the 4.5 million ounce range.’

The remaining 18,000 metres of the drill program have been focussed towards the Ojo de Agua area of the Volcan Gold Project. This area has ‘confirmed the presence of a significant zone of gold mineralization, the Andrea Zone, over a strike length in excess of 500 metres. Drill results include 82 metres grading 0.73 grams per tonne gold (“g/t Au”) from DODA-685 including a 26 metre interval grading 1.51 g/t Au (according to a news release from the company dated July 10, 2007).’

Upcoming Catalysts: Drill results from Dorado and Ojo de Agua and a resource update at Dorado in Q4/07.



According to a research note put out on September 27/07, Kaip has slapped a sector outperform rating on Andina Minerals with a C$5.20 target.

If you like this post, please take a moment to Stumble or Digg it using the appropriate links at the bottom of this post!

Conversation With Lyle A. Stein,CFA – Founder of Red Barn Capital

A Short Conversation With Lyle A. Stein,CFA – Founder of Red Barn Capital



Lyle has been in the investment business for over 23 years.

Prior to founding Red Barn Capital Inc. in 2002, Lyle was a Managing Director at Sceptre Investment Counsel Ltd. where he held various investment management and executive positions over the ten-year period 1992 – 2001. As a Canadian equity portfolio manager, he developed broad industry expertise in areas such as mining, chemicals, transportation, technology, utilities, communications and conglomerates.

From 1993 to 2001, Lyle was the lead manager of the Sceptre Balanced Growth Fund, which in 1996 and in 1997 was voted Canada’s #1 Balanced Mutual Fund.

From 1988 to 1992, Lyle was Portfolio Strategist at Nesbitt Thomson Inc., responsible for selecting the investment firm’s Top 15 stocks, as well as Nesbitt’s recommended asset mix, sector strategy and overall market outlook.

In 1991 and 1992, Brendan Woods International ranked Lyle as Canada’s #1 Portfolio Strategist in a survey of buy-side managers
-------------------------------------------------------------------------------------
Q) Mr. Stein, with gold remaining steady above the $700/oz price what are your thoughts on gold and gold stocks moving forward? Also, where are you currently finding the most value among gold stocks – large cap producers, mid cap producers, small cap producers or explorers?

A) I hate predicting the gold price, but as long as the US Dollar is going down, gold is going higher. I believe it will go to $1,000 over the next 3-4 years. Wheat is $8, Oil is $80, why not gold at $800. I like the liquidity of big cap names because if gold goes up and liquidity chases stocks then big caps go up. An old investment adage – when a strong wind blows, even a turkey flies – applies here. If gold goes to $1000 and Barrick only doubles while a smaller stock trebles, do I really care? I like the explorers for their leverage; buy cheap ounces using an oz/share metric.

Q) I was wondering if you could please summarize in a few sentences, your current views on base metal stocks and the outlook for them moving forward.

A) Base metal stocks are ok. The companies are great, but the stocks may be a bit ahead of themselves. With Falconbridge (FL), Inco (N) and Alcan (AL) being taken over, there is a premium being paid for the intermediates based on takeovers. I don’t find that to be in gold stocks, so I like them better today.

Q) What are your current views regarding crude oil markets (which have been hitting new highs recently) and natural gas (which has been groveling in the doldrums of late)?

A) There is a huge disparity with oil vs. gas. The traditional 6x multiple between oil and gas prices is more like 11-12x. Oil is risky and is given a high war premium. Gas is a great long term investment, but take your time investing here as the near term looks dicey.

Q) If possible can you please highlight your outlook for equity markets in Canada and the Canadian Dollar moving forward?

A) Don’t forecast the market; I have enough trouble picking stocks that I think I know something about. Generally, my market view is bearish. Predicitng the movments of the Canadian Dollar is a mugs game. It will go counter to the US Dollar and with oil. The US Dollar is going down and oil is tough to call. Bias would then be for a higher Canadian Dollar. Getting a trend right here is much more important than the level.

Thank You Mr. Stein!

If you like this post, please take a moment to Stumble or Digg it using the appropriate links at the bottom of this post!

Conversation with Ronald Parratt, President and CEO of AuEx Ventures (XAU:TSXV)

A short conversation with Ronald L. Parratt, President and CEO of AuEx Ventures (XAU:TSXV)

Mr. Parratt has over 29 years of diverse exploration experience including all facets of precious metals exploration from reconnaissance to intensive development. He has Managed the discovery and development of the Rabbit Creek, Lone Tree and Trenton Canyon gold deposits and participated, via joint venture, in the discovery and development of the Marigold, North Peak, Cipoeira and Gold Hill gold deposits as well as the Trinity silver deposit. He has also managed the development of resource to reserve at the Twin Creeks, Mule Canyon, Valmy and Mesquite gold deposits. Cumulatively, these activities resulted in the creation of over 15 mm ounces of gold reserves within a 12-year period and North America's fifth largest gold mining company, which produced over 850,000 oz of gold during 1996.
Additionally, Mr. Parratt managed the consolidation of Gold Fields Mining Corp's US exploration staff with Santa Fe's US exploration staff after completion of the Hansen PLC/Santa Fe Asset Exchange in 1993. He was also a member of the Executive Due Diligence team that evaluated the Homestake Mining Co. and Newmont Gold Co. offers to acquire Santa Fe via merger in late 1996 and early 1997.

Mr. Parratt, with gold remaining steady above the $700/oz price what are your thoughts on gold and gold stocks moving forward?

I expect the price of gold to rise higher and to exceed the peak price reached in 1980. When this will occur is difficult to say but I think within the next 12 months -maybe the next 6 months. Gold stocks should appreciate as well.

I was wondering if you could please summarize in a few sentences, your views on the effects that rapid capital cost escalations and the rising Canadian Dollar are having on earnings and profits of gold producing companies.

Costs to develop and operate mines are increasing. This means higher costs per ounce for gold and smaller margins than one might think given higher gold prices. This may provide a higher floor price for gold going forward.

If you could only buy and hold 1 gold stock (other than AuEx) for the next 12 months which one would it be and why?

I would pick a low cost, mid-tier producer which stands to have the greatest earnings margin. Not Newmont or Barrick but maybe Goldcorp or Meridian?

Lastly, if possible can you please highlight one sector among resource stocks (eg. it can aluminum stocks, nickel stocks, steel, gold, silver etc.) that you believe to be overbought and due for a correction and one sector that you believe to be oversold and due for a bounce and why.

I think maybe copper/molybdenum stocks maybe overbought. Significant new production is likely for these metals. I think gold stocks are oversold. There are no new large gold mines coming on-stream shortly.

Thank you Mr. Parratt!

If you like this post, please take a moment to Stumble or Digg it using the appropriate links at the bottom of this post!

Conversation with Robert Quartermain of Silver Standard Resources

A short conversation with Robert A. Quartermain of Silver Standard Resources

Robert A. Quartermain has been the President and a director of Silver Standard Resources (SSO:TSX, SSRI: Nasdaq) since 1985 (when its market capitalization was only C$1.5 million), and is responsible for strategic planning, acquisitions, and the raising of capital to fund operations. From 1976 to 1982, he worked for the Geological Survey of Canada and in private industry on mapping and exploration programs. Mr. Quartermain also worked for Teck Corp. before becoming president of Silver Standard Resources Inc. in 1985. Since 1985, Mr. Quartermain has been involved as a director and/or officer of a number of public resource companies including currently Vista Gold Corp. and Canplats Resources Corp. He is also President of The Silver Institute. Mr. Quartermain graduated in 1977 from the University of New Brunswick with a Bachelor of Science degree in geology, and from Queen's University in 1981 with a Master of Science degree in mineral exploration.

What is your outlook on silver?

In regards to my outlook on silver I think it continues to remain good. Key drivers in the silver market are its uses in electrical and industrial applications. For the first time ever last year, more than 50% of silver consumption on a global basis was in electronics and industrial applications which meant that there was less consumption in its more conventional uses such as silverware, jewellery and photography. One of the driving forces of that is the use of silver as a catalyst and as a result of having this quality, it is used in the oil & gas industry, it is used to produce plastics and also in many high temperature applications. As well, if you apply a current to silver it doesn’t spark and as a result of this it is used in a lot of small electrical connections such as those used in palm pilots and things of that nature where the solder incorporates silver. As a matter of fact in July of 2007, the European Union banned the use of lead in solders and some of the potential replacement that’s being used (that we are seeing from anecdotal information) would be silver in solders. Solders of course are used in light switches that you use in homes and so we are starting to see a bit of an uptake in silver demand in those applications. Silver is also used in photovoltaic cells, in solar panels and a wide variety of everyday uses such as cell phones and computers. So I think that as we see the growing economies in both China and India and the movement there towards consumer goods, particularly cell phones and other communication devices then we should continue to see consumption growth in electrical and consumer applications of silver so the outlook for the commodity remains bullish.

What is you outlook for silver stocks?

Regarding silver stocks, they are somewhat dependant on the market. Till date the price of silver has gone from $5/oz level 3 to 4 years ago to its current $13/oz level.

Stocks which are focused on silver such as ours and our peer group have enjoyed an increasing share price because of the leverage we have to the commodity from our project base. Investors should also keep in mind that market fluctuations may sometimes override movements in the stock relative to silver price. We are currently coming into the season where physical demand picks up particularly in India due to their wedding as well as religious festival that occur in the fall and this often results in increased seasonal consumption of silver. India in the past has been a fairly large consumer of silver both from a jewellery point of view as well as an in investment.

Later in October there is a conference organized by the silver institute in China which I’ll be attending and one thing that the conference focuses on is Chinese consumption of silver. Over the last few years the amount of consumption of silver jewellery in China hasn’t been comparable to that of India, so if we start to see that kind of consumption pick up in China, it will result in an incremental increase in demand and that will certainly be reflected in price of the commodity and then onto silver share prices.

If you could look into the future 5 years from now, where do you see Silver Standard Resources?

If I could look into the future 5 years from now we probably wouldn’t be having this conversation.

Thank you Mr. Quartermain!

Don Coxe Basic Points September 2007

Don Coxe Basic Points September 2007

For the Mr. Coxe's weekly Institutional and Client Call Click Here

The call is about why investors should invest in Gold !

To download Mr. Don Coxe's September 2007 Edition of Basic Points click here

Short Conversation with Dr. Keith Barron

A Short Conversation with Dr. Keith Barron

Dr. Keith Barron is co-founder and director of Aurelian Resources Inc. (TSX: ARU), founder and director of U3O8 Corp. (TSX-V: UWE) and director of Kimber Resources Inc. (TSX: KBR). He is proprietor of the website http://www.straighttalkonmining.com

These are his thoughts on Gold & Uranium:

I am extremely bullish about both Gold and Uranium; so much so that the new venture I am currently working on will be a company with a unique gold and uranium exploration asset.

Gold: You would have to be living in Bin Laden’s cave for the last half decade to not see the present US dollar decline and gold bull run coming. Remember those relentless TV ads with the fat guy who kept losing his home loan applicants to the competition? Any thinking person could see the unsustainability of a vertically-trending housing market fuelled by debt, and the inescapable pain to come when the housing market ceased levitating. Now that the music has stopped, the politicians have tried to downplay the extent of the damage, but unlike the demise of Long Term Capital Management in 1998, which was a one-time event, the sub-prime debacle will continue to hurt for months and years to come as mortgage resets ignite defaults and foreclosures. Ben Bernanke and the US Fed have already stepped in and temporarily bailed out financial institutions with “sub-prime” exposure, and longer-term this will continue through relaxed interest rates, and other inflationary measures. A recession would be therapeutic to the economic system, but if allowed, the Republican Party would self-immolate in the next election. Disaster will be staved off by injection of huge seas of liquidity. All of this is the “Perfect Storm” for the US Dollar and the “Perfect Bullish Scenario” for gold – the ultimate safe-haven currency. I can see gold far surpassing the highs of ’79-’80, especially as Asian holders of US-denominated debt jettison the greenback for gold.

Uranium: Last week John Howard, Prime Minister of Australia, signed agreements with President Putin to supply Russia with uranium. Australia now has agreements to sell uranium to Russia, India, and China as well as many western nations. This is quite significant because at various times these three new client countries have claimed self-sufficiency in uranium. Apparently that’s not the case, or, these countries see a supply crunch coming. They all have aggressive plans for new nuclear build.
For many years much reactor supply has come from decommissioned warheads; the nuclear equivalent of turning Cold War swords into ploughshares. Much of that supply has now been consumed and the world is now in a deficit situation, which can only be corrected through new mine supply. The vertical trajectory of the uranium price over the last few years is the recognition of the problem, especially against the backdrop of the worldwide fashionable embrace of Green Energy alternatives. That price trajectory was halted in July by a US Department of Energy telegraphed uranium sale (to be held this month) in order to pay for “clean-up of facilities” announced the day after an alleged earthquake-induced accident at a nuclear plant in Japan (first hyped as a fire and escape of radiation into the Sea of Japan – later revealed as only the benign overturning of a couple of 45-gallon drums of low level waste – lab coats and such. It was fully contained.) I think the timing was a bit contrived for we know-not-what reasons. In August, the knock-on effects of the sub-prime crisis prompted a few funds who have invested in yellowcake to sell their positions, and because the uranium market trades largely by appointment, the spot price gapped downwards. This is just a correction and the price has now stabilized. I believe that the uranium price has now fallen as far as it will go – and that the bullish scenario for uranium is almost as compelling as it is for gold. It’s been in the paper this last week that oil companies are considering new nuclear builds to provide steam to extract the oil from tar sands in Northern Alberta. Oil is flirting with an $80 per barrel price. The fundamentals just get better and better for the energy alternative of choice - Uranium.

Thank You Dr. Barron!

Interview With Team At Fundamental Research Corp.

An Interview About Resource Stocks With The Team At Fundamental Research Corp.



Fundamental Research Corp. (FRC) is an independent equity research firm. We provide our subscribers with the highest quality fundamental research on smaller cap companies from a value-based perspective. We are registered as a securities adviser with the British Columbia Securities Commission (registration is in no way an endorsement from the BCSC).
Founded in 2003, during the time when the large investment banks were being investigated for producing research influenced by investment banking, we thought to ourselves "there must be a better way to produce research". We then applied the same model used for many years in independent debt research, by firms such as Moody's and S&P, to equity research. Like the debt rating agencies, revenues are generated by selling research to issuers and subscribers; we have no corporate finance or brokerage operations to potentially influence our research.

About Mr. Brian Tang

Prior to Fundamental Research Corp., Brian was an analyst in the corporate banking group of one of the world's largest international banks where he performed fundamental analysis on Financial Post 500 companies (the Canadian equivalent of the Fortune 500). Prior to this, he worked at a financial advisory firm where he analyzed and published research on Canadian equity mutual funds. Brian also serves as VP Finance on a consulting basis for a local privately held design build construction firm.
Brian holds a Bachelor’s Degree in Business Administration (Finance with a minor in Economics) from Simon Fraser University. He also holds the Chartered Financial Analyst (CFA) designation. Brian is a member of the CFA Institute (formerly the Association for Investment Management and Research) and CFA Vancouver (formerly the Vancouver Society of Financial Analysts).
-------------------------------------------------------------------------------------
Me: Mr. Tang, in the face of gold nearing its May 2006 high of $730/oz, what are your current views of gold and gold stocks in general? Do you have a favorite gold stock, if so what is it and why do you like it?

ANSWER (Sid Rajeev, MBA, Analyst): We have been very bullish on gold prices since the beginning of 2006. Although prices have risen considerably in the past week, and are approaching their 2006 highs, we have maintained our positive outlook on gold due to the following macro economic conditions:

Gold is traditionally viewed as a capital preservation asset and regarded as a better hedge against the U.S. dollar, inflation and geopolitical risks, than any other commodity. Historically, gold prices have been negatively correlated to the U.S. dollar. The U.S. dollar is expected to depreciate with respect to other major global currencies, based on an expected slow down in the U.S. economy, and relatively lower real interest rates in the U.S., compared to other major countries in the world.

The U.S. housing industry is not expected to recover before mid-2008, and last week, the U.S. economy reported job losses for the first time in four years. Both these factors further signal a slowdown in the U.S. economy. The Federal Reserve is expected to cut interest rates by 25 to 50 basis points in the next two meetings, which will further reduce real interest rates in the U.S. All these factors suggest that the U.S. dollar will depreciate further going forward, which will help gold prices to stay high.

We have also noticed a positive correlation between gold and oil prices, in times of high oil prices. High oil prices create inflationary scares among investors and lead them to drift towards gold. Oil is currently at its 2007 highs, and prices are expected to stay above $60.00/bbl for the rest of the year and 2008, which we believe will also have a positive effect on the demand for gold.

Therefore, based on a forecasted depreciation in the U.S. dollar, higher inflationary scares, relatively lower U.S. real interest rates, and high oil prices, we are bullish on god prices. We do not expect prices to move up from current levels for the rest of the year, however, we expect prices to gradually move up, as the U.S. economy moves closer to a recession.

One of our favorite gold stocks is Grenville Gold Corp. (TSXV: GVG). It is a junior exploration company targeting gold projects in South America. The company expects to put three of their properties into production over the next four years. GVG is currently progressing the Silveria project in Peru, which is expected to be put into production in 2008. New management came on board in 2006, and we believe they have the capability to progress this junior exploration company into a gold producer. We believe the company is undervalued compared to its peers, and based on our DCF valuation on the company.

(Note: that Fundamental Research Corp. has fee based coverage from Grenville Gold GVG).

Me: If possible can you please give us a summary on how you evaluate/quantify geopolitical risk, in light of Eldorado’s mine being forced to shutdown in Turkey and also the price volatility experienced by companies such as Aurelian resources that are exploring in Ecuador?

ANSWER (by FRC Research Associate and Geologist Martha Buckwalter-Davis, BA (Geology): At Fundamental Research we have two ways of evaluating risk: qualitatively and quantitatively. We prepare a mining outlook for each country or province. This mining outlook considers the attractiveness of investment in the country and also identifies risks we see in the country. Ecuador is a very good example--they seem to desire mining investment in the resource sector but their mineral laws are very new and haven't been properly established or tested yet. The most important part of this mining outlook is risk assessment, but in the end it is an individual investor's decision whether he or she can tolerate such risk.

Quantitatively, the geopolitical risk is factored into the discount rate we use in our discounted cash flow valuation. Companies in riskier areas will receive a higher discount rate than more stable countries such as the United States and Canada. The risk is also factored into our recommendation. If we feel the political risk, or any other risk, is too great, we would consider making the company a hold or sell even if the economics are favorable.

Question 3: I was wondering if you could please summarize in a few sentences, your views and outlook on base metals and base metal stocks in Canada.

ANSWER (Sid Rajeev, MBA, Analyst): We are not as bullish on base metals, as we are on gold and silver. Except Nickel, most other base metals have maintained their price levels based on expectations of strong demand from China and India.

Although a slowdown in the U.S. economy will offset global demand growth, we believe, demand growth from China and India will keep prices of base metals high in the next 18 months. Over the longer-term, we expect prices to soften, based on an expected slowdown in global GDP. To keep inflation under control, the Central Banks of most of major countries, including China and India, have raised interest rates. According to the International Monetary Fund (IMF), global GDP growth is expected to decline to 4.9% in 2008, compared to 5.4% in 2006. We believe demand for most of the base metals will soften as global economic growth declines in the longer-term. However, we believe that global economic growth rate forecasts are high enough to support prices staying above their historic averages.

Since base metals prices are not expected to go up from current levels, but are expected to stay at current levels (which are quite high and would support many projects that would be uneconomic at lower prices), we advise investors not to invest in base metal stocks based only on speculation of increasing prices. Instead, investors should consider the investment’s risk-reward profile, and make sure that they have good projects and a strong management team.

Me: If possible can you please highlight one sector among resource stocks (eg. it can be aluminum stocks, nickel stocks, steel, gold, silver etc.) that you believe to be overbought and due for a correction and one sector that you believe to be oversold and due for a bounce and why.

ANSWER (Sid Rajeev, MBA, Analyst): We believe all metals are fairly priced at the moment though we believe gold will slowly appreciate going forward.

Me: Lastly, if there was only one stock you could hold for the next 12 months what would it be and why?

ANSWER (Brian Tang, CFA, President and Analyst): If I could only hold one stock over the next twelve months it would be Cemex (NYSE: CX) – the world’s third largest cement producer. First, as a value investor, I see the stock as undervalued. The stock trades at about 9.21 times 2007 EPS. This is extremely cheap by almost any benchmark. It also has about a 3% yield based on 2007 expected dividends (as per Reuters), and a strong balance sheet.

Shares have fallen recently on weak U.S. jobs data as the U.S. accounts for 21% of revenues. However, the company also sells in Mexico, the U.K., Spain, and numerous other countries around the world. This gives it geographical diversification. Also, the cement industry, I would argue, is fairly insulated from the overall performance of the economy. The data I have looked at indicates that cement demand exceeds supply in the U.S. with the remainder having to be imported.

In terms of the housing slowdown in the U.S., about a quarter to a fifth of cement is used in housing. Therefore, CX’s exposure is about 4% of revenues. The other uses of cement are for public, industrial, and commercial uses. We believe a lot of demand will come from the use in highways and infrastructure. A few years ago, about $290 billion in expenditures was provided for the upgrade and construction of infrastructure (such as bridges) over 6 years. Recent bridge collapses around the U.S. highlight the growing need to upgrade infrastructure.

(Note: FRC holds Cemex in their corporate proprietary trading accounts)

Many thanks to the team from Fundamental Research Corp and go check out their research at Fundamental Research Corp.

Interview with Mr. John R. Ing of Maison Placements Canada

Is It Time To Invest In Gold?

As gold remains above the psychologically important $700/oz level for the second straight day, I’m sure investors are probably wondering if the metal is going to surpass its May 2006 high of $730/oz. Below I have outlined a few of the reasons why gold might take out $$730/oz and go higher. However, since my views mean little, you will also find my interview with one of my favorite precious metals analysts – Mr. John Ing of Maison Placements.

--> September - October is a seasonally favorable period for gold as jewellery demand from India’s wedding season and Diwali kick in during this time.

--> On September 7th 2007, the US Dollar Index broke below its crucial 80 technical level, hitting a 15 year low. Continued bearish sentiment towards the US Dollar is expected with investors pricing in a few interest rate cuts before the end of the year.

--> According to Reuters, the latest data showed gold held in New York-listed StreetTRACKS Gold Shares, the world's largest gold-backed ETF, rose to 549.42 tonnes, another record high, up 33.98 tonnes or 6.6 percent from the start of the month.

--> According the data from the Nymex, gold warehouse inventories fell by 67,663 troy ounces to stand at 7 million troy ounces. As inventories decline and seasonal demand increases, the price of gold is ideally poised to continue rising.

--> Lastly, as volatility continues to persist in the markets and the repercussions of the credit crunch continue to be felt, Gold may be the beneficiary of capital inflows as its reputation of being a safe haven from financial tensions garners some attention.




John R. Ing is President and Chief Executive Officer of Maison Placements Canada Inc. (http://www.maisonplacements.com/) based in Toronto, Canada. Mr. Ing specializes in the precious metals sector, and has been featured on BNN (formerly RobTV)several times. He has served on various industry committees including serving as Chairman of the Toronto Stock Exchange Stock Listing Committee since 1993.

He started his career with Jones Heward & Company in Montreal as a portfolio manager. He joined Mead & Company in 1971 culminating as Senior Vice-President and Director. He was responsible for the management of their portfolios, chief investment strategist and a specialist on the gold industry. In 1980 he joined Pitfield Mackay Ross as a Vice-President and Manager of the Investor Services Department. He was a member of that firm's Investment Policy committee and was responsible for the group that provided investment advice to Pitfield’s many branches and clients. When Pitfield merged with Dominion Securities, Mr. Ing became a Vice-President of that firm, where he was also a member of the Investment Strategy committee. Mr. Ing left Dominion Securities late in 1984 and joined Maison Placements Canada Inc. in February of 1985 as President and Chief Executive Officer.

Me: Mr. Ing, in the face of the recent market correction we recently witnessed, what are your current views of gold and gold stocks in general and where are you currently finding the most value among gold stocks - in large cap producers, mid cap producers, emerging producers or exploration stocks?

Mr. Ing: The credit crunch crisis will continue over the next the few months despite an expected reduction in interest rates. The solution is not slashing interest rates and printing money. America must lower its debt load, reduce leverage and redress its balance sheet. Gold and gold stocks often serve as a safe refuge and this time this group will benefit from not only the re-liquification of the financial system but also the expected pickup in inflation. In the last eighteen months, the gold stocks have been laggards but I expect this to change. Given the institutions’ penchant for liquidity, the big cap stocks are expected to be the initial beneficiaries. Gold stocks will outperform gold bullion this time.
I expect gold to retest the old May 2006 high of $730 but will surpass the $850 per ounce peak, the all time high in 1980. Only after the big cap stocks have moved, will there be a rotation down into the mid-tier and eventually the developers. Of interest is that the junior stocks have been beaten up in the last few weeks in the rush by hedge funds for liquidity and they are actually at attractive levels but only for the very long term investor.

Me: If possible can you please give us a summary on how you evaluate/quantify geopolitical risk, in light of the Eldorado mine shutdown in Turkey and also the price volatility experienced by companies such as Aurelian Resources that are exploring in Ecuador?

Mr. Ing: The Eldorado Gold (ELD:TSX, EGO:AMEX) forced shutdown was a disappointment. However, mines in the past have operated without permits thus I do not expect Eldorado to be penalized. My understanding is that the Higher Court will uphold the lower Court decision by upholding the permit. As such, I expect a decision from the Courts in the next 30 days or so and Eldorado to bounce back to the level from which it was trading at. As for Aurelian Resources (ARU:TO), I do not share the market’s enthusiasm. The stock is priced for at least 5 million ounces, and to date I have not seen enough evidence that there is even 2 million ounces. I would be cautious with this one.

Me: I was wondering if you could please summarize in a few sentences, your views on the rapid capital cost escalations that have been showing up in the earnings of gold companies and at what pace must gold prices keep rising to outstrip these rising costs or how are gold companies attempting to minimize these cost escalations?

Mr. Ing: Mining cost increases are not surprising given the escalation in energy (energy prices can make up more than 30% of the total cost of extraction). Today many gold mines’ cash cost are in excess of $400 an ounce. Gold mines are capital intensive and there is also a need for maintenance capital. Since we expect higher energy prices, and gold mines are getting deeper, I do not see any reprieve in the price to mine gold. However, gold miners are leveraged to the gold price and once the Street is convinced that the price will stay above the old high of $850, I expect the profit margins to widen. A review of the gold miners has shown gold miners to be vigilant on costs, but the group has not spent enough money on exploration. Exploration is often sacrificed when it should be the lifeblood of mining companies. Too many of the producers do not spend enough on exploration. I would cut back on the palatial offices and put more money into the ground.

Me: If possible can you please highlight one sector among resource stocks (eg. it can be aluminum stocks, nickel stocks, steel, gold, silver etc.) that you believe to be overbought and due for a correction and one sector that you believe to be oversold and due for a bounce and why.

Mr. Ing: The group that is ahead of itself remains - the uranium stocks. There is no shortage of uranium and investors do not yet realize that the spot price is not the price that most uranium is sold at. Uranium stocks are grossly inflated in value and are still vulnerable for a correction.

Me: Lastly, if there was only 1 stock you could hold for the next 12 months, which one would it be and why?

Mr. Ing: Agnico-Eagle (AEM:TSX) remains a stock to be held for the next 12 months. Agnico-Eagle’s production is expected to grow by 5 times between now and 2010, and the company has the balance sheet to finance these mines without further dilution. Management is young and aggressive and the company will also benefit from the pick up in zinc, silver and lead prices.

Thank you Mr. Ing!

Interview with Ian Nakamoto - of MacDougall, MacDougall, & MacTier

Interview with Ian Nakamoto - Director of Research at MacDougall, MacDougall, & MacTier

Ian Nakamoto is the Director of Research at MacDougall, MacDougall, & MacTier. His experience in the investment business spans 25 years. He started his career as an analyst covering Canadian and United States companies, before becoming a portfolio manager. He has been a portfolio manager with 2 mutual fund companies, one large insurance company, an investment management company specializing in pension funds, and a trust company. Ian became Director of Research at MacDougall, MacDougall, & MacTier in September 2003. Ian has an MBA from McMaster University and is a Chartered Financial Analyst (CFA).

Me: What are your views/predictions regarding the upcoming Bank of Canada meeting on September 5th and the Federal Reserve meeting on September 18th?

Mr. Nakamoto: In regards to the first question, at the upcoming Bank of Canada meeting it is very likely they will maintain their current interest rate until the credit markets stabilize. Prior to this credit market disruption they were going to raise interest rates as they felt there were still inflationary pressures in the economy. If the credit markets stabilize and have little or no spill-over into the real economy they will likely resume their tightening bias (but too early to tell if credit market disruptions are having an affect on the real economy).

As for the Federal Reserve it is very likely they will lower interest rates, especially given Mr. Bernanke's speech on Friday (August 31, 2007).

Me: Can you highlight your views regarding equity markets in the US and Canada - are we headed into a recession/bear market or are using the current sell off to accumulate positions in your favorite stocks?

Mr. Nakamoto: I think the equity markets will do well going forward. The basic drivers of earnings, dividend increases and solid balance sheets are still intact, though the rate of earnings and dividend growth is slowing, provided the credit market disruption does not spill into the real economy the stock market looks good to buy for a 12 month horizon. In general the stock market rises after the Federal Reserve cuts interest rates. In 2000 this did not happen as the initial rally in stocks did not last as the technology bust had a large impact on the general economy and caused earnings to drop significantly. In addition the P/E ratio was still very high in the mid 20's.. This time around P/E is much lower (around 15 to 16 times) and there is no sign earnings will drop. Also interest rates in 2001 versus now was much higher, meaning with high interest rates there was less incentive to buy equities. Today with lower interest rates more incentive to look elsewhere for returns. In terms of areas that tend to do well it is financials. Also the cyclicals do well.

Me: What is your outlook for commodities (base metals, precious metals, oil and gas)?

Mr. Nakamoto: Commodities still look good. I like them on a secular basis...meaning for several years. These bull/bear markets in commodities tend to last decades. For 20 years until 2003 commodity prices were very poor. So we are in the fourth year of a good commodity market...there can be times if we hit an economic soft patch commodities weaken, but in general they should do well. You have heard the stories about the rising economies of India and China, I am a believer in this story; meaning rising economies of these two heavily populated countries is good for commodities.

Me: Lastly Mr. Nakamoto, I was wondering if you could please summarize in a few sentences, why gold stocks also corrected (to almost the same extent) along with other stocks during this recent credit crisis sell off – aren’t gold stocks supposed to be a safe haven during market turmoil?

Mr. Nakamoto: First gold stocks and gold do not act the same. Gold stocks are first and foremost stocks, meaning factors related to the stock market (currently the issues surrounding the credit markets) overwhelm gold prices. You can see it in the energy stocks also...oil prices strong, but oil shares until today have been weak. Gold will get going when the Federal Reserve cuts interest rates. There is an inverse relationship between gold prices and the US dollar, with a cut in interest rates there is less appeal to hold on to the US dollar and go for other higher yielding interest rate countries such as Canada. Gold has been a safe haven in economic times, gold stocks less so.

Thank You Mr. Nakamoto!

General Minerals (GNM:TSX)

Investing With Sprott Asset Management Through General Minerals (GNM:TSX)

On August 31, 2007 General Minerals (GNM:TSX) came out with an announcement declaring the voting results of special shareholders meeting.

The results were as follows:

A resolution to authorize the Corporation to enter into a management services agreement with Sprott Consulting Ltd. was passed.

A resolution to authorize the Corporation to issue, by way of private placement, up to 40,000,000 common shares and 40,000,000 common share purchase warrants was passed.

A resolution to amend the Corporation’s articles to change the name of the Corporation from “General Minerals Corporation” to “Sprott Resource Corp.” was passed.

A resolution to approve the dilution of the Corporation’s 100% interest in its wholly-owned subsidiary, High Desert Gold Corporation, as a result of High Desert Gold completing its initial public offering was passed.

A Little Bit about General Minerals (GNM:TSX)

The company had 10.5 million shares outstanding as of August 1st 2007 and $8 million in working capital as of June 30th 2007. General Minerals also owns 8.6 million shares of South American Silver Corp (SAC:TSX) which are subject to escrow and contractual resale restrictions and had a quoted value of $6.7 million as at June 30, 2007. The company also owns a 51% interest in Afghan Minerals Inc., a privately-held mineral exploration company focusing on projects in Afghanistan, and a 51% interest in Foundation Resources Ltd., a privately-held mineral exploration company that is focused on projects in Mongolia.

As of August 27 2007, The Rule Family Trust owned 3,607,056 shares or 34.3% of the company.

A Little Bit About The “Rule Family Trust”

Rick Rule is the Founder and Chairman of Global Resource Investments, Ltd. Rick began his career in the securities business in 1974, and has been principally involved in natural resource security investments ever since. He is a leading retail broker and investor specializing in mining, energy, water, forest products and agriculture. His firm provides unique insight into the workings of the natural resource marketplace. Global Resource Investments provides investment advice and brokerage service to individuals, corporations, and institutions worldwide.

Mr. Rule is very active in private placement investment markets. He has originated and/or participated in several hundred transactions over the past 20 years, including both debt and equity in private, pre-public and public companies. These private placement activities have involved companies on six continents. Mr. Rule's private placement investment partnerships were up 55% annually net of fees since 1998, in natural resource stocks, which are these partnerships focus.

Upcoming Developments with General Minerals (GNM:TSX)

On August 24, 2007, General Minerals wholly owned subsidiary, High Desert Gold Corporation (“HDG”), filed a preliminary prospectus in connection with an initial public offering of units. Each unit consists of one common share and one half of one common share purchase warrant. General Minerals will not receive any proceeds from the units sold by HDG other than the reimbursement of its costs in forming and organizing HDG.
HDG, directly and through subsidiaries, holds General Minerals ’s interests in its current mineral properties located in the U.S. and Mexico. The three material properties held by HDG are its flagship gold property, Canasta Dorada in Sonora, Mexico, the Gold Lake porphyry copper-gold-molybdenum property in New Mexico and the Monitor copper-silver property in Arizona.

Regarding the $60 million Private Placement

According to SEDAR filings, the private placement will consist of 40,000,000 units at $1.50 per unit, each unit consisting of one common share and one common share purchase warrant exercisable to acquire one common share at $2.50 per share for two years. The proceeds of the private placement will be used to continue acquiring direct and indirect investments in the mining sector and to evaluate and acquire other opportunities within the natural resource sectors, including minerals, oil and gas, water and forestry.

Kevin Bambrough, who is currently the Market Strategist for Sprott Asset Management is slated to become the new President and CEO of “Sprott Resource Corp.” John Embry, the Chief Investment Strategist for Sprott, will become a director with the company. Eric Sprott, the Chairman and CEO of Sprott Asset Management will become the Chairman of “Sprott Resource Corp.”

Eric Sprott has personally invested $4.7 million at $1.50 and will own 3,143,450 upon completion of the private placement; Kevin Bambrough purchased 760,000 shares (at $1.50) worth $1.1 million and John Embry purchased 660,000 shares valued at $990,000.

My Call

General Minerals will be a public avenue to partake in Sprott Asset Management’s phenomenal knowledge and success in the world of resources. Think of it, as investing in one of their very successful mutual funds, without the MER’s and trailer fees.

If the junior resource markets recover a bit from the general credit crunch malaise and the asset backed commercial paper fiasco, General Minerals has the potential to quickly reach its $3.65 high (a near 44% move from current prices) it made around June 6th 2007. On the downside, the stock has the risk of falling to around $1.75 (a 31% drop from current prices) if the deal falls through, which in my humble opinion isint too likely.