As the former chief editor of the first newsletter about the German “Neuer Markt” (New Market), Sascha Opel brings a distinctive outlook to the precious metals market. He was also the co-chief editor of “Der Aktionaer” (The Shareholder), one of the biggest German stock market magazines, and advisor to an investment fund that achieved an outstanding return of 700% in three years. Today, his company, Orsus Consult GmbH, publishes one of the most popular German newsletters on commodities and junior mining and exploration.
TGR: What are your impressions of the precious metals sector?
SO: There are two historical remarks that provide a good perspective on the significance of gold. More than two centuries ago, the French philosopher Voltaire observed: “All paper money returns to its intrinsic value—zero." One hundred years later this belief was reaffirmed. Following the Panic of 1907, five years prior to the creation of the U.S. Federal Reserve, the wealthy banker and financier J.P. Morgan pronounced that, “Gold is money and nothing else.”
Long-lasting gold bull markets take place when gold’s role as money is being re-established. In my opinion, we are just beginning this period of re-establishment. Those calling for the end of the precious metals bull market anytime soon are sadly mistaken. For the short-term, the price of gold will remain around $US800.
Rising food prices do pose a near-term threat to gold. In Asia, food expenditures represent the largest percentage of a family's budget. This is not the case in Europe or North America where a much smaller percentage of the monthly income goes toward food. If you earn $US5000 a month, a $1 to $2 increase in the cost of rice or bread is not significant. But if you earn only $US200 per month, every increase hits you hard. So, if the big private gold buyers in India and the rest of Asia have less to spend on gold, the demand there could decrease for a while. On the other hand, we should still have the biggest buying from private Investors and institutional Investors ahead of us.
Another critical consideration is that mine supply will decline for at least the next three or four years regardless of the price of gold price. Gold could rise to $1,500 or $2,000 per ounce and have very little impact on the supply outlook. One of the most important factors influencing production growth is the absence of large, fully permitted gold mining projects that are ready to start.
TGR: What do you consider to be the best way to invest in this sector?
SO: I think the most important thing is to own physical gold. In the next few months the gold price may go as low as $US800. This presents a good opportunity to buy physical gold. Everybody who owns only “paper money” should at least put 5% into physical gold. This is the ultimate currency that will survive all times! I prefer the one oz. Australian nuggets, or for bigger investments, the one or five kg bars.
I am also investing in the big gold stocks on the AMEX HUI GOLD Bugs Index. These are the base investments one should not touch as long the bull market is in place. The most interesting investments are the junior producers and exploration companies. They are the ones with the potential for the biggest returns—as well as the biggest risks.
In the past several years, I have had great success with many exploration companies such as Blue Pearl Mining, now Thompson Creek Metals (TC), Aurelian Resources (ARU.TO), and Globex Mining (OTCQX:GLBXF).There are also many that have not done well. I think it is important to select very carefully. What you are looking for is good management, a good project, and the capability for long-term financing.
TGR: What other investment opportunities can you recommend?
SO: Miranda Gold Corp. [MAD:TSX-V] is at the top of my list. I like Ken Cunningham's team and I think it is one of the best exploration teams in Nevada. They are in a very established mining region and the possibility for a discovery with that combination is high. The current share price seems to offer a good opportunity for long-term Investors
After the run from C$0,50 to C$7 in 2006, the price of this conglomerate, Globex Mining (84 projects) came back to C$3,20. With an outstanding magnesium project, which is, in my opinion, worth much more than Globex's current market cap, this is a good buy for value investors.
Another one I like is Advanced Exploration (ADEXF.PX). They are looking for iron ore in Roche Bay. A one billion ton historical resource is now being re-drilled for a NI 43-101. They are working with a native Nunavut financial firm, Melville Capital Group, which is interested in bringing it into production. Melville paid recently C$4 in a private placement while the stock is trading under C$2 to save the rights to built infrastructure, plants etc.
Cuervo Resources [CNQ: IRON; CRR.BE] is also exploring for iron ore in Peru. The management intends to define a 43-101 and sell the company since there is an outstanding market for iron ore at the moment.
Freegold Ventures, Ltd. [TSX:ITF] has three very good gold projects including its Rob property (near Pogo-Mine) and Golden Summit (near Fort Knox Mine of Kinross) in Alaska. The company has a strong management team with CEO Steve Manz and good Investors like Sprott Asset Management and Rob McEwen, who own about 20%.
Premier Gold Mines (OTCPK:PIRGF) has great projects in Red Lake near Goldcorp's (NYSE:GG) Red Lake Mine. They are drilling there in a joint venture with Goldcorp. I see Premier as a potential takeover target. While everybody is investing because of the Red Lake-Goldcorp venture, in my opinion the best project is the Geraldton Project near Thunder Bay. This alone could be a company maker! With Ewan Downie at the helm, they have a well-connected CEO who recently sold Wolfden Resources [WB4A.BE] to Australian zinc giant Zinifex [UZ7.BE].