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Will 'Peak Gold' Exploration Continue to Grow?: USGS' Micheal George

Source: Alec Gimurtu of The Gold Report (5/23/12)

http://www.theaureport.com/pub/na/13438

Global gold production is at an all-time high, according to a new report from the U.S. Geological Survey. In this exclusive interview with The Gold Report, the Survey's Mineral Commodities Specialist Micheal George pinpoints where the gold is coming from and what trends can be expected in the coming years.

The Gold Report: The U.S. Geological Survey's (USGS') Mineral Commodity Summaries (MCS) 2012 describes world mine production and reserves by country. What are the biggest changes from last year?

Micheal George: There weren't a lot of big changes other than replacing reserves that were mined during the previous year. The largest changes were Australia increasing reserves by 100 tons (t) and Canada decreasing reserves by 70 t. The reason behind Canada's decrease was the closure of mines due to exhausting mineable reserves. Australia's increase was due to adding new mines to its potentially active mine list.

Annual world mine production increased approximately 5% in 2011. It was the third year in a row of an increase in production and marked an all-time high for gold produced since recorded history. Compared to the recent low in 2008, production is up about 19% or 440 t. So it's recovered quite a bit.

TGR: What are the reasons for higher gold production? Is it simply because the gold price was higher?

MG: The gold price was higher, so more mines are processing, and they're pushing out more gold. A lot of it is coming from China right now. Quite a bit of gold is coming from other countries as well.

TGR: Are mining companies replacing reserves through exploration or acquisition?

MG: Both. Nowadays, a lot of the additional reserves have been coming from exploration, mainly around the deposits that are currently being mined.

TGR: How does the USGS estimate reserves for this report?

MG: Reserve estimates are calculated by the government in each country in the report. For example, the Australian government or Canadian government does research and revises reserve numbers and that is what we use in the report. The USGS also researches public company reserve reporting. Sometimes we use company published reserves if we know all of the companies in a country. For example in Papua New Guinea, all the mining companies are publicly traded, so they all have to report their reserves.

TGR: How about production and reserve numbers from China?

MG: The production numbers are straight from the Chinese government. I don't think it has updated countrywide reserves in the last couple of years. If it has, we don't have a new number from it.

TGR: Are you saying the change in gold price and increase in production over the last year hasn't materially changed the reported gold reserves in China?

MG: In our publication, yes, China's reserves have not changed too much mainly because we don't have any new reports out that have updated reserves or that Chinese miners have just basically replaced what they've mined out in recent years. Reserves are a moving target. It's constantly changing based on price, based on technology, based on a whole host of factors.

TGR: At these prices, are we running out of gold? In the energy sector, we hear about "peak oil." We don't really hear about "peak gold." Is there such a thing?

MG: "Peak gold" doesn't really work as a theory. There have been several historical "peaks" in gold production. There was a peak in U.S. gold prior to World War II in 1938 at 161 t. Production then dropped during the war because of a shift to wartime materials. Gold production trended downward until the 1970s because of low gold prices. After a sudden increase in gold prices in the 1980s, a rush to find new gold deposits led to the discovery of additional deposits in the Carlin trend area in Nevada. The Carlin mine had been operating since the 1960s, mining these massive, low-grade deposits. At that time, USGS geologists were out there and investigating these deposits. The U.S. Bureau of Mines helped develop the process of cyanide heap leaching, which, in turn, allowed the low-grade deposits to be economically developed. That caused a substantial increase in U.S. gold production. By 1998, we hit another high of U.S. gold production at 366 t. But at the time, the price of gold was at a historical low. By 2002, the price started to increase and has steadily increased through today. The persistent high gold price has led to increased production in 2010 and 2011, with new mines coming on-line and existing mines expanding operations. Continued exploration spurred by the high gold price has led to numerous discoveries, some of which have quite a bit of reserves, such as on the Cortez trend. There is a mine that just started up a couple of years ago that has a huge reserve right now. The world follows a similar pattern as the U.S., with multiple peaks in production over time.

In this way, gold is unlike oil, which is a consumed material. Gold is unique in that it's an investment, not merely a commodity. Because of its value, gold is rarely ever consumed in a traditional sense. It's nearly indestructible, and it's nearly completely recycled. I think the only gold use I found that isn't recycled is in spacecrafts. This means that an increase in demand may not be solely met by new supply. It could be met by scrap supply. It also takes decades for gold production to respond to price movements because of the time lag it takes from deposit discovery to production. It could take decades for a mine to start up. Also, when gold prices are low, production generally plateaus and may decline, owing to a lower rate of return on investment. At the same time, exploration for new deposits is minimal because companies need to reduce their expenses and they don't go looking for new deposits. That's what happened in the 1990s and early 2000s. There were historically low levels of exploration, so we had this time lag of about 10 years. Now, we're seeing the gold price affecting production and causing production to go up where we didn't see that a couple of years ago.

TGR: Is there a similar situation on the supply side where it takes decades or a long period of time to create sustained demand? Perhaps demand in China is an example?

MG: Not necessarily because demand can really bounce around quite a bit. You have a huge pool of recycled material sitting out there. So if the price gets high enough, people are willing to give up their gold.

TGR: Comparing gold to oil again, one meaning of "peak oil" is that we are running out of cheap and easily obtained oil. Now there's a lot of oil, but it's expensive to get to. Is there a similar situation for gold? As long as the price is high, people are going to look for it, but is it becoming more and more expensive to find, mine and process?

MG: Only when you compare dollars to dollars. Yes, it is more expensive to look for gold now than it was previously, but not significantly. If you put inflation factors on it, exploration and production costs have not risen nearly as much as for oil. However, when the price of gold goes up dramatically, companies will mine lower grade deposits. So if the gold price drops significantly, then ore grade would actually go up. Right now, miners evaluate deposits based on where the deposit ends or where the pit wall is going to be. The mine gets bigger as the price goes up, and the mine gets smaller as the price goes down. With a lower gold price, they are going after higher-grade deposits. But with a high price, they are going after as much ore as they can produce that is profitable.

TGR: You also mentioned that as the price of gold goes up, spending on gold exploration goes up. The 2010 Minerals Yearbook just came out. It says that gold was the primary mineral exploration target with more than 50% of the world's non-ferrous exploration budget of $5.4 billion, 59% more than in 2009. Do you see that trend continuing?

MG: Yes. That trend has continued from 2011. It has gone up again, and gold is still more than 50% of the targeted materials.

TGR: What is the next most popular mineral for exploration?

MG: Probably copper. It gets a little fuzzy because miners may be going after copper porphyry, but copper porphyry also has gold in it. But it's probably copper.

TGR: Is the nature of the mining industry still cyclical?

MG: Yes, it's just how mining is. There are boom and bust periods. The successful companies are able to spread out their risks more than others. They're making huge profits right now to make up for huge losses coming up. Mining is one of the few industries where the companies know they're going to have a big loss coming up eventually. The industry is cyclical. Gold prices go up, gold prices come down. In mining, they have to balance out the really good years with the really bad years. Hopefully the gains and losses offset and the companies make a profit over 30 or 40 years.

TGR: A large component of domestic gold supply listed in the MCS was imports of ore and concentrates from Mexico. How do those fit into the market?

MG: That is cross-border refining. Mexico doesn't have enough refining capacity to refine its own ore so it is sent across the border, sometimes by the same company owning both properties in the U.S. and in Mexico. Ore is sent to the U.S. to be further refined into either dore or bullion to be sold on the market. Sometimes, refined ore will be shipped to another country, say, Switzerland, where it's further refined into bullion, which enters into the London market to be sold.

TGR: Let's dig a little more into the recycling market. Last year, the U.S. had 225 t of gold recycled. That was approximately equal to the domestic mine supply.

MG: Yes. Regarding scrap, the price is driving people to give up their gold. Television commercials for buying gold air every day, and that's essentially what's driving the market. People are parting with their gold jewelry that they don't want anymore.

TGR: But for every buyer, there's a seller. So who's driving the demand side?

MG: Investment is driving the demand side, especially worldwide investors. Across the board, even in the U.S., people are investing in gold as a safe haven. They don't want to invest in the dollar or the euro because they aren't doing so well. So they find something else that is gaining value and that gives them a good rate of return but also has the liquidity in that they can sell it anytime, anywhere. Even if the world economy collapsed, gold would be valued by somebody somewhere.

TGR: Is this individual investors or central banks or both?

MG: Both. Central banks have historically been sellers on the market until 2010. Now they are buyers. The sellers are traditionally the European banks, and now we're seeing buyers from non-European banks.

TGR: What about institutional investors?

MG: Oh, yes, they're buying gold, too. Everyone from Joe Public to the Russian Central Bank and Chinese Central Bank is buying gold. Everyone is buying gold for investment.

TGR: We hear a lot about emerging geographies for gold exploration and mining. What about Africa? What are the largest producing countries in Africa?

MG: Africa as a continent is one of the largest gold producers, and it has more reserves than most of the other areas because it's underdeveloped right now. I just got some new numbers that show this year the third largest producer in Africa is Tanzania. Mali, which is now number four, went up, but Tanzania went up by more. Their numbers are pretty close to each other, so they probably will flop back and forth. They both have several large mines owned by multinational companies, so they're pretty stable owners. However, they won't catch up to South Africa any time soon.

TGR: South Africa is still number one?

MG: South Africa is number one, but it's falling just because of its age. Its mines are so much older, so much deeper and so much more complex. It's also been having labor issues. Across the board, costs have gone up. Everything is underground, and there are some mines that are two miles underground.

TGR: What country is number two in Africa?

MG: Number two is Ghana. Ghana is almost double Tanzania and Mali. South Africa is another 100 t above Ghana. So there's still room. No one is going to catch South Africa right away. It will take years.

TGR: And how is the U.S. doing?

MG: U.S. production is increasing. It increased again last year a little bit.

TGR: According to your report, annual production is approximately 230 t?

MG: It's been about that for a while. Some of the larger mines are aging so they're showing some drops in production. It can be hard to get new mines started in the U.S. The U.S. has several world-class deposits that are either in lawsuits or just having difficulties getting permitted.

There is a lot of gold up in Alaska that is untouched. There are a lot of areas in Alaska that are untouched for exploration also. Nevada still has quite a few deposits that are not developed that can come on-line soon. As I said, Cortez came on a couple of years ago, and now it's a huge mine.

TGR: Are there other areas in the U.S. that might contribute to gold production in the future? North Carolina has seen some activity during this cycle.

MG: North Carolina is an interesting area. It's all on private land. Mining companies own the land, so they don't have to worry about permitting like out West, where they have to permit through the Bureau of Land Management or the Bureau of Reclamation. They just have to get their permits through state agencies. It's a little easier that way. The deposits are different, the gold is locked up in quartz and greenschist, which is a little harder material to work with, but it can produce gold. There is one project that's far ahead of everybody else, and then there are a couple that are still in the early phases.

TGR: What is the project that is most advanced?

MG: The Haile mine from Romarco Minerals Inc. (R:TSX).

TGR: Can you explain what your group at the USGS does? Do you promote mineral development in the U.S.?

MG: We are like a warehouse of information. A company could call me up and ask questions about what has happened in the past and why the price has gone up in the last few years. It could ask me questions, but we don't do anything to directly promote mineral development.

We produce the MCS, which gives a quick glance at what's going on today in the gold industry. The larger, more detailed Yearbook gives more of an overview of what happened during that year so you can see where development and production took place. It provides insight into why production was flat per se or why exploration has gone up. It gives a good basis to understand the industry during the past year.

TGR: Thank you for your insights.

The most up-to-date documents referenced in this interview can be accessed here.

Micheal George is a mineral commodity specialist at the U.S. Geological Survey, where he serves as the principal contact for mineral commodity data and information, and as a referral source for business and industry representatives, foreign representatives, the general public and other agencies. George has also served as an economist for the Mineral Management Service and a researcher in the U.S. Bureau of Mines. George holds a Bachelor of Science degree in mineral economics from Pennsylvania State University and a master's degree in cartographic and geographic sciences from George Mason University.

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DISCLOSURE:

1) Alec Gimurtu of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: Romarco Minerals Inc.

2) The following companies mentioned in the interview are sponsors of The Gold Report: None. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.

3) Micheal George: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this story.

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First, Do Good When Mining for Gold: Benoit La Salle

Source: Brian Sylvester of The Gold Report (5/23/12)

http://www.theaureport.com/pub/na/13430

Benoit La Salle is the founder, president and CEO of SEMAFO, a mining company that rates its work in sustainability and community building as high as it does its gold production. In an exclusive interview with The Gold Report, La Salle tells investors why they should be looking at both gold and West Africa right now; which company report is most important (hint: it's no longer the annual report); and what a company's most critical asset is, no matter its project.

The Gold Report: You have been working in West Africa since the time when only a handful of companies explored there.

Benoit La Salle: I created Société d'Exploration Minière d'Afrique de l'Ouest (SEMAFO) Inc. (SMF:TSX; SMF:OMX), West Africa Mining Corp., in 1985. At the time, I was a member of the board of a very large non-governmental organization, and we were spending hundreds of millions of dollars in Africa. Mining was a very small component of the economic activity in those countries, more specifically in Burkina Faso, where mining did not exist. I decided to create a company that could help them develop the mining sector, accompanied by sustainable development. So very early on, we brought in the concept of sustainable development with geological and mining development.

Africa is a very interesting geological ground. It's similar to South and North America, with big greenstone belts that had not been looked at for many years. When SEMAFO came in with global positioning systems, geophysics, new tools and satellite imagery, we were able to see things they didn't see 100 or 50 years ago. We found mines in Guinea and Niger, which we developed and built. We found the Mana district in Burkina Faso. We've already developed the first mine there.

For the people involved, these are career-making discoveries, especially the one in Burkina Faso, where the structure is 150 kilometers (km) long, and we've looked at 25% of the structures. We have a fantastic first-class asset. When we first started, Burkina Faso had fewer than five permits issued; today, it has 770 permits issued.

TGR: The growth has been phenomenal. There has to be a tremendous advantage to having first-mover status.

BLS: Absolutely. Where in the world can you own a belt? You can't. We own most of the Houndé belt right now, 2,200 square kilometers of it, and that's because we were there first-we were able to position ourselves.

TGR: SEMAFO produced about 250,100 ounces (250.1 Koz) of gold in 2011 from three mines in three countries-Niger, Guinea and, of course, Burkina Faso. Your average cash margin on those ounces produced was an astounding $909/oz.

BLS: What is really amazing is those margins are pure gold margins. We don't have credits because we produce silver or copper.

TGR: No byproduct credits.

BLS: It's a pure gold play. Sometimes you see a mine that has a margin greater than one of ours, but it's a zinc mine that the company transformed into a gold mine. At SEMAFO, we have pure gold mines. Our total cash costs last year were in the $600s/oz, giving us a margin of $900/oz. Those are exceptional. Could you see margins like that elsewhere in Africa? Not in South Africa, where the mines are very deep and very expensive, and it's very difficult. There are mines like that in Mali, with Randgold Resources Ltd. (GOLD:NASDAQ; RRS:LSE). The new mines of North America, once Osisko Mining Corp. (OSK:TSX) is up and running at full capacity and Detour Gold Corp. (DGC:TSX) has gone through commissioning, will have margins that are similar to this. When we put Kiniero in production in 2002, our margins were hardly $40-50/oz. Even in 2006, the margins were still $50/oz. In 2011, the cash margin was $900/oz. If you looked at our financial statement in Q4/11, the margin was $1,024/oz.

TGR: Are companies that complain about creeping cash costs making a valid point or are they not operating efficiently?

BLS: In the industry right now, there are the operators that have real mines, and there are the ones that have mines that should not have been mined, but are because of the high gold price. The good companies that have mines with 2, 3 or 4 grams per ton (g/t) have absolutely fantastic profitability. If a company is putting into production a 0.8 or 0.9 g/t deposit, it has to be extremely good at what it does and very efficient because there is no room for error. If that mine is in a country where the currency appreciated, then it can be even more difficult for a U.S.-reporting or Canada-reporting entity, where the currency is playing a negative role in costs. For us, of course, we're affected by fuel; fuel is a main cost driver in our structure. But in Africa, because the main currency is the euro, with the euro coming down, the gold price going up and the U.S. dollar going up, we win on all fronts.

TGR: You believe the SEMAFO Foundation is crucial to your success and has provided SEMAFO with a social license to operate in West Africa.

BLS: SEMAFO is not a company that mines gold, ships it out and, once that is done, breaks down camp and leaves. Though that approach was the approach for the past 50 years, I do not believe that, in a high gold-price environment, with social networking, it is viable anymore. We saw that 15 years ago. When we built our first mines, we made sure that the communities were involved.

Four years ago, we realized that promoting all of our social work through a structured foundation would be even more profitable for the community, the government and the organization as a whole. Through Fondation SEMAFO, our suppliers can also give back to the community. It is a standalone organization that works in the communities surrounding our mines. It has three approaches to its global strategy: education, health care and income-generating projects. If people have access to education and health care and can earn a living, their lives will be changed. And SEMAFO remains strong. We have no employee turnover. They have ownership of the brand. The families are involved, and people make a decent salary. The kids go to school. They have access to our medical clinics.

We build schools, and we negotiate with the government so that it hires and pays the teachers, because we want this to be sustainable. As another example of sustainability, in each new school, we create a lunch program. The first year, we subsidize it. The second year, we help them create a garden to produce vegetables. The third year, we make sure they know how to run it correctly. The fourth year, it's a self-sufficient cafeteria. When we arrived in this area, 20% of the kids were going to school. Now, 80% are going to school, and they scored 20% better than the national average. We did this in four years.

This is not tied just to the mine. Once the mine is over, which can be 10, 20 or 30 years, the infrastructure will stay behind. We also have programs to cultivate paprika and sesame that employs about 15,000 people, and a Shea manufacturing facility where soap is manufactured, marketed and sold internationally. All of that is income generating, and it's sustainable. We have a weekly radio program, Together for a Better Society, which is broadcast in five official languages and airs throughout much of West Africa. We did a survey in Burkina Faso recently, and 76% of the people who participated in the survey recognized SEMAFO's name or the logo.

People see SEMAFO as being a very good corporate citizen. That is the proof that this approach is the only approach, especially in today's environment where there's a great discrepancy between the haves and the have-nots, especially in developing countries. The mine is not something to envy but something to help grow because of the positive ripple effect.

TGR: What do you say to the company that looks at your margins and decides to try for even bigger profit by not investing as much in the community?

BLS: I'd say the company is dreaming, especially if it wants to come to Burkina Faso, because we have set the standard here. The ministers of mines and of development have visited the project and our philanthropic sites, and that is what they want for their population. Last year in Burkina Faso, the unions wanted to go on strike in the mining sector. There were five mines that had issues, and Mana, which is the SEMAFO mine, didn't lose an hour of production. We didn't even hear about the strike until later because the people who were approached said, why would we do this-we have it exactly the way we would dream of a company operating a mine in Africa.

I really believe that all companies are going to start to realize it's not only the new way but also the only way going forward, especially if the gold price keeps going up. It will be unbearable for the people who use the old method. We'll see what we're seeing right now in South America, where the governments are either saying they're going to own a lot more or giving a new tax rate. The reason they do this is because the populations don't see the benefits of these mines, and they have to see the benefits of these mines. And more and more shareholders are asking to review our corporate social responsibility (CSR) approach. Today, many people believe that the CSR report is more important than our annual report.

TGR: Ethical funds are becoming increasingly prevalent in the investing space. Would that be another argument for why companies should take this sustainability and social-license approach?

BLS: It's an argument, but I think it's the wrong argument. It has to be part of the company's values. If it's not part of the values, it's going to be a task. If it's a task, the company's not creative, not motivated. OK, ethical funds are popular, so it's going to do that. Which vice president is not busy enough so he can take that task? It doesn't work. It has to be part of the company's culture. If the company really wants to have a presence in this way, it should be on the NASDAQ OMX, an ethical exchange, and it can only get there if it goes through the Ethics Committee, and it's very demanding.

TGR: Back to the gold part of your business. In your annual message to shareholders earlier this year, you wrote that in 2011 SEMAFO paid off all of its debt and remains "unhedged and able to fund our value creation activities internally." Does that mean you're looking at mergers and acquisitions (M&A) activity or conducting further exploration and development work on the areas surrounding your mines, especially your flagship Mana gold mine in Burkina Faso?

BLS: Yes, we have the money to fund all of our own growth internally. Today, there's a massive capital expenditure (capex) inflation, so it's very difficult for people to build. We have a team of 150 seasoned mining executives in the company, working in Africa and in Canada, making up our development, engineering and construction teams; we do almost everything internally. Mana is our primary project, but we're still extremely vigilant about looking at other assets. Many are being devalued because the company's balance sheet is weak, the company will never be able to raise the money to develop the asset, it doesn't have the team or the market is just tired of waiting for a company to develop the asset. There will be great opportunities in the months and years to come for producers like us to pick up projects at a very deep discount.

TGR: Talk more about projecting gold price.

BLS: I always pay close attention to what Pierre Lassonde at Franco-Nevada Corp. (FNV:TSX) says. I like Kevin MacLean at Sentry Investments Inc. Both of these guys look at China. There alone is a constant growth in demand for gold. Also, the devaluation of currencies around the world and the change in the philosophy from cutting expenses to increasing expenses to create some growth-all of that is positive for gold. There is going to be massive printing of money in North America, and that is unbelievable for gold. The more you print, the more people will go into the gold space to protect their assets.

TGR: SEMAFO produced just under 61 Koz in Q1/12, including 48 Koz from the Mana mine. SEMAFO trades at a 10% discount rate to its midtier peers in West Africa. How do you explain that?

BLS: We have produced 61 Koz. We haven't yet put out our financial results, so the $0.10/share is what the Street expects. We put out a selling price at $1,710, but we haven't yet put out our earnings per share. That will be out on May 15. [Editors note: On May 15, SEMAFO confirmed earnings per share of $0.10.]

Being in Burkina Faso, we are part of a massive exploration rush. Hence, the labs that do the assays on our samples are completely bogged down. The results of our drill campaign of September, October, November and December are only coming in now. When we announced in January that those results were late and that the reserve resource update would be late, the market immediately assumed that was bad news, and our stock was penalized.

TGR: What are other companies operating in West Africa that you keep an eye on?

BLS: We look at Randgold, IAMGOLD Corp. (IMG:TSX; IAG:NYSE) and Avion Gold Corp. (AVR:TSX; AVGCF:OTCQX). Avion has the Tabakoto and Segala mines in Mali. In Burkina Faso, we watch Avocet Mining Plc (AVM:LSE).

TGR: There are a few explorers out there with some promising projects: Orezone Gold Corporation (ORE:TSX) with Bomboré, African Gold Group Inc. (AGG:TSX.V) with Kobada and Roxgold Inc. (ROG:TSX.V) with Yaramoko.

BLS: Yes. Other projects such as those on our watch list are Gryphon Minerals Ltd. (GRY:ASX), Ampella Mining Ltd. (AMX:ASX), Volta Resources Inc. (VTR:TSX) and Oromin Explorations Ltd. (OLE:TSX; OLEPF:OTCBB) in Senegal. Some already are in bed with larger producers. Merrex Gold Inc. (MXI:TSX.V; MXGIF:OTCQX) in Mali has a deal with IAMGOLD. A few have deals with Newmont Mining Corp. (NEM:NYSE).

TGR: Do you think Avion's Houndé project in Burkina Faso will become a mine?

BLS: Absolutely. I really like the Houndé belt because it is showing grade. Grade is everything. In French, we say "le bon teneur font les bons mineurs"-good grade will make you a very good mining company. That's what Mana is all about.

TGR: In a business where things can often be unpredictable, grade provides a margin of error.

BLS: Precisely.

TGR: Last year, we saw Kinross Gold Corp. (K:TSX; KGC:NYSE) buy some assets in Mauritania and then take a $4+ million write-down on those assets.

BLS: It was a very smart purchase. It bought probably the best discovery of the last 10 years. Because the asset is on a belt, the country is very keen to see it develop. Now, the market is changing. The capexes have gone up. The operating expenses have gone up. In Q1/11 in Africa, we were paying $0.91/liter (l) for fuel. Right now, we're paying $1.36/l. Put that into the geological model and look at the effect. It's deadly. The Kinross write-down is an accounting situation. Don't think that it's a project situation. When that's in the model and the gold price is at $1,200-1,300/oz, of course your cutoff grade will change. There is an accounting situation, especially under International Financial Reporting Standards, where companies have to do impairment tests every quarter. Kinross still has a fantastic project. It's just that based on the new capex, based on the approach, it had to take a write-down.

TGR: Do you think that that will scare other majors from coming in and buying assets in West Africa?

BLS: No. It just brought everybody back to the same page. Newmont took a write-down, too.

TGR: What advice would you give to investors seeking exposure to West Africa?

BLS: I think we are going back to the basic principle of investment, and that's management, management, management. Investing in projects that you like without looking at who's behind it has been a mistake for the past three years. I have refocused my project presentation to shareholders to talk about track record. If you have one of the best track records in the industry, like we do at SEMAFO, the shareholders are now paying a lot more attention to that than they were in the very strong bull market of 2009-2010.

TGR: Who has more upside now: explorers, development plays or producers?

BLS: Producers. If you're going into the explorers, you're hoping for the home run. The home run is one out of 500 companies. If your approach is $10,000 into 400 stocks, maybe, but most people don't have the knowledge, the expertise and the time to do this. If you look at the explorers or even the developers, there are too many deadly risks: financing, permitting, construction, commissioning. You don't want to be there in a gold-price environment as we have now. The emerging midtier producers are the ones that are going to give you the best return on your investment in the years to come.

TGR: Agreed, but you have said that you'd be willing to go even further with some exploration projects once the market suits you. There are only a handful of advanced gold projects in West Africa. If you're looking for one, then surely Randgold and some of these larger midtier companies will be looking at those underpriced assets as well.

BLS: True, but some of those development assets still don't make economic sense. If you look at the price you're paying, plus the capex, sustainable capex and the operating expense, there is no money left for the buyer. So if you're a holder of those, you need to get out now. You need to take a close look at the valuation and ask if it's really compelling. People have been looking at Africa and West Africa for the past three years. How many transactions have we seen? Very few because the valuation was ahead of itself, and it made no economic sense for the producers to buy those assets. That's why we are in no rush. We're going to see much lower valuation on the explorers and the developers before we see transactions, before M&A.

TGR: What advice would you give to a junior company that wants to develop a CSR program in Africa?

BLS: Learn from the majors' CSR projects. Work with someone local to the country to understand priorities. Look at what's being done globally so that you see what the possibilities are. Then you go there, do the work, take your time, really establish the needs and the priorities. CSR is an approach. It's not what you do. What you do is part of the approach. But you have to have CSR as a philosophy.

Benoit La Salle is the founder, president, chief executive officer and director of SEMAFO Inc. He is a Fellow Chartered Accountant and a member of the Canadian Institute of Chartered Accountants. He holds a Bachelor of Commerce degree from McGill University and a Master of Business Administration degree from IMEDE, Switzerland. In 1980, La Salle founded Grou, La Salle & Associates, Chartered Accountants. La Salle serves on the boards of several public companies and is the former chairman of the board of Plan International Canada, one of the world's largest international child-centered non-governmental organizations.

Want to read more exclusive Gold 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 Exclusive Interviews page.

DISCLOSURE:

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/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: Franco-Nevada Corp., Avion Gold Corp., Orezone Gold Corp., African Gold Group Inc., Detour Gold Corp., Roxgold Inc. and Merrex Gold Inc. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.

3) Benoit La Salle: I personally and/or my family own shares of the following companies mentioned in this interview: SEMAFO Inc. I personally and/or my family am paid by the following companies mentioned in this interview: SEMAFO Inc. I was not paid by Streetwise Reports for participating in this story.

Streetwise - The Gold Report is Copyright © 2012 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.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles 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 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 Gold Report (5/21/12)

http://www.theaureport.com/pub/na/13417

From gold and silver to energy and oil services, Frank Barbera, editor of The Gold Stock Technician Newsletter, sees a bright future for commodities and their equities. In this exclusive Gold Report interview, Barbera cites large blue-chip and midtier mining companies, especially those now paying dividends, as favorites and suggests that investors looking to protect retirement savings invest in bond funds outside the U.S.

The Gold Report: Europe is in the headlines daily: more leftists coming to power, regional banks suffering, renewed recession appearing to take hold. What is your take on Europe?

Frank Barbera: In the headlines, Europe looks like quite the mess. Imagine being a Greek who saved over a lifetime now facing the possibility of devaluation or Greece leaving the euro. If Greece pulls out of the euro and devalues, most of the people will see their life savings collapse in terms of purchasing power.

In my view, there is a pretty good chance that would spark a contagion. When people in Spain or Italy see Greece pull out and return to a devalued drachma, there will be bank runs in other countries. Money will move out of those banking systems into perceived safer havens. That is how a contagion gets started.

The situation in Spain also is very serious. It has chronically high unemployment, in excess of 24%; youth unemployment is nearly 50%.

All of the leading indicators for Europe are pointing down. Europe seems to be descending into a major recession; even Germany is backsliding toward recession. The breakup of the euro would greatly exacerbate that. Interest rates would shoot up in bond markets around Europe, spreads would blow out.

If you were an Austrian school economist you would say, let it unwind, let the debt default and the governments stand back and do very little. That would be a very severe dose of medicine to take.

Instead, I think we will get more government intervention, as we saw in December 2011, when some of the big Italian and French banks were staring into the abyss of default. The European Central Bank came in, expanded its balance sheet with a long-term repo operation and loaned money to the commercial banks that needed liquidity. At that point, 547 banks asked for help. That liquidity infusion helped the markets stave off a bearish, deflationary downturn for a few months.

Politicians will act only when the cost of not acting exceeds the cost of acting. With markets nearing a panic now, that Minksy moment demanding a political response to market contagion is growing very near. As a result, I think we will soon see more money being printed and more liquidity injections as politicians attempt to stretch the problem out.

TGR: You do not expect a big explosion, but a long, painful, downward spiral?

FB: Not quite either one. I think Europe is on the edge, tap dancing with a deflationary collapse. I do not think the politicians want it to collapse; there is too much of a vested interest in keeping the euro together despite it being an inherently flawed structure.

If Europe wants to stay together, it must take steps toward becoming a real fiscal union. That means buying time by continuing to create liquidity and infuse money. Essentially, the politicians will resort to the printing press. The outcome of that will, over time, be higher inflation rates.

I do not expect an explosion of inflation, but over time there is a definite risk of an increase in inflation, as more and more money is created. Higher inflation combined with rather static "managed" exchange rates will over time amount to an internal devaluation of debt and paper money purchasing power.

TGR: What would that do to commodities?

FB: That is fundamentally very bullish for commodities, especially the precious metals but to some degree also food and energy. Commodities are generally scarce. If you exhaust an oil well, you have to find a new oil well to replace it. Gold is basically very scarce. Both commodity equities and commodities will probably do fairly well, especially equities, in the countries with the biggest problems.

TGR: And what about China? If China is not growing as much as predicted, what impact will Asia have on commodity prices?

FB: I think Asia is going to slow down. Europe is one of Asia's biggest export markets. If Europe slows down to a recession level, that will naturally trim growth and the inflation rate in Asia. China has a potential overcapacity problem due to overinvestment in capital over the last decade. That could take some time to work through, but it is a state-run economy with a better chance of navigating it. The Chinese government may be able to control credit by telling the banks they cannot lend and having the banks obey. Right now, China has an easing policy in place, which might help it mitigate some downside risk. I think China could be heading for a recession, but not for a major collapse.

TGR: Turning to the U.S. economy, we hear that things are improving: upticks in construction spending, declines in joblessness claims. This is an election year. Do we sell in May and go away, or can the markets continue to make further gains?

FB: There are a couple of interesting points to be made. With respect to sell in May and go away, the historic data suggest that is not a bad idea except in an election year. Typically, the few months in front of the election-May to October-are pretty good.

Seasonally, the stock market has a nice tailwind behind it. However, that said, I am afraid that the current news trends show just a steady sequence of bad news coming from Europe and that implies that markets will likely be hostage to the European debt crisis for some time to come. In addition, later this year, around Labor Day, it is estimated that the U.S. will face a second debt ceiling crisis, which is already looking to become a major pre-election issue, and could ultimately result in more credit rating downgrades, so the next few months have several major wildcards already built into the deck.

Finally, I want to acknowledge that this concept that PIMCO has stressed, the "New Normal," still seems to be the overriding theme, which is one of very slow nominal growth and actually flat to negative real growth. As an example, go back and take a look at the U.S. economy between 1995 and 2005, you had a little over a 5% growth rate. In 2008, the U.S. economy slowed to about a 2% growth rate. I think that is what we will see for quite some time to come, so one can say that we live in a world where growth itself is becoming a very scare commodity. In my work, I have dubbed the current recovery, the "Subdued Recovery" as you need to look past the headlines about employment improving to see the devil in the details.

Employment reports have improved, but when you look at the composition of the jobs that have been created since 2008, most of them have been in low- to moderate-wage categories. Since 2008, the U.S. has actually shed high-wage jobs. That has big implications for something like housing. To buy a house, the first thing you need is a job. The second thing you need is a high-wage job so you can afford to carry a mortgage. Oversupply in the housing market and scarcity of new high-wage job creation is not a recipe for a housing turnaround. To me, that means housing will stay low and maybe plateau for a long time.

On the average personal balance sheet, the two most important assets are a house and retirement savings. In a consumer-led economy, 72% of gross domestic product is consumer spending. If real estate and housing are going to remain depressed, it becomes very important to keep a retirement account buoyant because if any of those asset classes are depressed, a negative wealth effect is created. This leads to a slowdown in spending and the U.S. could easily relapse back into recession.

I think that is why we have seen more central banks intervening. Quantitative easing programs are being enacted every time the stock markets start to weaken. The idea behind that is to create asset inflation and keep retirement accounts at least reasonably buoyant. This way you keep a positive wealth effect and maintain consumer spending, at least enough to sustain slow growth. That is how you give the economy time to restructure and eventually work down and deleverage the big debt load.

TGR: Going back to the commodities, gold and silver are way down from last summer. Are you still bullish on precious metals and other commodities?

FB: I am getting very bullish on gold and silver. I think precious metals as an asset class will do very well and you will see new, all-time highs in both gold and silver over time.

TGR: The equities behind those commodities have not kept up even with the step-up that happened from last year. What will take those equities higher?

FB: That is a pretty interesting situation, a one-off anomaly. It looks as if the mining industry has been negatively affected by rising costs over the last few years. That, along with the fact that there has not been much yield for a long time, left the mining sector and some of the other resource sectors languishing.

I think that is starting to change. Looking out two to five years, if we do see a rising trend in inflation, I think money will look very favorably at resource-related stocks. Today, the multiples on some of those stocks are as cheap as they have ever been. A few years ago, gold mining stocks were selling at 30 to 40 times earnings. They are now down to 6 to 8 times earnings and, in some cases, 8 to 9 times cash flow. That is something you see maybe once every two or three decades. That means there are very cheap stocks and some outstanding values.

In addition, many companies are starting to boost dividends because, even with rising costs, they are doing very well and are reporting solid cash flow gains. So now, all of a sudden, you have a yield kicker. I think that could be the beginning of a very long, positive trend. Given the large markdown we've seen in the last few months, it seems that the market perceives a deflationary threat from Europe and is marking mining stocks down. I suspect that will turn out to be an over-reaction and you will find mining stocks at very attractive levels.

You can say the same thing about a lot of other groups: energy, oil services, large-cap energy, some of the master limited partnerships (MLPs), some major commodity producers in the grain market. There are a lot of areas that investors should be looking at.

TGR: What are some of the undervalued stocks you see in the mining sector?

FB: I like all of the large, blue-chip gold miners: Barrick Gold Corp. (ABX:TSX; ABX:NYSE), Goldcorp Inc. (G:TSX; GG:NYSE) and Newmont Mining Corp. (NEM:NYSE). I probably should disclose that I actually own some of those, so I'm talking my own book.

These companies are selling at very depressed multiples. Newmont recently instituted a nice dividend program, where if the price of gold goes higher, it will automatically boost its dividend. If gold goes through $2,000/ounce in the next few months, Newmont yielding a 4-5% dividend would be an attractive situation.

There are some good quality, midtier emerging seniors like Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) and Eldorado Gold Corp. (ELD:TSX; EGO:NYSE). You have the royalty companies that look attractive, like Franco-Nevada Corp. (FNV:TSX).

SteelPath has a very good fund that has MLPs yielding 6-7%. In the oil services sector, I would name Schlumberger Ltd. (SLB:NYSE) and land drillers like Baker Hughes Inc. (BHI:NYSE) and Nabors Industries Ltd. (NBR:NYSE). It may take a little bit more time and may be a little bit early on some of the land drillers, but as we get closer to the end of the year, they will have some write-downs coming. Once we get past that, a lot of the bad news will be up. Some of those stocks are selling at 7 to 8 times earnings. I definitely see good value in energy services and even in some of the larger-cap oils, like Murphy Oil Corp. (MUR:NYSE), Occidental Petroleum Corp. (OXY:NYSE), ConocoPhillips (COP:NYSE) and Chevron Corporation (CVX:NYSE).

If you want to look outside the U.S., there are the large Chinese oil companies. In Brazil, Petrobras (PBR:NYSE; PETR3:BOVESPA) is selling at some of the cheapest levels in years.

This is a good time to look at the natural resource-related stocks and look to take a very broad, cross-section approach where you own a little in different areas.

TGR: How do you evaluate a royalty company? Just because it pays a dividend does not mean it is a good company.

FB: The royalty companies in the mining space are Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) and Franco-Nevada.

Franco-Nevada is a blue-chip company. It has stellar leadership in Pierre Lassonde, who built up the company from nothing years ago. It has an outstanding portfolio and an enticing balance sheet. Franco-Nevada has resisted this particular downdraft. Large-cap, senior companies like Barrick, Newmont or Goldcorp have seen 30-40% declines in the last few months. Franco-Nevada has basically held even. I believe that Franco-Nevada today is a truly great growth story on the order of some of the best growth stocks we have seen in the last few decades. Royal Gold seems like a pretty well-run company, but in my opinion, I would not put Royal Gold in the same category as Franco-Nevada.

TGR: Assuming that we are facing an inflationary situation over the years ahead, what is your best suggestion in terms of an asset class for conservative investors?

FB: That is a major issue for the large number of retirees in the U.S., people who used to invest in certificates of deposit, because right now the banks are paying nothing. We have financial repression coming from the Federal Reserve. The book This Time is Different by Carmen Reinhart and Kenneth Rogoff talks about how the Fed will run negative real rates for years and reduce the value of its debts.

Federal Reserve Chairman Ben Bernanke is telling people he will keep the interest rates low for the next three years. I would take him at his word. When I look at the U.S. yield curve, with a 0% short-term rate and negative real yields all the way out to the 30-year bonds, I think that is a recipe for a weakening dollar. Of course, we could have a deflationary outcome in the near term, which could temporarily lift the value of the dollar, but I think a falling dollar will be a major theme over the next few years.

It will be really important for U.S. investors to look at non-dollar bonds. There is a good chance that we will see the final lows in Treasury bond yields in the next 12 months and Treasury bonds will move into a bear market. We hear about this bond bubble a lot. The bonds you have to be worried about are Treasury bonds, not foreign bonds, not emerging market debt, not necessarily even junk bonds.

There are a lot of bonds around the world that are negatively correlated to Treasury bonds. When Treasury bonds move into a bear market and long-term yields start to back up in the U.S., American investors will need to start looking at other income generating categories including assets like global bond funds and emerging market debt funds, and even TIPS funds and MLPs. There are bond categories where you can earn a conservative yield and generate a relatively safe total return. That is one idea: to think globally and become globally diversified.

TGR: Lastly, what is the best investing advice you ever received, whether you took it or not?

FB: The best advice I ever received was not to buy and hold anything, but to maintain a tactical approach and be flexible. Diversify is another good piece of advice.

In difficult economic times, your biggest single advantage is the ability to be tactical, to be nimble and to react to changing market conditions. The one big positive most investors have right now is that the menu of potential investment vehicles has really grown in recent years, including a proliferation of exchange-traded funds (ETF) and mutual funds.

Ten years ago, the average individual could not access Australian or South Korean bonds. Today, we can buy Hyundai stock denominated in South Korean won or South Korean bonds or Australian bonds. There are even ETFs for things like this. Last week, PIMCO launched an emerging market debt fund denominated in local currencies. These are the kinds of products I think will be very useful over the next few years in helping people tactically navigate the kind of economic conditions coming our way.

TGR: Great advice, Frank. Thank you for your time and insight.

Frank Barbera, CMT, is a veteran money manager and is currently the editor of The Gold Stock Technician (GST) newsletter, published since 1993. He uses technical indicators to analyze precious metals and mining stocks, as well as oil and the overall market. Barbera has also managed private equity capital for a number of years, most notably for the Los Angeles-based Caruso Fund, which earned returns in excess of 20% during the last bear market. In his role as a hedge fund manager, he sought to regularly trade precious metals, energy and currencies along with the broad stock market indices. In 2006, Barbera was included in the book Master Traders: Strategies for Superior Returns from Today's Top Traders.

Want to read more exclusive Gold 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 Exclusive Interviews page.

DISCLOSURE:

1) JT Long of The Gold Report conducted this interview. She personally and/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 Gold Report: Goldcorp. Inc., Franco-Nevada Corp. and Royal Gold Inc. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.

3) Frank Barbera: I personally and/or my family own shares of the following companies mentioned in this interview: Newmont Mining Corp., Franco-Nevada Corp., Yamana Gold Inc., Barrick Gold Corp. and Goldcorp Inc. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this story.

Streetwise - The Gold Report is Copyright © 2012 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.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles 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 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