The Gold Report's  Instablog

Source: Brian Sylvester of The Gold Report (5/17/13)

www.theaureport.com/pub/na/15279

Jurisdiction risk continues to grow as a result of countries attempting to capitalize on higher commodity prices. In this interview for The Gold Report,Thibaut Lepouttre, editor of Caesars Report, a newsletter and mining portal in Belgium, discusses which jurisdictions offer better value to investors and which countries to avoid. He also offers suggestions on where to look outside of North America for compelling values in junior mining.

The Gold Report: Thibaut, at your presentation at the Prospectors and Developers Association of Canada in March, you said that country risk was the second most important factor investors should look at when analyzing mining companies. Obviously, management is the most important factor, but how has country risk changed over the previous five years or so?

Thibaut Lepouttre: I think you will agree that there is a direct correlation between the rise in commodity prices and how greedy a country gets. Country risks have increased dramatically over the past five years with the global financial crisis as commodities are a way a government can make money. This trend will definitely continue.

TGR: Will resource nationalism be the single greatest threat to the mining industry over the next decade or so?

TL: Several countries actually have written into their laws language that gives them the authority to nationalize or partially nationalize mining projects. For example, Russia's mining code states it can nationalize every mine of strategic importance. However, it did not really define what strategic importance was.

TGR: What are some countries where investment risk is actually lower than it was and why?

TL: In Europe, I would say Serbia and Bulgaria. The war ended in Serbia about 15 years ago and since then the country has dramatically changed. It is completely open for foreign investment now, has a favorable tax rate and has great potential for new discoveries. As a country that is a candidate to join the European Union, the political risk has decreased tremendously. There have been several finds there recently such as Reservoir Minerals Inc. (RMC:TSX.V), which discovered an exciting drill hole. EurOmax Resources Ltd. (EOX:TSX.V) and Columbus Copper Corp. (CCU:TSX.V) also have properties that look promising. Reservoir and Columbus are in Serbia and EurOmax is in Serbia and Bulgaria, so maybe EurOmax is the better example for both countries.

TGR: Which one of those is furthest along the development chart?

TL: I would say EurOmax. Its main project is in Macedonia, but it has a gold project in Bulgaria with about 2 million ounces (2 Moz) gold. It will define an NI 43-101 resource this year on its Serbian copper-gold project.

TGR: What are some other European countries that are worthy of a look?

TL: The most surprising country is France. It has an overseas department, French Guiana, which borders Brazil and Suriname. Because it is part of France, the political risk is almost zero. A company there called Columbus Gold Corp. (CGT:TSX.V) recently outlined a resource estimate of 5.4 Moz gold. It is open pittable and the average grade is 1.4 grams/ton (1.4 g/t). The company plans to drill more holes this year. I am certain it will come up with a resource that contains in excess of 7 Moz.

TGR: Is Columbus Gold any relation to Columbus Copper Corp.?

TL: They are both part of the Columbus group. There are three Columbus companies: Columbus Gold that focuses on gold in Nevada and French Guiana. Columbus Copper focuses on copper mainly in Turkey where it has a joint venture with First Quantum Minerals Ltd. (FM:TSX). Then there is Columbus Exploration Corp. (CLX:TSX.V), whose properties are less exciting than the properties of the other two Columbus companies.

TGR: What are some examples of countries where the risk is perceived to be much higher than it actually is?

TL: Argentina because President Cristina Kirchner actually nationalized the company Yacimientos Petrolíferos Fiscales (YPF) from Repsol SA. A lot of people got scared and thought that the mining business might be next. That was 15 months ago and nothing has happened. The risk of nationalization or government involvement in mining projects is limited, especially because mining licenses are distributed by the state. The federal government is not making the decision on the mining project. As an example of a company there, Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCPK) has an exciting high-grade silver discovery in the Jujuy province in the northern part of Argentina next to Bolivia. The metallurgical tests were out recently and averaging in the 90s. The company has just released an NI-43-101-compliant resource estimate with 105 Moz silver equivalent, which is much better than what I was expecting.

TGR: Golden Arrow is also part of The Grosso Group, a group of mining companies based out of Vancouver. How important is that in a climate where financing is increasingly difficult?

TL: It is a good thing because it can share several resources, such as office and investor relations personnel. Being part of an umbrella group could actually reduce the overhead costs.

TGR: What are some other countries where risk is perceived to be higher than it is?

TL: Peru. After Ollanta Humala won the elections approximately two years ago, people were worried because he represents a left-wing party-and we all know how left-wing presidents treated the mining industry in Ecuador and Bolivia. But he has proven to be very moderate when it comes to his involvement in the mining sector.

TGR: What junior mining companies are you currently following in Peru?

"There is a direct correlation between the rise in commodity prices and how greedy a country gets."

TL: Inca One Resources Corp. (IO:TSX.V) has a few projects, one of which is actually a near-term production asset. The company is in the process of taking a 20 ton bulk sample out for processing at its Corizona project in Peru. This permitted project is allowed to extract up to 350 tons of ore out of the mine per day, which it will truck to a nearby mill to process and get the cash flow going. Production will be reached within six months. Corizona will be small, but it will provide the company with enough cash flow to continue development and exploration of its other projects. Besides Corizona, Inca One has in the north of Peru the Las Huaquillas asset, which has 440,000 ounces (440,000 oz) gold and an average grade in excess of 2 g/t.

TGR: Where is that project along the development path?

TL: Inca One submitted its application for the drill permits about three months ago, so I expect it will get the drill permits quite soon. It also submitted an environmental impact study to the government so we should see some news on Las Huaquillas within the next few months.

TGR: Obviously, Corizona is the near-term cash generator, but is Las Huaquillas the long-term company builder asset?

TL: Las Huaquillas has the potential to have at least 1 Moz gold in NI 43-101 resources. Corizona is an excellent asset because it will get cash flow going and allow the company to build up a treasury and start building up Las Huaquillas without actually diluting the current shareholders any further. It is actually a two-step process. The first is to get Corizona into production to get the cash flow, and the second step is to explore Las Huaquillas further.

TGR: Are there any other companies in Peru that you are following?

TL: Lupaka Gold Corp. (LPK:TSX) has two excellent targets and it merged with Andean American Gold Corp. last year. Lupaka has the Crucero project, which is at an elevation of approximately 4,400 meters (4,400m). And it has a resource estimate of 2.2 Moz gold with an average grade of 1 g/t. The company currently has $8 million ($8M) in cash and will actually continue to drill and expand the resource at Crucero.

TGR: Which of Lupaka's three assets in Peru-AntaKori, Invicta and Crucero-shows the most promise?

TL: I would say Crucero because it can easily increase the resource estimate over the current 2.2 Moz. The AntaKori asset, which is held by its 17% subsidiary, Southern Legacy Minerals Inc. (LCY:TSX.V), has a very strategic location in the middle of the belt of Peru. Legacy Minerals is actually one of the takeout candidates for this year, which would obviously benefit Lupaka Gold as well.

TGR: Can a mining or exploration project with high grades and an experienced management team trump significant jurisdiction risk?

TL: Yes and no. There are countries where you can pull it off, and there are countries where you definitely cannot. An example of where you can is Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT) in Eritrea. There the government gets a 10% statutory ownership in a mining project and can acquire 30% more based on the net present value (NPV). Compare that to Mongolia home to the Oyu Tolgoi deposit, one of the richest copper-gold deposits in the world. Turquoise Hill Resources Ltd. (TRQ:TSX; TRQ:NYSE) (formerly Ivanhoe Mines Ltd.) and Rio Tinto Plc (RIO:NYSE; RIO:ASX) are not freshmen in the business, but they still had severe difficulties with the Mongolian government.

TGR: Would you invest in Eritrea before Mongolia?

TL: I have been a shareholder of Nevsun for three years and have never encountered any problems. The government of Eritrea is holding up its part of the deal.

TGR: Do you attribute that almost entirely to the big stake that the government has in the Bisha project there?

TL: I would attribute it more to the intelligence of the government. In the Democratic Republic of the Congo, the government takes a 40% ownership, but it does not realize that if you nationalize part of it, you actually diminish and reduce your image in the world in the longer term. A lot of people have started to trust Eritrea because it thinks longer term.

TGR: What other countries would you add to the list where investment risk has dramatically increased since 2008?

TL: I would say South Africa. We have seen many strikes and wage hikes. On top of that, a regulation stipulates that 24% of every project should be given to the Black Economic Empowerment (BEE) movement. My main fear is that it is not just 24%, but that the percentage will actually increase over time and reach 49% or even 51%, just as in Zimbabwe.

TGR: But that black empowerment ownership structure started long before 2008.

TL: Yes, but it goes back to your first question that the higher the commodity prices, the greedier the government and these movements are. I think we will see some changes soon, whereby the BEE group will take a larger chunk of projects.

TGR: What other stories would you like to share?

"The financing capability of the management team is the most important thing to look at when a company is running low on cash."

TL: In North America, there are some interesting silver projects. I like Brixton Metals Corp. (BBB:TSX.V), which is in British Columbia and has extremely high-grade silver. Hecla Mining Co. (HL:NYSE) owns about 20% of the company.

Another silver name is Revett Minerals Inc. (RVM:TSX; RMV:NYSE.MKT), whose Troy mine is reopening later this year. The company should produce about 1 Moz silver at the cash cost of $11-12/oz at a full production rate.

TGR: Revett also has another asset in development after it won its court case. How soon could that be in production?

TL: We will not see production before 2020 or 2021 because Revett is taking a very cautious approach. It wants to ensure that everyone involved directly with the project is satisfied with the steps the company is making.

TGR: What are some other companies?

TL: Temex Resources Corp. (TME:TSX.V; TQ1:FSE) in Ontario. The company just released its resource update. It has 2.3 Moz gold at 1 g/t. It is open pittable and the project has the capability of reaching at least 5 Moz.

I also like High Desert Gold Corp. (HDG:TSX.V), which has a gold-silver oxide project on the border of Nevada and Utah. The company has drilled about 100 holes this year. We should see a 1 Moz gold equivalent resource estimate by the end of this year.

In South America there is Cliffmont Resources Ltd. (CMO:TSX.V). The company has the San Luis project in Colombia, and it is looking to reserve the high grades at the San Jorge underground mine. It has put in an application to erect a 100 ton per day mill.

TGR: You talked a little about Argentina and Peru. What is the risk profile of Colombia, especially after what happened with the Angostura project and Greystar Resources Ltd., which is now Eco Oro Minerals Corp. (EOM:TSX.V)?

TL: When we are talking about nature preservation and mining companies, Colombia is not alone. I do not think Peru or most other countries are different. Colombia's image has not worsened because Eco Oro is just one blip on the radar. Many other companies have projects that have run into the same problems elsewhere. Colombia is tremendously underexplored and if you look at the maps in the gold museum in Bogota, there is much more to be found there. Mining companies have to make sure they are in compliance with the environmental laws.

TGR: But in the case of Greystar, Colombia changed the law.

TL: It did change the law for the altitude. Quite a large part of the resources in the lease are accessible again right now. I think Colombia realizes it can't change the mining law too often or it will indeed scare companies away.

TGR: Do you wish to talk about any other companies?

TL: I would also like to give you some more names of companies operating in Europe and making my favorite list. One of them is Edgewater Exploration Ltd. (EDW:TSX.V), which has a project in the Galicia area of Spain with 1.4 Moz in a resource estimate. It is expecting an upgrade of that resource later this quarter followed by a feasibility study by the end of this year. Edgewater has all the necessary permits and the environmental assessment was approved in December. I think it will be in production within two years from now.

TGR: What is its cash position?

TL: Around $2M right now, so Edgewater will definitely need to go back to the market later this year to continue the feasibility study. The company sold a 1% net smelter royalty last year for $4M. It is a good sign that some royalty companies believe the project is worth at least $400M.

Another company is Dalradian Resources Inc. (DNA:TSX) in Northern Ireland. The company has a market cap of $60M right now with $20M in cash. It has 2.7 Moz high-grade gold and the 8% NPV based on a $1,160/oz gold price-a 25% cut from the recent average gold price-totaling $330M. Dalradian completed a preliminary economic assessment last summer, so I am expecting to see the feasibility study by the end of this year. It could be in production by 2017.

TGR: Any parting thoughts on commodity price risk or the market in general?

TL: I have always been quite conservative when I do my calculations, so I always use a lower gold price. I think from this year on, the financing capability of the management team is the most important thing to look at when a company is running low on cash.

TGR: How so?

TL: Some management teams can raise money easier than others. Look at EurOmax. Many on the board formerly served on the board of European Goldfields Ltd., which was sold to Eldorado Gold Corp. (ELD:TSX; EGO:NYSE) last year for $2.5 billion. The members of this board can raise $10M in seconds. They just call their old friends, old brokers, and get it together. A new company with an unproven management team will have a difficult time raising a quarter of a million dollars in this market.

TGR: On the gold price, do you see gold leveling off and remaining within $100 of its current range throughout the rest of the year?

TL: Gold will trade between $1,250/oz and $1,500/oz. The Cyprus-case has proven that even a big catalyst like confiscation of savings money did not help the gold price. The question in the market right now is whether confiscation and nationalization of savings accounts is a good thing for gold, and what will the catalyst be for gold to move up. I think gold will continue to move sideways.

TGR: Thank you for your insights.

Thibaut Lepouttre is the editor of the Caesars Report, a newsletter and mining portal based in Belgium that covers several junior mining companies with a special focus on precious metals and base metals. Lepouttre has a Bachelor of Law degree and two economics masters degrees that have forged his analytical approach to the mining sector. Considered a number cruncher, Lepouttre focuses on the valuations of companies and is consistently on the lookout for the next undervalued mining company.

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DISCLOSURE:
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.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Golden Arrow Resources Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Thibaut Lepouttre: I or my family own directly or indirectly shares of the following companies mentioned in this interview: EurOmax Resources Ltd., Columbus Copper Corp., Columbus Gold Corp., Inca One Resources Corp., Golden Arrow Resources Corp., Revett Minerals Inc., Edgewater Exploration Ltd., Nevsun Resources Ltd., Brixton Metals Corp., Temex Resources Corp., High Desert Gold Corp., Cliffmont Resources Ltd. and Dalradian Resources Inc. 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: Cliffmont Resources Ltd., Golden Arrow Resources Corp., Revett Minerals Inc., Inca One Resources Corp., High Desert Gold Corp. and Lupaka Gold Corp. 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.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Source: JT Long of The Gold Report (5/15/13)

www.theaureport.com/pub/na/15275

Europe, says James Turk, founder and chairman of GoldMoney, is in the midst of two crises-one in the banking sector, the other related to economic activity, and capital is needed to solve both. As to the allegedly strong dollar, Turk, in this interview with The Gold Report, suggests comparing it to the price of gold rather than other fiat currencies for a better picture. And the world's newest currency-Bitcoin-has a lot in common with one of the oldest-gold.

The Gold Report: James, from your perspective in Europe, is the region in as bad a financial crisis as it appears in the headlines here in the U.S.?

James Turk: Yes, it really is. However, Europe is a big place, and you have to look at the individual countries one by one to understand the situation. Generally speaking, the Mediterranean countries are in the worst shape. Germany has been in the best shape, although recent economic data indicate it may be falling into a recession again. France is not quite as bad as the Mediterranean countries, but in economic activity, it is worse off than Germany and the rest of Northern Europe.

TGR: What role does the euro play in all this, and where might the next crisis take place?

JT: Most of the problems we have seen in Europe are not really euro crises; they are banking crises. That was clearly the case in Cyprus.

The hot spot now is Slovenia, a small Alpine country that is part of the European Union and the Eurozone. Its banks are overleveraged and under scrutiny because of the number of bad loans they carry.

The banks in Luxembourg and Malta are also very highly leveraged relative to the size of those countries' gross domestic product (GDP). This concern follows on what happened in Iceland, Dubai and Cyprus, where the perception was that the banks were potentially vulnerable to "hot money" withdrawals due to the banks' high percentage multiple to the country's GDP. In other words, if depositor money were to flee, those banks might experience liquidity squeezes too big for the government to manage. That is what happened when the European Central Bank (ECB) pulled the plug on Cypriot banks after Russian depositors pulled out large sums.

Economic activity is the second part of the problem. Italy is probably the most vulnerable at the moment, and that is saying quite a bit, given how bad off Spain is. But Italy has more political uncertainty.

TGR: Italy has a new coalition government. Could that calm things down?

JT: It could calm things down for a while, but there is so much difference of opinion as to what is needed to solve Italy's problem, the various groups are too polarized. I do not see this coalition government lasting very long.

TGR: What will it take to cure this banking crisis?

JT: Capital. The banks are overleveraged and have too many bad assets on their balance sheet. Capital has been wiped out, even accounting for reserves set aside by the banks. That was clearly the case in Cyprus and is the case in most other countries.

The banks look solvent because the ECB is keeping them afloat with liquidity. If the ECB removes that liquidity, as it did with Cyprus, it will soon become apparent which banks are truly insolvent. Bank crises occur overnight for that reason: When the liquidity is gone, the bank closes up because it is not solvent. It lacks quality liquid assets that can be sold into the market to raise cash to meet depositor withdrawals.

Capital cannot be created out of thin air, which is something that politicians have yet to learn. They think that by borrowing more money from the market they can save the banking system. But they are just adding fuel to the fire because most European countries are already overleveraged.

TGR: Looking to the east, Japan just announced its own quantitative easing (QE). Will it win the currency race to the bottom?

JT: We seem to have a horse race going on that no one should want to win. Which is going to the fiat currency graveyard the quickest: the yen, the dollar, the euro or the pound? Right now, Japan is leading the race with its debasement of the Japanese yen through QE and government spending programs. This is astounding because when you look at economic activity around the world, Japanese GDP growth is better than most, and it has one of the lowest unemployment rates in the industrialized world. Japan was in pretty good shape until its new prime minister took over and laid out his policy to debase the yen.

TGR: Why has the dollar remained so strong despite QE here?

JT: Is the dollar really strong? When you look at the dollar against gold-which is what it should be measured against-the dollar has lost 16% per annum on average for 12 years in a row. At any moment, the dollar might look OK compared to the euro or vice versa, but you have to measure the dollar against something meaningful. I do that by looking at the dollar relative to the gold price.

I expect this multi-year weakness in the dollar to continue because, just as in Europe, Japan and in the U.K., the U.S. government and the Federal Reserve are following destructive monetary policies that are eroding the dollar's purchasing power.

TGR: Will that lead to hyperinflation and is there a tipping point for that to happen?

JT: I think it will lead to hyperinflation. There have been signs for quite a number of years.

You have to keep a couple of things in mind. One is that the inflation numbers released by the U.S. government and most governments around the world have been massaged and doctored to make inflation look lower than it really is. I rely on the inflation statistics that John Williams of ShadowStats.com puts together. Right now inflation in the U.S. is running about 9.5%. For example, commodity prices and the cost of things like property taxes and insurance premiums have been running much higher than what the U.S. government reports inflation to be.

Second, hyperinflation always comes from one cause: excessive government spending, forcing it to borrow. When a government borrows, it can only borrow what the market is willing to lend or what the market has the capacity to lend. If the government is borrowing more than the market is saving, it is, by definition, debasing the currency.

When no one is willing to lend to the government, it tells the central bank to buy its debt and turn it into currency. The central bank then puts this newly "printed" money into the government's checking account, which the government then spends.

We are headed for hyperinflation-not necessarily the paper-currency hyperinflation that occurred in Germany's Weimar Republic or in Zimbabwe-but a deposit-currency hyperinflation, like Argentina 12 years ago. There is not a lot of paper currency being printed, but there is a lot of money in bank accounts; this is currency that people spend with checks, wire transfers and plastic cards.

TGR: Recently, you talked on the "Keiser Report" about Bitcoin. Does it matter if digital currency has no value beyond accounting? Are there parallels between gold and Bitcoin?

JT: Bitcoin is not only a digital currency, it is a crypto-currency, a technological innovation we have not seen before.

The parallels to gold are quite interesting. I did a study recently for the GoldMoney Foundation showing that the aboveground stock of gold grows by about 1.8% per annum, year after year after year. That number is approximately equal to world population growth and new wealth creation, so gold's purchasing power has been consistent over long periods of time. Gold mining does exactly what Milton Friedman recommends in his K-rule: it grows the gold money supply by the same amount year after year after year.

Bitcoin is designed in essentially the same way, but instead of mining the earth you are mining mathematical formulas to arrive at a very consistent growth of Bitcoin until 2040, when approximately 21 million Bitcoins will be in circulation.

Bitcoin and gold each have advantages and disadvantages. The piece of gold you hold in your hand has 5,000 years of history. Bitcoin has maybe four years of history. On the other hand, because you can hold gold in your hand and store it in vaults, it can be confiscated by governments. Bitcoin, because it is a crypto-currency based on mathematical formulas stored in computers all around the world, cannot be confiscated.

Bitcoin has value to people who understand that confiscation is a real risk. In the last century, Lenin, Mussolini, Hitler and Roosevelt all confiscated gold to increase the power of the state. Once the state controls the money we use, it can control economic activity, which explains what we are seeing today around the world.

Crypto-currencies are here to stay and should be looked at closely by everybody, particularly those who understand sound money and appreciate the value and usefulness of gold.

TGR: Is Bitcoin an investment vehicle?

JT: No, because neither gold nor Bitcoin generates cash flow. Both are sterile assets. Investments generate cash flow. You put your money at risk in the hope of getting cash flow from your investment.

Gold is money. When the price of gold goes up, you are simply taking wealth that is already created and in the hands of people who own fiat currency, and transferring that wealth to people who own gold.

The same concept applies to Bitcoin. Bitcoin is money, not an investment. Its exchange rate can go up or down just like the price of gold. In that sense, Bitcoin could be called a store of value just like gold. The difference is that gold has a 5,000-year history; Bitcoin is much younger. We will have to see how Bitcoin plays out as a store of value in the years ahead, but regardless, Bitcoin is a useful currency because it makes possible low-cost global payments. It is a technological advancement that leaves bank payment systems in the dust.

TGR: Will governments see Bitcoin as a threat because it is an alternative currency not under their control?

JT: They may see it as a threat, but there is nothing they can do about it unless they seize every personal computer in the world. People are studying it, becoming familiar with it. Some day there may be a Bitcoin2 or a Bitcoin3 that is even better than the original.

That is the beauty of technology. Technology enables society to move forward and improve everyone's standard of life. Crypto-currencies may be the technological innovation that gets us out of our current monetary malaise arising from state control of money and enables us to return to vibrant economic activity that results when we use sound money.

TGR: Based on your Fear Index and the Gold Money Index, would you explain the difference between value and price?

JT: Price is the measurement we use when we enter into an exchange with someone else in the marketplace. Value is what something is truly worth.

In other words, I might have a house worth $500,000, but I sell it at $400,000. The purchaser is buying it at a price below its true value. On the other hand, I might sell that house at $600,000, in which case the purchaser is buying the house above its true value.

To correctly analyze gold, we must look at its value. We can measure gold's value by comparing it to national currencies.

I use the Fear Index to compare gold to the dollar and the Gold Money Index to compare gold's role in international trade and finance against all of the foreign exchange reserves held by the world's central banks. Gold is undervalued by both of those measures. Even though its price has been rising for 12 consecutive years against the U.S. dollar, it remains undervalued because the dollar itself is being debased at almost as rapid a rate as the gold price is rising.

The other thing about gold is that its value is not only expressed numerically. Gold is money that is outside the banking system. Because it is tangible, it has no counterparty risk. It is not money that depends on a bank or a government promise.

Given what happened in Cyprus and the fragility of many banks around the world, I think everybody should have some gold to protect themselves from the eventuality of a much larger banking crisis than what we have seen so far.

TGR: In light of all the volatility of gold and silver recently, how are you adjusting your portfolio? What roles do cash, physical gold, mining stocks and exchange-traded funds (ETFs) play?

JT: When you buy gold, you have to first identify your objective. Do you want to profit from movements in the gold price, or do you want a safe haven as protection from monetary and banking turmoil? You want the right tool for the right job, which depends on your objective.

If investors want a safe haven, physical gold with no counterparty risk is the way to go-you want to hold gold bars and coins. If investors want to trade to profit from fluctuations in the gold price, then you can look at what I call paper-gold instruments. These would be futures, options and ETFs. In this case, you do not own gold; you own exposure to the gold price and that exposure comes with counterparty risk.

I recommend focusing on gold as a safe haven: own physical gold and leave paper-gold to the professional traders and the speculators. Gold is part of the cash-the liquidity part-of your portfolio.

Mining shares go into the investment part of portfolios. Investors need to look at mining shares using the same process they do when buying any equity. What is the quality of management? What does the balance sheet look like? What do the assets look like? What is the political risk where the company operates? And so forth.

If you are prepared to shoulder those investment risks, you might then decide to have some mining shares in your portfolio as well. Generally speaking, I have never seen mining share prices this undervalued in relation to the cash flow they are generating, and, as a result, many mining companies have increased their dividends. If I am correct that the gold price will go much higher, I think mining company shares will rise much higher as well.

TGR: Is the TSX Venture Exchange a bargain basement right now?

JT: Everything is pretty much on sale. The question is when the mining shares go up, which ones will go up first?

There are a couple of characteristics that may give us a clue. Good dividend payers with secure cash flow will probably rise first. I would stay away from any mining shares that have any hedge positions, because those hedge positions will cut into profit as we have seen in the past.

I also would look to the mining shares with management teams that have proven themselves. There were a number of disasters over the past few years caused by companies focusing on growth rather than cash flow. They overpaid for investments and diluted their shareholders. Many of those executives have left and their successors have, I hope, learned the lessons of those departures. You always have to look at management first and have complete confidence in management before investing in any company.

TGR: Some people have predicted that hundreds of junior miners will be gone by year-end. Do you agree, or are you more optimistic?

JT: It is possible that a lot of them will go by the wayside and disappear, simply because capital is very hard to come by today. A lot of these little companies are the explorers looking for a resource, but even those that have a resource cannot always find the capital they need to develop it.

A lot of the smaller companies are at bargain-basement prices, but they come with a lot of risk. The less risky play would be companies that have a dividend record, a good management team and a strong, solid cash flow that will likely continue into the future.

TGR: Based on the five standard deviation decline that occurred in mid-April, what would the technical analysts predict for the price of gold this summer and the rest of 2013?

JT: The present drop in prices is very similar to what occurred in 2008, although it is not as severe a percentage decline. And remember, within one year of the low of 2008, gold made a new record high above $1,000/ounce ($1,000/oz) and silver more than doubled within 12 months.

I think history will repeat. Within the next 12 months a new record high in gold above $2,000/oz is possible, and I think silver will double.

TGR: Any last advice for investors looking to preserve or increase their wealth?

JT: When you are preserving wealth, you want a safe haven. Physical gold has been the best safe haven over the past 12 years, and I expect that to continue. You just need to make sure you store it with a professional storage firm where you have the assurances of integrity, that your gold is safe.

If you want to grow your wealth, you have to focus on investments, not the money in your portfolio. Here, you might want to look at the mining companies because there are some very good opportunities because of today's low prices.

I guess it comes down to a question of age. If you are older, you want to be more conservative and take less risk. If you are younger, you might want to take more risk. For me, the rule of thumb is that you should have gold bullion equal to your age. A 65-year-old pursuing a less-risky portfolio strategy should have 65% of his or her assets in gold bullion and the rest in various investments. A 25-year-old can have 25% of his or her assets in gold bullion and invest the remaining 75%, which means the portfolio has less liquidity and more risk.

Whether you are the 65-year-old investing 35% or the 25-year-old investing 75%, look at the gold mining shares because they are extremely undervalued right now. I do not think the gold mining industry is going to disappear, for the same reason that gold, with its 5,000-year record, is not going to disappear.

TGR: Great advice. Thank you so much for your time.

James Turk is the founder and chairman of GoldMoney, which launched in 2001. GoldMoney is an online bullion dealer in gold, silver and other precious metals, which its customers can store in Canada, UK, Switzerland, Hong Kong and Singapore. After positions with The Chase Manhattan Bank (now JP Morgan Chase) and Abu Dhabi Investment Authority, Turk began the Freemarket Gold & Money Report in 1987, which published until 2009 when he began occasional blogging at fgmr.com.

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DISCLOSURE:
1) JT Long conducted this interview for The Gold Report and provides services to The Gold Report as an employee.
2) Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) James Turk: 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.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise - The Gold Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8999
Fax: (707) 981-8998
Email: jluther@streetwisereports.com

Source: JT Long of The Metals Report (5/14/13)

http://www.theaureport.com/pub/na/15268

Last month's landslide at Utah's Bingham Canyon, one of the world's largest copper mines, triggered significant discussion on possible copper shortages. Brent Cook, veteran geologist and publisher of Exploration Insights, puts the landslide into perspective in this interview with The Metals Report. And for investors who want to dig out profit potential beyond the yellow metal, Cook gives us a byproduct primer and suggests base metals are a great way to diversify.

The Metals Report: In April, a landslide shut down operations at one of the largest copper mines in the world, Rio Tinto Plc's (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) Bingham Canyon mine. Thankfully, no one was injured. Are landslides always a threat at large, open-pit mines? Will this change the standards for how mines are built and their size?

"The slide represents close to 165 million tons of rock that will need to be moved out eventually-the equivalent of moving a whole mine."

Brent Cook: Landslides and rock falls are always an issue in open pits, and companies put a lot of effort into understanding the rock mechanics in order to build these mines and pits properly. They generally are not a major problem if sufficient upfront studies are done. The Bingham pit was opened in the early 1900s and has been expanding since then. While the slide is a major event, I do not think it will change how anyone builds mines per se.

TMR: Rio Tinto was looking at another expansion there. Will this make it tougher for that mine, or another of similar size, to expand?

BC: What happened at Bingham should not affect other mines of that size. I imagine the company is going through a lot of engineering analysis and trade-off studies to figure out what exactly it has to do at Bingham this year and over the next decade.

As you can see from the photo [below], this was a major landslide. I've worked at Bingham, so I know it real well. The mine produces about 400,000 ounces of gold and 430,000 tons of copper annually but I would guess there's enough ore stockpiled to last several weeks.

The slide represents close to 165 million tons (165 Mt) of rock that will need to be moved out eventually-the equivalent of moving a whole mine. Kennecott hasn't released specific plans so I don't know how much, if any, of the slide material would go to the ore pile versus waste. As I recall, the company had plans to go underground.

TMR: You think it will go underground instead of expanding the open pit?

BC: No, the underground mine was to be sequenced in and the open pit continued or expanded. But now that has to be one of the options being considered.

TMR: I understand that mine produced 25% of U.S. total supply. How will that affect the copper market dynamics?

BC: Not all that much, really. There is a lot of copper sitting in Chinese and London Metal Exchange warehouses. In terms of the global copper market, this mine represents only about 1%, but close to 25% of the U.S. market.

TMR: Copper is considered an economic indicator. Is the fact that prices have dropped from $3.70/pound ($3.70lb) in January to $3.10/lb in April an indicator that the world's economies are not recovering? Or is there just too much copper in the market right now, sitting in warehouses as you mentioned?

"Predicting short-term copper demand versus supply is only useful for long-term investors in this sector to the degree that it points out mispriced equities."

BC: That is a tough call. Copper has always been considered an indicator of future economic stability and growth. But in the past decade, speculators have taken heavily to buying and selling copper. I don't think anyone really knows how much copper is being hoarded in China as an investment, or for pure speculation. I have seen photos published by Standard Chartered Bank showing copper overflowing warehouses and filling parking lots. I think power consumption is probably a better indicator of economics these days than copper, but we will see.

TMR: Do you predict copper will stay in that $3.10/lb to $3.70/lb range for the near to long term?

BC: I do not really like to make those sorts of predictions because I am relying on data of varying quality published by people with a variety of agendas. I suppose I have a 50/50 chance of getting the direction right, but I still seem to miss more often than I should. In my mine models, I am keeping copper at a steady $3/lb. I see my job as laying out the technical data as best I can and leave it at that; I prefer to let my subscribers plug in their own optimistic or pessimistic numbers based on how they see the future.

Predicting short-term copper demand versus supply is only useful for long-term investors in this sector to the degree that it points out mispriced equities. You really need to consider what demand will be 2, 5, 10 or 20 years out. That is because it takes at least seven and upwards of 20 years to find and bring a new copper mine into production. I base my investments on what is happening further down the line, which, hopefully, allows me to recognize underpriced assets.

TMR: Does it cost more to mine copper now, as the easy copper is going away?

BC: Operating costs are going up considerably. I am not sure of the average production cost of copper, but I would assume it is in the $2-2.50/lb range.

Copper Supply Considerations

• Long mine development timelines
• High capital costs
• Likely project failures

TMR: All-in costs?

BC: Yes, all-in costs. If the copper price started dropping below $2.75 or $2.50/lb, a lot of miners would be in big trouble because operating costs will exceed the price they can get. That would take a lot of copper offline. That built-in mechanism of price support will eventually kick in.

When looking at the copper price, supply and demand, you really must consider the time it takes to bring a large mine into production, the very high capital expenditures, and the real likelihood that a number of projects in the works will not get built. I think in the long term, we are facing a supply shortage.

TMR: Because copper is often a byproduct of gold mining, sometimes companies will mine copper whether the supply-demand equation is there or not. How does a polymetallic ore change the prospects for projects?

BC: More often than not, one of the byproducts of a copper mine is gold. A good copper mine like Bingham produces 0.4 Moz gold as a byproduct and somewhere near 3 Moz silver annually. Those are economically important byproducts of the copper mine. When you are evaluating the economics of a porphyry copper deposit, the price of those two metals enters into the equation. It is very important.

Likewise, in a polymetallic metals deposit, copper, lead, zinc, gold and silver all flow into the stream. It takes different processing methods to recover those. With most types of polymetallic deposits, miners produce a few different concentrates and send them off to a smelter.

In a pure gold mine, miners just produce gold doré. You do not have to worry about anything else. Well, actually you have to worry about everything else, but at least there is only one metal produced.

TMR: Does how a mine is labeled (gold with copper credit or copper with gold credit) depend more on the makeup of the ore body or how the company wants to market the mine?

"Know what you are buying, why you are buying it and what your expectations are. Then, keep track of whether your expectations are met."

BC: When you are looking at a base metal deposit like a porphyry copper deposit or a volcanogenic massive sulphide deposit (VMS), the gold and silver are generally byproducts. The degree to which they factor into an economic valuation depends on the grade and recovery as well as the ultimate value they add to the operation. It depends on the deposit itself what the important metal is.

Typically, with a silver deposit, miners will recover lead and zinc as well, both important byproducts that can often account for half the value received from the sale of concentrate. Pure silver deposits are fairly rare.

TMR: Which polymetallic projects are you following? How are they making the most of all of the pieces of their projects?

BC: One is MAG Silver Corp. (MAG:TSX; MVG:NYSE). Its Juanicipio deposit in Mexico is mostly a silver deposit, averaging 600 grams per ton (600 g/t) silver. It also contains economically important levels of lead, zinc and gold that will factor heavily into the ultimate economics of the mine. Its Cinco de Mayo deposit is a true polymetallic deposit.

A company in Colombia called Atico Mining Corp. (ATY:TSX.; ATCMF:OTCBB) has a gold-rich VMS deposit. The gold will be approximately 40% of the total revenue; the rest being copper with some lead, zinc and silver.

TMR: MAG Silver just released its annual report. Were you happy with what you saw?

BC: There was not much in the way of results, but I do like the deposit. The Juanicipio property hosts one of the best silver discoveries over the past 10-20 years. Its joint venture partner, Fresnillo Plc (FRES:LSE), is in charge of bringing this on-line. Fresnillo is the operator; it is putting in a tunnel and conducting a lot of geotechnical studies. It is exploring and going through the permitting process. Things are happening, just not very exciting things.

TMR: One name in your portfolio is Almaden Minerals Ltd. (AMM:TSX; AAU:NYSE). What do you like there, and what do you think of its recent results from the main Ixtaca zone?

BC: The Ixtaca deposit is a gold-silver deposit, about 50/50. It has a resource of a little over 3 Moz, at better than 1 g/t gold equivalent.

"The degree to which byproducts factor into an economic valuation depends on the grade and recovery as well as the ultimate value they add to the operation."

We have known this company and its management a long time; a great company, great guys. When I visited the Ixtaca property after the first drill hole, I recognized it as a major mineral system with a lot of potential. I still believe there is more than the 3 Moz found so far. I think there is more high-grade mineralization that is yet to be intersected in the current resource or elsewhere on the property. I hope Almaden will be able to find it over the next 12 months or so.

TMR: Do you own base metals because of your confidence in the global economy, to diversify, or because you just like the project regardless of the metal involved?

BC: A little of all three. Coming into 2013, I was negative on the gold price and wanted to diversify. So we bought Alderon Iron Ore Corp. (ADV:TSX; AXX:NYSE.MKT), which has an iron ore deposit in Labrador. It is well located, has good infrastructure and a Chinese partner. The feasibility study points to this deposit being worth well over $3 billion. The company is selling for $150 million now. We bought it because I think it is probably the best, undeveloped iron deposit in North America and maybe the world. And it has a partner. In that case, I was trying to diversify out of holding so much gold.

We also bought Fission Energy Corp. (FCU:TSX.V; FSSIF:OTCQX) when it released a drill hole into its R390 East discovery. That made me realize that it could be onto a major uranium discovery. With that, we got about 0.33 shares of Denison Mines Corp. (DML:TSX; DNN:NYSE.MKT) per Fission share, in the Athabasca, again to diversify somewhat out of gold. We got two uranium plays out of that initial purchase. Denison is a likely acquisition target because of where it sits in the basin. Fission is on to the most exciting uranium discovery to come around in quite a while.

TMR: Iron ore, uranium, copper. What else are you using to diversify your portfolio?

BC: At the end of 2012, we bought a company called Synodon Inc. (SYD:TSX.V), which has nothing to do with minerals. It is a tiny company that has developed a proprietary technology to detect gas leaks from pipelines and such from the air. If this works-and it does-once the company starts lining up contracts, it will be a huge money-maker.

As diversification out of minerals, Synodon was an obvious choice. Gas-leak detection is a rapidly growing global business that both regulators and pipeline companies are pushing. Flying the length of a pipeline with a helicopter is a lot more efficient than some guy walking through the bush with a hand-held instrument.

BC: The last one is Westshore Terminals (WTE:TSX), a pure play on the commodities being shipped from Canada to China, and we pick up a dividend on the way.

TMR: There are lots of oil transportation companies, why did you choose Westshore?

BC: It pays a good dividend. It is in a real easy business: taking stuff off trains and sticking it on a boat. I like the simplicity.

TMR: Do you have any final advice on investing outside of gold for people looking to protect themselves?

BC: In the mining and exploration sector, it is really important to know what you are buying, why you are buying it and what your expectations are. Then, you have to keep track of whether your expectations are met or not. If they are not met, it is time to sell. Too many people hold on and their investment thesis turns to hope, just hoping something good will happen so the share price goes up. That has never worked for me.

TMR: That sounds like great advice, Brent. Thanks for your time and your insights.

Brent Cook brings more than 30 years of experience to his role as a geologist, consultant and investment adviser. His knowledge spans all areas of the mining business, from the conceptual stage through detailed technical and financial modeling related to mine development and production. Cook's weekly Exploration Insights newsletter focuses on early discovery, high-reward opportunities, primarily among junior mining and exploration companies.

Want to read more Metals Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Metals Report homepage.

DISCLOSURE:

1) JT Long conducted this interview for The Metals Report and provides services to The Metals Reportas an employee. She or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Metals Report: MAG Silver Corp., Atico Mining Corp. and Almaden Minerals Ltd. Fission Uranium Corp. is a sponsor of The Energy Report. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Brent Cook: I or my family own shares of the following companies mentioned in this interview: Fission Uranium Corp., MAG Silver Corp., Almaden Minerals Ltd., Alderon Iron Ore Corp., Denison Mines Corp. and Synodon Inc. 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.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise - The Gold Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8999
Fax: (707) 981-8998
Email: jluther@streetwisereports.com