Interest rates will be low for a long time, predicts Commodity Capital Global Mining Fund Manager Tobias Tretter. Despite predictions of a gold bubble bursting, Tretter says in this interview with The Gold Report that the gold bull run will continue. In fact, Tretter still sees tremendous opportunity in a number of junior gold companies that have been largely ignored by the market.
The Gold Report: What do you think will happen to interest rates and how will that affect gold?
Tobias Tretter: I don't see interest rates increasing at all right now. The Federal Reserve is giving banks money for 0.25%. The European Central Bank [ECB] has interest rates at 0.75%. That isn't an environment with increasing interest rates. The 10-year U.S. Treasuries are at 1.85%, which is up from 1.4%, but even in 2011 we were above 3%. We are still at the lowest possible levels and I can't imagine how countries, even relatively strong ones like Germany or the United States, will thrive in an environment with increasing interest rates. It would prove too challenging and cause too much pain; therefore, interest rates will be low for a long time.
I do not believe that the end of the gold bull market is here. I agree with former Fed Chairman Alan Greenspan that deficit spending is a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious progress, he said. It stands as a protector of property rights. As long as the Fed and the ECB are printing money and as long as things like the recent Cyprus bailout continue to happen, there's absolutely no way for gold to go down for very long.
TGR: You're responsible for making investment decisions for the Commodity Capital Global Mining Fund. What sort of year did that fund have in 2012?
TT: This past year was tough for every fund that focused mainly or exclusively on mining deals because the fundamentals of companies didn't matter at all. A company's performance depended on what type of investors it had and whether the investors had to sell. Performance also depended on whether a company's shares were included in one of the exchange traded funds. Nobody cared about the fundamentals of the companies at all.
TGR: What is your thesis when you're looking at taking a position in a company at this time?
TT: I'm a big believer in the juniors. The major companies are every day producing their resources and reserves and they have to buy the juniors to get their reserves and resources up again. The time is over for really huge projects, such as in Chile, where projects need $4, $5, $6, $7 billion in capital expenditures [capex]. The next few years will be way better for junior projects with high margins, high grades and safe jurisdictions. That's exactly what we are buying right now and where we are positioning ourselves. Sure, the valuations right now are really bad, so sometimes you're getting companies with price-earnings ratios of 3, 4 and 5. But it won't be this way forever. The valuations for those companies will improve again and you have to be positioned in the right way.
TGR: Tell us about some companies in the fund that had a rough year, but that could be poised to rebound.
TT: We will hear about a lot of new companies in the future from the Guerrero region of Mexico, a very famous and very prospective gold belt. Torex Gold Resources Inc. [TXG-TSX] is there with the Morelos project. It should be the next Guerrero Gold Belt company to go into production. Torex also is likely a takeover target. And recently Osisko Mining Corp. [OSK-TSX] staked a lot of exploration ground in this area so there is a lot to come.
TGR: You help manage the Midas Letter Opportunity Fund. Did that fund have a difficult 2012 as well?
TT: Yes and no. Yes, it was difficult, but the performance was quite good relative to its peers. We finished the year unchanged, which is quite good in a market where all the exploration and junior companies lost 60-70%. Nevertheless, it was and still is a tough market because this is a fund for pre-IPOs, IPOs and early-stage investments, following good management teams with an excellent track record. Last year and this year we haven't seen as many opportunities for investment compared to previous years. Exploration companies are having a hard time getting financed these days.
Nevertheless, times will change. I still believe in the model that majors have to buy the good junior and exploration companies and if you follow the right management teams, then you can make a lot of money. I think 95% of the money in the mining industry is being made by only 5% of the management teams.
TGR: How important is share ownership structure?
TT: What I've learned over the last 12 months is that share ownership structure is way more important these days than in the past. A lot of junior mining companies are seeing their shares hurt because one large investor is selling. The investor is getting redemptions and then just selling its shares within a few days or weeks. It doesn't pay any attention to what the share price is doing. Huldra Silver Inc. (HUSIF.PK) is a very good example of this. One of its major shareholders sold its whole stake in four weeks and it caused the share price to plummet 50-60%.
TGR: What are some other companies that investors should know about?
TGR: Do you have another name you would like to discuss?
TT: I've been following Confederation Minerals Ltd. [CFM-TSX.V] for a couple of years. It owns 70% of the Newman Todd project in the Red Lake Camp area of Ontario. Redstar Gold Corp. (RGCTF.PK) is its partner. Confederation has to issue another 400,000 shares and pay Redstar another $250,000 and then it will be up to 50% on the earn-in. After a preliminary economic analysis, the earn-in will increase to 70%. So far, the company has put in 129 holes to 46,000m in total. What is unique is that every hole so far hit mineralization. That's not normal. The company discovered a strike length of 1.8km. It is hitting the typical Red Lake mineralization with a very high grade. About 40% of the drilling results to date have been above 20 g/t and about 90% of them have been above 5 g/t.
The really interesting thing is, although Confederation has mainly concentrated its drilling to a depth of 400m, it now has drilled a hole to a depth of between 787m and 932m. At the lower depth, the company hit about 8 g/t over 2m and three other 1m intersections. That means that this ore body, which has a strike length of 1.8km and looked as if it was going from 200-400m, now has been extended to 800-900m. It was a very significant hole, which showed the potential for this project. After the company released this news nothing happened to the share price, so that just tells me nobody is reading news releases anymore.
TGR: How does Newman Todd compare to other gold deposits in the Red Lake Camp?
TT: It's the same kind of structures, the same kind of grades. It looks pretty similar. Confederation's problem is that it doesn't own 100% of the Newman Todd project. If you don't own 100% of a project, not that many investors will be interested. We may have to see a consolidation before people recognize the potential there. For sure it is an exploration project and will take some time to get to a resource. Production will not start immediately, but it is one of the most prospective exploration projects up there.
TGR: Thanks for your insights.
This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.
Tobias Tretter is a managing director and chief investment officer for Zurich-based Commodity Capital AG, founded in 2009. He is responsible for making investment decisions of the Commodity Capital Global Mining Fund and for selecting the indexes. Tretter is a graduate of Bayreuth University in Germany, where he earned a business administration degree with a focus on finance and banking management. He began his career at Credit Suisse Asset Management and also worked at Fujitsu Siemens and Dr. Jens Ehrhardt Kapital AG.
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
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3) Tobias Tretter: I or my family own shares of the following companies mentioned in this interview: Torex Gold Resources Inc., Confederation Minerals Ltd. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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