The Gold Report's  Instablog

Source: Kevin Michael Grace of The Metals Report (6/18/13)

http://www.theaureport.com/pub/na/15380

Australian mining companies have been hard hit by falling commodities prices and rising costs. But Petra Capital Analyst Andrew Richards believes his country's resource sector has turned a corner. In this interview with The Metals Report, Richards says that costs are falling and China's need for Australian metals will continue to grow. He also names companies that are well positioned to flourish in the near future.

The Metals Report: Australian mining Newcrest Mining Ltd. (NM:TSX; NCM:ASX) has announced huge layoffs and capital expenditure cutbacks. Does this signify a crisis in the space?

Andrew Richards: "Crisis" is certainly a strong word, but there is definitely a correction occurring in the market. Gold and iron ore in particular have come off their peaks. What we are seeing in Australia is a lot of cost-cutting across the board. That's probably something that needed to happen because labor costs had risen significantly over the last few years due to competition for personnel. The big companies, such as BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) andRio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK), have said that Australia has become relatively uncompetitive because of very high labor and engineering costs.

With the fall in some of the commodity prices, companies have had to lay off people where they can and put a stop to some of the planned growth projects. Newcrest was an example of that. Companies are now focusing on cash flow rather than just growth. They want to maintain or improve margins where they can. But I will say I think Australian costs have peaked and are already on their way down.

TMR: Australian mining billionaire Gina Rinehart last month accused Prime Minister Julia Gillard of treating the mining industry like an ATM. How much of a threat to the industry is the Labour government's mining tax?

AR: The mining tax, at this stage, affects only iron ore and coal. And companies need to make a profit of at least $75 million ($75M) before that tax kicks in. It certainly has an impact on big companies, such asFortescue Metals Group Ltd. (FMG:ASX), BHP and Rio Tinto. Having said that, the government had estimated significantly higher revenues from the tax than it has received. Maybe that's a reflection of the pullback in commodity prices, particularly iron ore.

Moving forward, there is an election in Australia in September, and the polls are saying that the current government will lose. The incoming government, should they win, has said publicly that they would remove this tax. So we'll wait and see what happens in September.

TMR: Let's talk about some of the companies you cover. Alkane Resources Ltd. (ANLKY:OTCQX; ALK:ASX) has zirconium, niobium and gold. What are the challenges of managing a company that has such diversified resources?

AR: Alkane's Dubbo zirconium-niobium project is certainly unique. With these sorts of projects, you have to make sure you have a flowsheet that works and is proven. Alkane has had a pilot plant operating for over four years now, so it has actually proven that flowsheet and sent product off to customers. It has signed an offtake agreement with a significant Japanese company, Shin-Etsu Chemical Co. Ltd. (SHE:Fkft). Obviously, there are always risks as you scale up from the pilot plant to the major plant, but I think the company has mitigated them as much as possible. The key now is getting Dubbo funded.

TMR: In April, Alkane came out with a revised feasibility study for Dubbo with a capex of $996M. How is this new feasibility study better than the previous one?

AR: Alkane did reduce the capex by around $70M. It made some improvements with the water recycling, which means that it could reduce the size of the evaporation ponds required. That was quite positive. Also, it slightly improved the costs, and the company has some improvements coming through on recoveries, which could help on the revenue side.

TMR: How does Alkane intend to raise this nearly $1 billion ($1B)? How important are offtakes and cash flow from its Tomingley gold project in this regard?

AR: Tomingley will produce 50,000-60,000 ounces (50-60 Koz) annually starting early next year. It's a nice little cash flow generator: At current gold prices, the project should generate about $20-25M/year. Alkane may well look to do some hedging should the gold price find support and have a bit of a run up over the next three to six months.

The plan with Dubbo is to sell up to 15% at the project level for anywhere from $150-200M. I mentioned Shin-Etsu, which has signed a memorandum of understanding (MOU), and there is strong interest from other companies in Asia and North America. The company is also talking to government agencies, which could provide cheap debt, up to $400M at low interest rates. So that adds up to around $550-600M. Alkane has appointed Credit Suisse and Sumitomo Corp. (8053:TKY; SSUMF:OTCPK) of Japan to help facilitate the project selldown and negotiate government debt. All together, that could mean $800M in funding. The balance would be equity, and Alkane is targeting a maximum of $200M. The first thing we'll see will be the selldown, hopefully by the end of this year.

TMR: How crucial have offtakes become to companies involved in setting up nonprecious minerals projects?

AR: They are important; there's no doubt about it. I think there is a window open over the next four to five years for companies such as Alkane to lock in long-term offtakes. Shin-Etsu is a major player in the rare earth element industry. It has a separation plant in Japan, and it will be treating the concentrate that Alkane produces. The market will be looking to see these MOUs convert into offtake agreements over the next six to 12 months.

TMR: How confident are you that Alkane is a winner going forward?

AR: I think it is in a great position. I'm confident that it will get the funding for Dubbo and deliver on what it has said it is going to do. Dubbo's economics are very attractive. The $1B capex should be paid back within five years. Dubbo's current reserve equates to a mine life of over 30 years, and the resources equate to over 70 years. And it will be providing not just light rare earths but a majority of heavy rare earths, which are in short supply, as well as the zirconium and niobium. It is certainly far more advanced than a number of other competing projects globally.

TMR: Let's talk about Crusader Resources Ltd. (CAS:ASX). It has the Posse iron ore project and the Borborema gold project in Brazil. Posse just went into production. How does this affect Borborema?

AR: Posse is a small iron ore project. It started producing at 300,000 tonnes per annum (Ktpa) and recently just got the environmental approval to expand to 1 million tonnes per annum (Mtpa). What distinguishes Posse is its cash costs. It is targeting $12/tonne, which is bottom quartile globally. Current iron ore prices are around $110/tonne. It will be selling high-grade ore for anywhere between $75-100/tonne. So the margins are quite good. That will start generating some good cash flow: at current production rates, probably at least $1M/month. At the expanded rate of production, it could be three times that.

Posse provides cash flow to Crusader, which can then be used to move Borborema forward. Crusader is currently doing a bankable feasibility on Borborema. We're talking about production of about $100 Koz/year at cash costs of around $750 an ounce ($750/oz).

TMR: Is that all in?

AR: All-in cash costs are probably more like $950/oz, so it's still attractive at current prices. We won't get the final numbers until probably later this year, so these are my estimates. It has 1.6 Moz in reserves and 2.4 Moz in resources. It is open-pit, and the costs should be low because of the cheap labor and power available in Brazil.

TMR: Where do you see iron ore prices going?

AR: What I've read from some of the larger brokers is that prices are close to the bottom right now. We'll wait and see. Commentators say that stockpiles in China are falling, and there is a real possibility they could look to restock in the second half of 2013, which might help support prices.

TMR: Alara Resources Ltd. (AUQ:ASX) has the Khnaiguiyah zinc-copper project in Saudi Arabia and the Washihi-Mullaq-Al Ajal and Daris copper-gold projects in Oman. Is the Gulf Region particularly mining friendly?

AR: It is. Saudi Arabia, obviously, has a long history with oil and gas. However, it is now looking to develop its mining industry to create employment and a more diverse economy. We've seen some companies move into Saudi Arabia in the last five to six years. Citadel Resources Group had a copper-gold project that Equinox Minerals Ltd. bought, which was then bought by Barrick Gold Corp. (ABX:TSX; ABX:NYSE). There is another zinc-copper project to the south called Al-Masane, and there are some government-owned gold projects. Saudi Arabia is a good place for investment. Corporate tax for 100% foreign-owned entities is only 20%. There are no royalties. Diesel is just $0.08/liter.

Oman has a longer mining history. It is copper rich and has a copper smelter on the coast. Fuel is only slightly more expensive there than it is in Saudi Arabia but is still very cheap.

TMR: What are the highlights of the Khnaiguiyah feasibility study released in April?

AR: The feasibility study showed a 13-year mine life, production of 80 Ktpa zinc and about 6 Ktpa copper. Cash costs are attractive at $0.46/pound ($0.46/lb) zinc. That's after copper credits in the first seven to eight years. Life-of-mine cash costs are $0.50/lb. So at current prices of around $0.85/lb, it looks good. Longer term, I think it should be quite exciting, as most groups forecast that zinc will be in a deficit within two to three years because of some large mines shutting down. That could be very good timing for Alara with first production targeted to begin by late 2015.

The capex is $257M. The Khnaiguiyah project has access to the Saudi Industrial Development Fund, which has billions of dollars and can provide up to 75% of the capex. The application process to this fund is underway, and the company is targeting completion of that by the end of this year. So Alara is in a much better position to get its project funded than some of the other juniors.

TMR: What do you think about the copper-gold assays that Alara has been getting at Washihi?

AR: They're very good. It has been getting big, thick intersections of 70-80 meters (70-80m) and over 100m of over 1% copper plus gold, at reasonably shallow depths as well. It looks like it could be an open-pit operation with quite a modest strip ratio. More important, the deposit is still open along strike and also at depth. The current resource is around 9 million tonnes (Mt), and I think that will be upgraded in the next couple of months. I think Washihi will start off small, but Alara could get it up and running within two years, so the company could have two projects running by late 2015.

TMR: How would you rank Alkane, Crusader and Alara?

AR: All three offer significant upside. Crusader has just started generating cash flow, which is attractive to investors in the current market. Alkane is not far behind, with its gold project starting up early next year. And Alara has its low-cost zinc project in Saudi Arabia and upside from its copper project in Oman.

TMR: Briefly, are there any other Australian mining projects (not necessarily ones that you cover) that you think are particularly noteworthy?

AR: In this market, everyone is looking at projects that have low costs and can make money throughout the cycle. In gold, Regis Resources Ltd. (RRL:ASX) is one that stands out. It certainly has low costs and an appealing growth profile. In copper, PanAust Ltd. (PNA:ASX) and Sandfire Resources NL (SFR:ASX)are certainly making very healthy margins. In iron ore, BC Iron Ltd. (BCI:ASX) has been a standout. It has been one of the best performers of the past few years with very healthy margins at current prices.

TMR: How much does the economy of Australia depend on Chinese industrial expansion?

AR: Australia is quite dependent on China because we are still a commodity country, and China now consumes around 40% of metal production across the board. It's a big consumer of our iron ore and coal. There is concern at the moment that China is slowing, but with growth figures of 7-7.5%/year, it still looks pretty healthy. And, of course, China's base is a lot bigger than it was even a few years ago.

TMR: How do you stand on the debate over the so-called commodity supercycle? Do you think we can expect it to last for a while longer?

AR: Yes, I do not think that the cycle is over. Our view remains that China still has a lot of growth ahead of it, and it looks like the U.S. is starting to pick up as well. Hopefully, we'll start to see that come through in the next six to 12 months. Europe still has its issues, but if the U.S. and China continue to grow, then the outlook is pretty positive.

TMR: Do you think that the Australian economy's best days are ahead of it?

AR: Good question. Australia has done well for quite some time. A number of mining companies said that our resource market has become uncompetitive, but we're starting to see improvements. Also, the Australian dollar had been very strong for a couple of years now, but it's now back down to around $0.94 to the U.S. dollar. A weaker currency really positively impacts revenue in the Australian resources industry because commodities are priced in U.S. dollars. And Australia remains a very attractive place for investment given its low geopolitical risk. Looking ahead, there is a lot to be positive about, and I expect better times from the second half of 2013 onward.

I think that investors just have to be a bit more selective. There are a number of projects that are high cost and will struggle, but there are also plenty of attractive projects, including the ones I've mentioned, that will make good money throughout the cycle. And when the cycle picks up again, these projects will do extremely well.

TMR: Andrew, thanks so much for your insights.

AR: A pleasure, Kevin.

Andrew Richards is a rated analyst in gold and base metals with Petra Capital of Australia. He is a geologist and has worked for such major miners as Newcrest Mining and Western Mining. He has over 15 years experience as an analyst, including for such leading firms as Merrill Lynch and Shaw Stockbroking.

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) Kevin Michael Grace conducted this interview for The Metals Report and provides services to The Metals 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 Metals Report: Alkane Resources Ltd. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Andrew Richards: I or my family own shares of the following companies mentioned in this interview: Alkane Resources, Crusader Resources and Alara Resources. Petra Capital has previously raised capital with the following companies mentioned in this interview: Alkane Resources, Crusader Resources and Alara Resources. 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: Kevin Michael Grace of The Gold Report (6/17/13)

http://www.theaureport.com/pub/na/15376

The price of gold remains in the doldrums, but Jay Taylor, host of the radio show "Turning Hard Times into Good Times," expects the bull market to come roaring back. In this interview with The Gold Report, Taylor cautions that not all miners are equal and advises investors to look for companies with cash flow and the potential for organic growth.

The Gold Report: Many believe that the price of gold represents a market referendum on the value of paper money and the health of the world economy. Do you agree?

Jay Taylor: Yes, I do. Gold rose from the mid-$200s/ounce (mid-$200/oz) in 2002 to as high as $1,900/oz. That clearly suggests that things are not all right in the global economy. Politicians like to create the illusion that they can create something out of nothing and give it to people in exchange for votes. Gold gets in the way of that falsehood politicians wish to use to deceive voters for their own gain and the gain of those who fund their election campaigns.

TGR: Gold has fallen from $1,900/oz to below $1,400/oz. Some people say this proves the bubble has burst.

JT: I wish that were the case because that would mean that the policymakers-the people in charge of the Federal Reserve, the Treasury and of other countries and banks around the world-had fixed everything, but I don't believe that for a minute. If anything, their policies are making things worse.

I wish there was a reason to be optimistic about the global economy. Keynesian economic policies didn't work in the 1930s, and they're not working now. Franklin Roosevelt's Treasury secretary and a personal friend of the president said after the second term, "We have just as much unemployment as we had at the start of the downturn, and we have a huge amount of debt to boot." And the same thing can be said now if we use the same measure of unemployment as we did in the 1930s.

As David Stockman said recently, Fed Chairman Ben Bernanke is in the process of destroying capitalism. Pushing interest rates to zero destroys savings and creates malinvestment. That works very well for the people who control the supply of money and credit, but it doesn't work very well for the people who are actually contributing to the economy: miners, manufacturers, farmers. The middle class is being destroyed. That's why, if you are not on Wall Street or in government, you have to own gold and silver because the currency is being used to reallocate wealth from most of us to those who rule us from Washington and Wall Street.

TGR: But we keep hearing that the recovery is just around the corner.

JT: Well, that's what they said in the 1930s, too.

TGR: You've talked about gold "being increasingly a bipolar market." Do you think we're going to see a divorce between the paper and physical gold markets?

JT: I think that, ultimately, physical will win, especially as those in the futures markets demand delivery, only to find the gold doesn't exist. ABN Amro has already defaulted on its delivery obligations and required settlement in paper. As long as people think they can take paper money and still go out and buy the gold or whatever else they want, this fraudulent system can hold together. But ultimately, as trillions upon trillions of new money is created, it will fail. I don't know how long that will take. The paper markets are controlled and dominated by Wall Street, which joins Washington in this con game. But the real markets for gold are not only the Chinese but also average Americans and average citizens everywhere who have their eyes open and their ears shut to mainstream propaganda. They know the ruling elite are the parasites eating away at their wealth.

TGR: If there were a divorce between the physical and paper gold markets, wouldn't this be a severe blow to financial instruments generally?

JT: Yes, ultimately it should be. But we have had all manner of immoral behavior on Wall Street with the housing bubble, yet nobody has gone to jail. The fox is in charge of the chicken coop. If the markets force some sort of honesty on these evildoers, it would be a good thing. But it wouldn't necessarily be pleasant for anyone. A fair amount of circumstantial evidence from the Gold Anit-Trust Action Committee (GATA) and other sources supports the contention that the big bullion banks are manipulating the precious metals markets. That's supposed to be against the law. But as Dr. Karen Hudes, former chief counsel at the World Bank, pointed out on my radio show on June 11, there is a powerful group of corporations that rule America and that are above the law. That would include the bullion banks, the mainstream media and the governments of the Western world.

TGR: Why do you think the big run-up in the equities markets has not buoyed the prices of precious metals stocks?

JT: Mining stocks have not performed well relative to the price of gold even before the price of gold fell. Part of the reason is that the cost of production has gone up faster than metals prices. Mining profits started to erode as Quantitative Easing 2 (QE2), QE3 and QE infinity started pumping up the prices of other commodities such as energy and materials. In addition, the gold mining companies were scaling up and became fairly reckless. I watch very closely the "real" price of gold, which I define in terms of the Rogers Raw Materials Index. After Lehman Brothers, the "real" price of gold rose dramatically and with that so did the earnings of major gold producers.

Note from the charts above that the upward trend in the "real" price of gold has been broken and with that major gold mining company profits have also declined and are projected to decline further this year.

TGR: New Gold Inc.'s (NGD:TSX; NGD:NYSE.MKT) takeover of Rainy River Resources Ltd. (RR:TSX.V) and its Rainy River project in Ontario is not a big takeout. It's $310 million, but it's the first of any size that we've seen for some time. Do you think this is a one-off, or do you think that we can expect bigger companies taking advantage of the depressed share prices of the smaller ones?

JT: No, I think it's not a one-off. It's likely to become a trend. Something like 50% or more of the junior resource companies are on death's door; they don't have enough money to stay in business for another year. Many of those companies can now be had for a song. Shareholders will say, gee, at least I'm getting something out of it. They won't have a choice.

TGR: Which of the bigger companies are actively looking for acquisitions?

JT: Certainly Sandstorm Gold Ltd. (SSL:TSX), which employs a streaming model, is a company that's looking to pick up some assets. I suppose some of the really big miners that I don't follow as much, the household names like Newmont Mining Corp. (NEM:NYSE) and Goldcorp Inc. (G:TSX; GG:NYSE), will be in a position to pick up some of the smaller juniors.

But it's not so much mergers and acquisitions that I'm interested in. My target is mostly smaller juniors that are cash-flow positive, don't have to issue tremendous numbers of shares, have great exploration potential and can grow organically. For example, Dynacor Gold Mines Inc. (DNG:TSX) is one of my favorites. The company will produce about $0.30/share in cash flow this year. It is selling at around $1.15/share and will probably double its production to over 100,000 oz by 2014. Dynacor also has some wonderful exploration targets. The company has about 28 million shares outstanding, and it never issues more. It funds its needs internally from cash flow.

One of the biggest risks that shareholders have to be cognizant of in this industry, especially among the exploration companies, is dilution. Dynacor has been patient and has grown slowly but steadily over the past several years. It provides milling facilities in Peru to high-grade mom-and-pop operators. Peru has something like 75,000 small, licensed operators, so Dynacor has really carved out a niche business and its growth prospects are very substantial.

Timmins Gold Corp. (TMM:TSX; TGD:NYSE.MKT) is another company with good cash flow and is certainly in a position to grow organically from its San Francisco mine in Mexico.

TGR: There has been a fair amount of protests against foreign mining companies in Peru. Do you think that Peru is solid from a mining viewpoint?

JT: I do, though you have to look at companies in Peru on a case-by-case basis. Dynacor has been there for a long time, and it has done an extremely good job of working with the government and the people. Dynacor has not been arrogant, like many of the majors. I'm not saying Peru is risk free. I don't think any place on earth is risk free, including the United States. But Jean Martineau, the president and CEO of Dynacor, has worked from the bottom up, and the company is viewed as almost a Peruvian company. The capital has come from outside, but it's really the Peruvian people that are the company and they are benefitting from Dynacor's business model. Rather than a Canadian company going into Peru and grabbing major tracts of land and putting smaller producers out of business, Dynacor enables small mining operations to continue producing gold and building the wealth of middle- to upper-class family wealth.

TGR: Could you comment on some other companies that you follow?

JT: I met with Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCPK) management a couple of weeks ago. The company is really on to something very significant with its Chinchillas silver project in Argentina. The project already has outlined some 110 million ounces (110 Moz) silver equivalent, and it has barely scratched the surface of its exploration targets. Joe Grosso, the chairman, has really done a remarkable job of forming relationships with the local people in Argentina.

San Gold Corp. (SGR:TSX.V) is a completely different story. The company's operating performance over the last number of years has been a big disappointment. But I believe we're going to see a turnaround. San's revised management team has a much better grasp of costs and is employing capital to make its mining operations in Manitoba much more efficient by linking high-grade zones together. San should be able to pull more high-grade ore out of the ground. That's why I placed a fairly heavy bet on it personally and in my newsletter. San's infrastructure is in place. I could be wrong, but if I'm right, we could be looking at a $1.80/share price instead of a $0.14/share stock.

TGR: You met with Prophecy Platinum Corp. (NKL:TSX.V; PNIKF:OTCPK; P94P:FSE) CEO and President Greg Johnson at the World Resource Investment Conference in Vancouver. Afterward, you said that this company's story "stood out head and shoulders above the rest." What is it about Prophecy's Wellgreen platinum group metals and nickel-copper project in the Yukon that so impresses you?

JT: A whole lot of factors. I visited the project a couple of years ago before Prophecy brought on Greg Johnson, and I've always believed that it was perhaps one of the greatest PGM projects in the world. I didn't feel at that time that the company had the management in place to really pull it off. A project of this scale is going to require a massive amount of technical talent. Greg was a co-founder of NOVAGOLD (NG:TSX; NG:NYSE.MKT) and also worked with South American Silver Corp. (SAC:TSX; SOHAF:OTCBB).

After Johnson came on, John Sagman was added to the team. He was with Xstrata Plc (XTA:LSE) and also with Vale S.A. (VALE:NYSE), handling the nickel and platinum group metals operations. I think Sagman and Johnson form a management team core that can actually get it done. Wellgreen's scale, size and dimensions of mineralization and the grades of the platinum group metals are remarkable. We're looking at widths and thicknesses that exceed anything that Ivanplats Ltd. (IVP:TSX) and the other companies in South Africa have. The big question here has to do with metallurgy. This is a deposit of 7 Moz platinum group metals plus gold, 2 billion pounds (2 Blb) nickel, 2 Blb copper and the exploration potential is absolutely enormous. But can Prophecy get enough of the metals out? Can it be optimized to the point where the deposit is economic? I think with Prophecy's new management team the answer to those questions is most likely yes.

TGR: Wellgreen's preliminary economic assessment shows a capital expenditure (capex) of $863 million. Is that going to be a problem considering the current economic conditions for raising money?

JT: Absolutely. That is certainly the other major concern here. Close to a $1 billion in capex is not very easy for a company selling at $0.65/share. But management is looking at the potential to develop high-grade starter pits, which would enable it to start out at a smaller scale with a much smaller capex.

TGR: Do you like the prospect-generator model?

JT: Yes, mainly because prospect generators use other people's money to derisk projects and avoid dilution. Prospect generators, at least the companies that I follow and respect, have very strong technical talents in exploration. They've identified projects that have a reasonable potential to host meaningful ore deposits. Most companies have a couple of projects and blow through huge amounts of money to drill them out. Prospect generators do some low-cost preliminary work to establish a geological thesis for exploration. Then they get other companies to come in and spend their money.

TGR: What companies do you like in this area?

JT: Eurasian Minerals Inc. (EMX:TSX.V) is my favorite. There are other companies that I would call hybrid prospect generators, companies like Aurvista Gold Corp. (AVA:TSX.V), Bravada Gold Corp. (BVA:TSX.V)and Paramount Gold and Silver Corp. (PZG:NYSE.MKT; PZG:TSX). But among pure project generators, Eurasian has the biggest projects and the most money, and it is allied with the biggest mining companies. I think it's just a matter of time before Eurasian comes up with at least one major economic deposit that sends the stock to much higher levels.

There are others I like, such as Riverside Resources Inc. (RRI:TSX). John-Mark Staude, the president and CEO, is doing a remarkable job. Riverside has projects in Mexico and in the United States and also now some base metals deposits that are being explored by major companies in British Columbia. The company just announced some excellent high-grade silver results from trench assays and drill core on its Jesus Maria mine on its Penoles project in Durango, Mexico. This could be the first discovery that catapults the company from a $0.35/share stock into the mining big leagues.

Millrock Resources Inc. (MRO:TSX.V) has copper and gold projects that major companies are spending some serious dough to explore. Miranda Gold Corp. (MAD:TSX.V) just hooked up with Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) as a strategic partner in Colombia. Miranda has an ample amount of cash but is looking hard at picking up good projects from companies unable to stay alive in this difficult market.

Paramount is definitely a takeover target. This is a company with a little less than 10 Moz gold equivalent in Mexico. Lots of exploration upside remains on both of its projects. Paramount has deep pockets. I like this one a lot.

And I like Aurvista quite a bit as well. I think that if we get a rise in the equity markets, the company is going to be fine. Aurvista's grades are around 1 gram/tonne, with lots of exploration potential. It could be a multimillion-ounce deposit. Aurvista could be a takeover target somewhere down the road.

Bravada is skating on thin ice right now. The company just lost its partner in the Wind Mountain gold-silver project in Nevada, Argonaut Gold Inc. (AR:TSX), but that project is very strong. Argonaut walked away not because it didn't like the project, but it just picked up Prodigy Gold Inc.'s projects, so it had to preserve its capital. The geologists loved the project. I think Bravada will get another partner in there and will do extremely well, if it survives.

TGR: John Kaiser expects a wholesale cull of mining juniors: 500 companies or more. What do you think?

JT: I think John's right. Some will disappear in acquisitions, and some will just stop doing what they're doing. As much as I love gold and silver, the mining sector is not immune to malinvestment. Some stocks rise in the good times but can't be sustained because there's no organic growth, no cash flow to sustain them. And thanks to the creation of money out of thin air, they were born as public companies but no doubt should never have been on the scene in the first place, thanks to dishonest fiat money, which funds the yachts for Vancouver stockbrokers, but ends up sending average people to the poor house.

TGR: A great many investors in mining stocks have moved from gloom to despair. Do you have any words that would cheer them up?

JT: We are still in the bull market of a lifetime in gold. I follow the work of Charles Nenner, who is a cycles analyst. Charles is calling for a mid-June turnaround in gold and silver. I'm 66 years old. I was around for the last gold bull market in the 1970s. This is going to make that one look like child's play. I think we can expect something comparable to what we saw in the 1970s, when gold went from $35 to $200 to $100 and then from $100 to $850/oz. It's not necessarily something to be happy about because it portends a lot of trouble geopolitically and in the global economy, and that's not something I want to see. I don't invest in gold because I'm cheering for the world to fall apart. I invest in gold and silver because I believe the policymakers are guaranteeing the world will fall apart.

TGR: If this big run-up starts this summer, how long before the benefits start accruing to mining companies?

JT: That's a very good question. I'm not absolutely sure they will. I hope so, but this will happen only if we see deflation rather than hyperinflation. If we have a hyperinflationary event, I think the only real thing to do is to own the metals itself. If we head into a deflationary depression, I think gold mining will do extremely well as it did in the 1930s. But mining is like any other business. Revenues need to be higher than expenses. In a hyperinflationary environment, costs tend to rise faster than the price of gold.

TGR: Gold producers did well during the Great Depression.

JT: Extremely well. Homestake rose by six or sevenfold, while the Dow went down 89%; gold producers did well because the real price of gold rose. While the price of gold was fixed at $35/oz, deflation caused wages and materials costs to decline and profits to surge.

TGR: Thanks, Jay.

JT: My pleasure.

As he followed the demolition of the U.S. gold standard and the rapid rise in the national debt, Jay Taylor's interest in U.S. monetary and fiscal policy grew, particularly as it related to gold. He began publishing North American Gold Mining Stocks in 1981. In 1997, he decided to pursue his avocation as a new full-time career-including publication of his weekly Gold, Energy & Technology Stocks newsletter. He also has a radio program, "Turning Hard Times into Good Times."

Want to read more 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 Streetwise Interviews page.

DISCLOSURE:
1) Kevin Michael Grace 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: Goldcorp Inc., Timmins Gold Corp., Golden Arrow Resources Corp., Prophecy Platinum Corp., NOVAGOLD, Aurvista Gold Corp., Paramount Gold and Silver Corp. and Argonaut Gold Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Jay Taylor: I or my family own shares of the following companies mentioned in this interview: Aurvista Gold Corp., Bravada Gold Corp., Dynacor Gold Mines Inc., Eurasian Minerals Inc., Golden Arrow Resources Corp., Millrock Resources Inc., Miranda Gold Corp., Riverside Resources Inc., Paramount Gold and Silver Corp., Prophecy Platinum Corp., San Gold Corp., Sandstorm Gold Ltd. and Timmins Gold Corp. I have never been paid by any of the companies mentioned in this interview in exchange for their coverage in my newsletter. However, with the exception of Sandstorm Gold, the companies my family or I own as noted in 3), all of the other companies have at one time or another in the past been sponsors on my radio show, "Turning Hard Times into Good Times." 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: Brian Sylvester of The Gold Report (6/14/13)

http://www.theaureport.com/pub/na/15373

In his 36-year career, Michael Ballanger, director of wealth management at Richardson GMP, has seen good markets and bad. As a true contrarian, he sees opportunity in undervalued precious metals assets and lauds George Soros' recently reported large gold-related positions. In this interview with The Gold Report, Ballanger discusses market sentiment and some companies that he expects to take off when the market turns.

The Gold Report: A news story in mid-May reported that billionaire hedge fund manager George Soros had almost $240 million ($240M) in gold-related positions. Moreover, on May 16 he had purchased $25M in call options on the Market Vectors Junior Gold Miners ETF (GDXJ). What are your thoughts on that move?

Michael Ballanger: All one needs to look at is the historical relationship between gold and gold shares to see the logic behind such a move. With every market on every continent now surging to record high levels in response to central bank stimuli, it would be reasonable to manage risk by owning one of the most beaten-down sectors I can ever recall.

TGR: Why does someone like Soros buy gold-related instruments and not equities, even the large caps?

MB: In the case of the GDXJ, he is actually buying a "basket" of equities related to gold/silver mining and exploration. By doing this, he spreads his risk over a large population of companies in the same space. Picking individual companies in this space invites execution risk because as we have seen in numerous cases in the past decade, a one-off event such as politics or natural disasters can undermine a correct call on the sector as a whole.

TGR: Are you aware of other big-time players that are making similar moves?

MB: Not specifically and certainly no one as notable as Mr. Soros. It is interesting that the managers who were early in the gold trade such as Eric Sprott are more bullish today than ever and that is noteworthy given gold's performance since 2000; despite this current correction and in my view, it is a correction rather than a secular bear.

TGR: When last we spoke you were convinced the market had found a psychological bottom. You noted that at the end of 2012, the TSX Venture Exchange (TSX.V)-acting as a proxy for the junior mining sector-was trading at 0.71 times the gold price. As of May 31, it was 0.69 times the gold price. Do you see the TSX.V-gold price ratio moving further sideways for the foreseeable future?

MB: I based my "bottom call" on sentiment. The sentiment in the junior space in January was abysmal and it is just as abysmal today. However, weak sentiment numbers, while historically reliable, do not tell you that the price has stopped declining. In that context, I was early because not only has the Venture Exchange dropped to new lows under 1,000, the TSX.V-gold ratio has recently hit .66 versus the bull market high over 5.0, which is actually quite remarkable.

TGR: What's your thesis for investing in mining equities (large, mid and small cap)? Precious metals investors want to know what they should do over the course of the summer months. What's your advice?

MB: There is always a degree of seasonality to the mining sector and the numbers dictate that one should wait until mid-August to begin initiating positions but I suspect that may be too "cute" because of the severity of the valuation compression we are witnessing in the juniors. Companies that were considered good value at $75/ounce (Measured) are now trading at under $20/ounce and so these prices may not wait for mid-August if gold decides to reverse or if sentiment shifts early back to the bull camp.

TGR: In our last interview you discussed "well incubated" junior mining companies, ones with a core of investors that understand how the game is played and have the long play in mind. Where are those companies?

MB: In a nutshell, some have done quite well but most have been disappointing. Despite either positive earnings reports or new discoveries, each time they try to lift off the bottom, they have been sold as a liquidity event. It is almost a Pavlovian reaction; they sell off because they have sold off in the past and until new volumes come in to relieve the supply that will not change until sentiment changes.

TGR: In January, you told our readers about Tinka Resources Ltd. (TK:TSX.V; TLD:FSE; TKRFF:OTCPK). What's happening with Tinka now?

MB: Since the January interview, Tinka has continued to execute its corporate strategy of upgrading the Peruvian silver resource to Measured from Inferred while adding more ounces, but the big event was the recent A13-05 drill result, which was arguably one of the best massive sulphide intercepts in at least my time in this space. Sixty meters of 7.75% zinc with the total section of mineralized envelope running north of 200 meters is a very encouraging, if not spectacular, intercept. The company completed a financing in May (full disclosure: RichardsonGMP participated in that funding) and is now poised to recommence with further exploration on Ayawilca (the zinc) while finishing off the redefinition of Colquipucro (the silver). The share price has retrenched from the all-time high of $1.25 in March to the current $.75-.80 range.

TGR: Would you like to give any other updates on companies you've mentioned in previous interviews? At the moment, are there any other companies you're closely following?

MB: Bitterroot Resources Ltd. (BTT:TSX.V) is another name in the unloved category. When I met its president, Michael Carr, he showed me the geophysics on his project in northern Michigan, just south of the White Pine mine. Within the exploration sector, this is a compelling story that speculators could sink their teeth into at $0.09 or $0.10/share. It is an exploration play so it may not be suitable for all investors but for those that can bear the risk, it is an interesting speculation.

MB: Another Peruvian junior I have been dabbling in is Darwin Resources Corp. (DAR:TSX.V). The company has a gold property in northern Peru, sandwiched by Rio Alto Mining Ltd. (RIO:TSX.V; RIO:BVL; RIOAF:OTCQX) and Barrick Gold Corp. (ABX:TSX; ABC:NYSE). Darwin trades around the $0.12 range on the TSX Venture Exchange. Darwin was a spinout of Mawson Resources Ltd. (MAW:TSX; MWSNF:OTCPK; MRY:FSE). Early geochemical results have been very interesting, to say the least.

TGR: Before we let you go, please give our readers something to ponder.

MB: Whenever I am interviewed for my comments on the precious metals sector, I am usually addressing an audience that is predisposed to understanding the value of holding gold or silver bullion or equities in their portfolios, but what is rarely addressed is the correct allocation. There are some who believe that it is the ONLY asset that one should own and there are others that believe that it should be used as a balancing tool within a larger mix of assets.

No greater example of the need for a correct mix of assets could have been more obvious than the behavior of gold versus the S&P 500 since mid-2011. While bullion has dramatically outperformed the S&P 500 since 2000, the S&P 500 has been a superstar versus gold for the past 18 months. For this reason, it is critical to be flexible in your allocations because while I am certainly one of the most fervent believers in the importance of gold in protecting the purchasing power of portfolios, as a wealth manager I have to maintain a balance and that is something everyone must remember.

TGR: Thank you for your time.

Originally trained during the inflationary 1970s, Michael Ballanger, director of wealth management at Richardson GMP, is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of the University of Pennsylvania. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

Want to read more 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 Streetwise Interviews page.

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: Tinka Resources Ltd. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Michael Ballanger: I or my family own shares of the following companies mentioned in this interview: Tinka Resources Ltd. and Bitterroot Resources Ltd. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Tinka Resources Ltd. 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