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  • Sprott's Charles Oliver: Gold At $1,500 By Christmas?

    Gold and silver prices are being repressed by central banks, but Sprott Asset Management's Charles Oliver argues that demand pressure will cause this dam to burst sooner rather than later. As a result, he expects big increases in the prices of gold and especially silver, with a corresponding recovery of small- and mid-cap precious metal equities. In this interview with The Gold Report, Oliver discusses why the gold and silver market is poised to grow and prosper in the coming months.

    The Gold Report: Gold continues to languish under $1,300 per ounce [$1,300/oz], even as full economic recoveries in the U.S. and the European Union [EU] have yet to occur, despite trillions in new debt and stimulus. Meanwhile, we have two wars in the Middle East that could escalate, as well as reports that Russian troops are in Ukraine. With all that in mind, do you think that gold's fundamentals are less important than they once were, or is the price of gold being held back by other factors?

    Charles Oliver: Gold is just as valuable today as it was 100 years ago. There was an orchestrated takedown of gold in April 2013. It has since traded between $1,200/oz and $1,400/oz, and this flies in the face of the conditions you mentioned.

    We're going to have to be patient. We have gone through a bottoming process. We've had similar conditions before. In 1974, after the oil embargo, U.S. inflation was increasing dramatically, yet gold fell from about $200/oz to about $100/oz in 1976. Then over the next four years gold subsequently rallied to over $800/oz. In this decade, gold has fallen from $1,921/oz to $1,180/oz, but the fundamentals remain intact, and gold will regain its reputation as a unique store of value.

    TGR: You used the phrase "orchestrated takedown." Do you agree with the thesis advanced by the Gold Anti-Trust Action Committee [GATA] that gold and silver prices are manipulated downward by central banks?

    CO: A decade ago I was on the sidelines. Then, after 2008, when the Federal Reserve gave us quantitative easing [QE] 1, 2 and 3 and increased its balance sheet by $4 trillion, effectively fixing the bond market and price, I became convinced that GATA was correct. All the price-fixing scandals we've seen are not isolated incidents. The gold market is a relatively small one. When 400 tons of gold rapidly came onto the market in April 2013, I was persuaded that this was definitely an orchestrated takedown.

    TGR: Can this gold repression be maintained, or is it a dam about to burst?

    CO: I like that metaphor. Eric Sprott did an analysis that suggested that a fair amount of the gold putatively held by the Federal Reserve may not actually be in its vaults. Footnotes in the Fed's records indicate possession of about 8,000 tons but also suggest that some of that might have been loaned out. We don't know how much, but supply-and-demand numbers suggest it could be a very significant amount. I believe that the gold exchange-trade funds [ETFs] were raided because gold could not be found where it was supposedly held, so it was taken from the ETFs instead.

    Much of the gold sold out of Western vaults has found its way into Asia, China in particular. To run a trading platform requires a certain amount of physical bullion to meet delivery demands. If deliveries cannot be met, confidence in the system will fail, and paper trading will dry up. I must say I was quite surprised that after Germany asked for its gold back from the U.S. and it was informed that delivery would take seven years, the market did not suddenly unravel. Nevertheless, I believe the central banks are running out of bullets, and when they do, we could see a very significant rise in the gold price.

    TGR: Is control of the gold bullion market shifting from London to Shanghai?

    CO: The amount of trading in Shanghai is increasing, and I would imagine that the gold bullion repositories in London are diminishing. Over time, control of many components of the world economic system will shift to Asia as it becomes a more powerful entity on the global stage.

    TGR: As mentioned earlier, central banks continue their attempts to force demand, yet economic recoveries remain elusive. How will this play out?

    CO: QE was a dirty word five years ago, but today governments tout it as a triumph, even though the economies are still not that healthy, while record-low interest rates and record-high stimulus will continue. The U.S. is currently winding down QE, but the EU looks as if it may start up. I do believe that the U.S. may once again ramp up QE because its interest rate policy hasn't worked.

    Countries are debasing their currencies, which leads to investors moving into hard assets, as confirmed by U.S. stock indexes reaching record levels. We saw this in the Weimar Republic in Germany, when stocks soared because they were inflation hedges. A collapse in confidence in paper money is not something I want to see. If that happens, all bets are off. In the meantime, currency debasement should lead to a recovery in the values of gold, silver and other precious metals.

    TGR: Do you anticipate higher gold and silver prices following the historic return of market interest in September?

    CO: I think there is a very real chance that gold might hit $1,500/oz by the end of the year.

    TGR: It is has been reported that higher tariffs on gold buying in India have resulted in the substitution of silver for gold there. Do you think this will spur a higher silver price and that the current gold/silver ratio of 1:66 will fall as a result?

    CO: We have seen in India an increase in silver purchases. That said, the gold purchase figures from India do not include smuggling, which soared in the 1990s and is rising again.

    At Sprott, we believe very strongly that the next decade will see the gold/silver ratio move toward its historic rate of 1:16. The last time this happened was in 1980, when the gold price was $800/oz and the silver price was $50/oz. Under this scenario when the gold prices rise to $1,600/oz, I could expect silver to hit $100/oz. That would be a 500% increase in the silver price, versus a 30% increase in the gold price. I have taken a fairly significant weighting in the silver sector.

    TGR: Gold equities outperformed bullion by a significant margin earlier this year. Can we expect more of this, or is the value of gold equities now constrained by the current gold price?

    CO: The gold price bottomed out in December 2013, and as a result, gold equity valuations were destroyed. To some extent, the outperformance we've seen in 2014 is a return to more normal valuations, but a continuation of this trend will require higher bullion prices.

    TGR: When the Sprott Gold & Precious Minerals Fund considers the companies it holds, which qualities are paramount?

    CO: We look first to management. We want management teams with track records of performance, teams with share ownership of their companies. A deposit's geology is just as important. Without the geology there is no mine, there is no cash flow, there are no profits. We evaluate ore bodies by all the various parameters: quality, strip ratios, underground versus open pit, access to water and power, ease of permitting and local taxation regimes. Finally, we examine a company's valuation and how it compares to its peer groups. That includes dividends, cash flow, cash-flow growth and many other aspects.

    TGR: The gold and silver royalty/streaming sector has done quite well compared to the general market. Will this continue?

    CO: This sector will continue to grow and prosper but is somewhat countercyclical. The best time for such companies is when the general market dries up, when companies cannot access capital and are forced to sell royalties or streams. And so the last two to three years have been very good for royalty streaming companies. Higher gold prices will result in higher profits for this sector, but I expect the mid- and small-cap mining companies will do better in relative terms.

    TGR: Pierre Lassonde of the World Gold Council told The Gold Report in May he believes that the relatively small size of its market will compel silver streamers to move into gold contracts. Do you agree?

    CO: I do. I have long thought that limiting a company to gold or silver is not completely logical, although I don't believe it's in the interest of gold and silver companies to move into base metals.

    TGR: Osisko Gold Royalties Ltd. (OTC:OKSKF) [OR:TSX] is a newcomer to the streaming sector. It has a 5% NSR on the Canadian Malartic mine and 2% NSRs on the Upper Beaver and Kirkland Lake properties and on the Hammond Reef project. Will it aggressively seek further streams?

    CO: The management team has significantly invested in the company, and I think they will take their time and do what they think is appropriate. I do expect, however, that significant assets will be acquired in the next year.

    TGR: Even before the takedown of the gold price, precious metals valuations collapsed, and the last few years have been dire for many investors in gold and silver companies. What are the reasons for investors to feel positive?

    CO: We've seen an awful lot of capitulation. Barrick Gold Corp. (NYSE:ABX) just announced it will eliminate its entire corporate development team. I've lost a lot of good friends and analysts who have left the industry. These are all signs of a bottom.

    I look around the world and see European Central Bank President Mario Draghi talking about rolling out QE. I see the continual debasement of currencies. And I see China buying gold left, right and center. I am convinced that gold and silver and precious metals equities will recover in the not-too-distant future.

    TGR: Charles, thank you for your time and your insights.

    This interview was conducted by Kevin Michael Grace of The Gold Report and can be read in its entirety here.

    Charles Oliver joined Sprott Asset Management in 2008. He is lead portfolio manager of the Sprott Gold and Precious Minerals Fund. Previously, he was at AGF Management Limited, where his team was awarded the Canadian Investment Awards Best Precious Metals Fund in 2004, 2006 and 2007. His accolades also include Lipper Awards' best five-year return in the Precious Metals category [AGF Precious Metals Fund, 2007] and the Lipper Award for best one-year return in the Precious Metals category 2010.

    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 recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
    3) Charles Oliver: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. Sprott funds hold all of the companies mentioned. 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. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 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

    Sep 08 2:42 PM | Link | 1 Comment
  • Raj Ray: Miners' Cost Cutting Set To Deliver In Late 2014

    When gold prices plunged in late 2013, gold producers took notice and developed mine plans that offered greater flexibility in troubled times. But even the best plans take time. Well, it's almost time for the producers to deliver, says Raj Ray, associate metals and mining analyst with National Bank Financial. He is looking for producers with flexible mine plans that can generate cash flow against a backdrop of static gold prices; the market likes developers with advanced, low-capital intensity projects with permits in place. Ray delivers his top gold producer and developer picks in this interview with The Gold Report.

    The Gold Report: The gold price can't seem to climb back above $1,300/ounce [$1,300/oz] despite several geopolitical hotspots making headlines. What's underpinning the price weakness?

    Raj Ray: The issue is that despite the geopolitical backdrop, the fundamentals still appear weak. The big drivers-demand from India and China and gold exchange-traded funds-have been more or less flat year-over-year. China is still digesting the gold it purchased last year. And, although price premiums have declined in India following the recent Bank of India's move to permit trading houses to import gold again, further relaxation of the import tariffs is not forthcoming. If not for geopolitical conflicts providing support, gold could have moved much lower than $1,300/oz. I don't see a big driver to push gold higher over the next six to eight months.

    TGR: India has imposed high tariffs on gold imports and those have resulted in a marked increase in gold smuggling. How is that influencing the gold prices?

    RR: I don't think there has been a marked impact on gold prices in India due to smuggling. The World Gold Council says about 250 tons of gold are smuggled into India each year. If you add that to the official gold imports of roughly 800-850 tons, you still have a shortfall of around 200-300 tons based on average annual imports. What might be something to look out for heading into the wedding season is the rainfall and its impact on food production. Rural India accounts for 60-70% of India's gold demand. The rainfall outlook has improved slightly, but a rainfall shortage could make the government reluctant to reduce the import duties anytime soon. It would also mean that people have less money to spend on gold.

    TGR: You said China is still digesting its 2013 gold hoard. How long before China is consuming gold as it did in 2013?

    RR: Given the lack of transparency, we don't know if the 2013 gold-buying frenzy was driven by consumers or the state. If most of it was consumer-driven, there could be several possible explanations as to why demand has been muted this year. One is the slowing economy, which in turn has contributed to the depreciation of the yuan. There is lower demand for luxury goods. People are still holding on to a lot of gold inventory following last year's purchases. Chinese consumers could return to the market soon but I expect this to play out for another 6-12 months.

    TGR: Your forecast for gold is $1,325/oz for the remainder of 2014. What numbers are you using into 2015?

    RR: We are using $1,325/oz in 2015, then we ramp it up to $1,400/oz for 2016.

    TGR: A recent National Bank Financial report suggested that the poor equity performance of producers in Q2/14 had more to do with high expectations and inflexible mine plans than with static gold prices. Would you explain?

    RR: When the gold price plunged in 2013, a lot of gold producers went through a period of mine optimization. The expectation was that they could get to higher-grade, low-cost ounces quickly. The initial drop in costs that we saw was a result of cutting nonessential spending, but the companies eventually found out-as did the market-that it's much harder to decrease operating costs by reworking mine plans. These things take time. The second quarter results from some companies are starting to show the benefits of mine optimization plans initiated last year. But it's still early.

    TGR: In the same report, you note that one reason for optimism is that there are signs that "pervasive back-end loaded production profiles among our producer universe are playing out." Could you elaborate?

    RR: For producers, the move to eliminate economies of grade also impacted throughput as companies realized that they were not able to replace lower-grade ore with higher-grade material fast enough. We might see that change in the second half of 2014 as companies gain access to higher-grade zones as a result of mine optimization. We're seeing some of that impact in Q2/14 but we expect an even greater impact in the second half.

    TGR: Would you give us the essentials of your investment thesis for producers and junior developers for the second half of 2014?

    RR: My investment thesis for producers hasn't changed much from the beginning of the year. I still like companies with operational flexibility and the ability to generate cash even in a muted gold price environment. Operational flexibility means companies that have completed sufficient development to easily access higher-grade ore if and when gold prices drop. Companies with high cash costs will still find it difficult to navigate this market environment given our forecast for muted gold prices for the rest of the year and into 2015.

    For development plays, the market likes advanced, low-capital intensity projects with permits in place. One example of an advanced-stage development play that was acquired recently is Sulliden Gold Corp., which was bought by Rio Alto Mining Ltd. (NYSE:RIOM). The market still doesn't have the appetite for large-scale, capital-intensive projects.

    TGR: Earlier this year you launched coverage on some smaller names in the gold space. Would you share some of those narratives with us?

    RR: I launched coverage on OceanaGold Corp. (OTCPK:OCANF) [OGC:TSX] and Kirkland Lake Gold Inc. (OTCPK:KGILF) [KGI:TSX] early in the year. OceanaGold is a great example of having a high-quality mine-Didipio in the Philippines-generating strong cash flow in a weaker gold price environment. Management has also done a good job of reworking the mine plans for the relatively higher-cost Reefton and Macraes operations in New Zealand. The stock could be a headed for a rerating as OceanaGold continues to build a cash balance and pay back debt.

    One concern among investors has been the limited exploration potential in the Philippines till now. The government declared a moratorium on exploration a few years ago pending the introduction of a new fiscal regime. With the cash that OceanaGold is generating, it could be well positioned to acquire other assets in more stable jurisdictions. That's something to watch out for in the next 6-12 months.

    TGR: Would the company stick to the South Pacific or would it venture as far afield as perhaps Africa or even North America?

    RR: The map in OceanaGold's investor presentation highlights potential areas and the Americas is definitely an area where the company would like to invest. There are not many opportunities in Asia-Pacific at this point, but Europe could be another jurisdiction that the company might be willing to invest in. I don't think the company will be too keen on getting into Africa at this point.

    TGR: What's your target and rating for OceanaGold?

    RR: I have an Outperform rating and my target on OceanaGold is $3.80. It's trading at about $2.90. It had a pullback after the Q2/14 results, but that was mostly due to mine plan sequencing. The company will get into the high-grade zones in Q3/14 and we will see better results in Q4/14 and in 2015. Despite a weak Q2/14, the company still generated around $22M in free cash flow.

    TGR: What about Kirkland Lake?

    RR: Kirkland Lake's turnaround will depend on management successfully implementing its higher-grade, lower-throughput strategy. We have seen it work so far. Q1/15 results show a marked improvement in grade. The mined grades were 0.4-0.5 oz/ton whereas historically they have been around 0.3-0.35 oz/ton. Investors would likely need to see a few more quarters of consistent performance before they decide to jump in. We have seen an initial rerating happen over the last few weeks on the back of strong operational results, but there's not a lot of room for operational errors.

    The real upside for this story is the near-surface mineralization the company discovered last year. The development of that is at least 18-24 months away and could require around $20-25M. It's not a big capital cost, but it might go a long way to filling the company's 2,200-ton-per-day capacity mill. Right now it's operating at close to 1,050 tons a day. The near-surface potential provides Kirkland with additional ore to fill the mill, but at a lower cost because it's within 1,000 feet from surface.

    TGR: What's your current target?

    RR: I have a Speculative Risk/Outperform rating and my current target is $5. The stock is trading above that but I'll wait for the next round of financial results before I decide to look at my valuation.

    TGR: What are some other small producers under coverage?

    RR: Some names that I cover have witnessed successful turnarounds in operations over the last year or so. Lake Shore Gold Corp. (NYSEMKT:LSG) and SEMAFO Inc. (OTCPK:SEMFF) [SMF:TSX] are two great examples. SEMAFO is one of the better stories out there with robust free cash flow yield and a strong balance sheet. However, the company seems fairly valued at this point.

    Lake Shore has also had a great run and I expect the company to continue to rerate as it pays down debt. There's been some concern about the mine life at Timmins West, but the ongoing exploration program there should deliver some positive results by year-end. That could provide a boost to the stock price.

    TGR: What's your target and rating on Lake Shore?

    RR: I have an Outperform rating and $1.40 target. My investment thesis is not only about Lake Shore's ability to generate cash flow, but also the potential for a rerating. It is now trading close to five times. In our coverage universe the average price to cash flow multiple is around 10 times. I expect it to reach seven or eight times cash flow. But a more sustained rerating would also depend on the company increasing its mine life, which I think could happen by early 2015 when it publishes a new reserve and resource estimate.

    TGR: Some pundits have suggested that SEMAFO could be a takeover target. What are your thoughts?

    RR: It is too expensive for the return at this point. There have also been talks about whether SEMAFO could acquire something but management would not want assets with a lower return than the recently discovered Siou deposit, which SEMAFO started mining in Q2/14. Siou is an open-pit deposit at over 4 grams gold per ton-that has really driven the change in SEMAFO year-to-date. There's a lot of exploration potential at Mana and closer to Siou. The company would rather put its capital into developing those deposits as opposed to paying a premium for an acquisition. Until a project jumps off the page, I don't think SEMAFO would be interested in acquiring anything. I'm still positive on the company given its ability to perform well in a weaker gold price environment.

    TGR: What's your current target and rating on SEMAFO?

    RR: I have a Sector Perform rating and my target is $5.15.

    TGR: As an analyst in this business you're probably traveling 10 times a year to different projects. What are some that you visited recently?

    RR: Recently I've visited Kirkland Lake, Lakeshore and Seabridge Gold Inc. (NYSE:SA). Seabridge has the Kerr-Sulphurets-Mitchell [KSM] copper-gold project in northern British Columbia. Over the last year and a half, this went from a gold project with copper byproduct credit to a copper project with a gold credit. Seabridge basically discovered the core zone of the porphyry with much higher copper grades at Deep Kerr.

    There are some concerns regarding the $5.3 billion capital cost. On potential partners, large base metals companies like Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), Rio Tinto Plc (NYSE:RIO) and BHP Billiton Ltd. (NYSE:BHP) have the technical expertise and are in a better position to finance a project like KSM than large gold producers. We typically see a 30-50% jump in stock price with the announcement of a joint-venture partner.

    Given their respective issues in other countries, the companies I listed want to invest in projects in mining-friendly jurisdictions. The concern with investing in North America is always permitting. Seabridge has, to some extent, derisked the project for permitting. The provincial approval is already in place. The federal approval is expected October.

    TGR: What are your top picks in the producer and developer spaces?

    RR: Among the producers, my top picks are OceanaGold and Lake Shore Gold. In the developer space I like Seabridge.

    TGR: Parting thoughts?

    RR: The gold space is still going through a period of operations consolidation. Companies have reworked their mine plans and are starting to see the benefits. We will see that play out further in H2/14. We still believe that the gold price environment could be muted over the next 6-12 months. Companies that would perform well in this environment are companies that have low cash costs and operational flexibility.

    TGR: Thank you for your insights, Raj.

    This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.

    Raj Ray is a metals and mining research associate analyst with National Bank Financial, covering junior mining companies. Prior to joining NBF, Ray worked as an equity research associate with GMP Securities covering diversified and fertilizer sectors. He has also worked in investment banking with Dundee Capital Markets on equity financings and M&A transactions for small- to mid-cap gold and base metal companies. Prior to this Ray was a process engineer at Vedanta Resources Plc for four years. Ray holds a Bachelor in Metallurgical Engineering from India and a Master of Business Administration in finance from the Schulich School of Business. He has also completed all three levels of CFA and is awaiting his charter.

    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 recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
    3) Raj Ray: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.

    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 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

    Sep 03 2:06 PM | Link | Comment!
  • How Is Doug Casey Preparing For A Crisis Worse Than 2008? He And His Fellow Millionaires Are Getting Back To Basics

    Trillions of dollars of debt, a bond bubble on the verge of bursting and economic distortions that make it difficult for investors to know what is going on behind the curtain have created what author Doug Casey calls a crisis economy. But he is not one to be beaten down. He is planning to make the most of this coming financial disaster by buying equities with real value-silver, gold, uranium, even coal. And, in this interview with The Mining Report, he shares his formula for determining which of the 1,500 "so-called mining stocks" on the TSX actually have value.

    The Mining Report: This year's Casey Research Summit is titled "Thriving in a Crisis Economy." What is the most pressing crisis for investors today?

    Doug Casey: We are exiting the eye of the giant financial hurricane that we entered in 2007, and we're going into its trailing edge. It's going to be much more severe, different and longer lasting than what we saw in 2008 and 2009. Investors should be preparing for some really stormy weather by the end of this year, certainly in 2015.

    TMR: The 2008 stock market embodied a great deal of volatility. Now, the indexes seem to be rising steadily. Why do you think we are headed for something worse again?

    DC: The U.S. created trillions of dollars to fight the financial crisis of 2008 and 2009. Most of those dollars are still sitting in the banking system and aren't in the economy. Some have found their way into the stock markets and the bond markets, creating a stock bubble and a bond superbubble. The higher stocks and bonds go, the harder they're going to fall.

    TMR: When Streetwise President Karen Roche interviewed you last year, you predicted a devastating crash. Are we getting closer to that crash? What are the signs that a bond bubble is about to burst?

    DC: One indicator is that so-called junk bonds are yielding on average less than 5% today. That's a big difference from the bottom of the bond market in the early 1980s, when even government paper was yielding 15%.

    TMR: Isn't that a function of low interest rates?

    DC: Yes, it is. Central banks all around the world have attempted to revive their economies by lowering interest rates to all-time lows. It's discouraging people from saving and encouraging people to borrow and consume more. The distortions that is causing in the economy are huge, and they're all going to have to be liquidated at some point, probably in the next six months to a year. The timing of these things is really quite impossible to predict. But it feels like 2007 except much worse, and it's likely to be inflationary in nature this time. The certainty is financial chaos, but the exact character of the chaos is, by its very nature, unpredictable.

    TMR: Casey Research precious metals expert Jeff Clark recently wrote in Metals and Mining that he's investing in silver to protect himself from an advance of what he calls "government financial heroin addicts having to go cold turkey and shifting to precious metals." Do you agree or are you more of a buy-gold-for-financial-protection kind of guy?

    DC: I certainly agree with him. Gold and silver are two totally different elements. Silver has more industrial uses. It is also quite cheap in real terms; the problem is storing a considerable quantity-the stuff is bulky. It's a poor man's gold. We mine about 800 million ounces [800 Moz]/year of silver as opposed to about 80 Moz/year of gold. Unlike gold, most of silver is consumed rather than stored. That is positive.

    On the other hand, the fact that silver is mainly an industrial metal, rather than a monetary metal, is a big negative in this environment. Still, as a speculation, silver has more upside just because it's a much smaller market. If a billion dollars panics into silver and a billion dollars panics into gold, silver is going to move much more rapidly and much higher.

    TMR: Are you are saying that because silver is more volatile generally, that is good news when the trend is to the upside?

    DC: That's exactly correct. All the volatility from this point is going to be on the upside. It's not the giveaway it was back in 2001. In real terms, silver is trading at about the same levels that it was in the mid-1960s. So it's an excellent value again.

    TMR: In another recent interview, you called shorting Japanese bonds a sure thing for speculators and said most of the mining companies on the Toronto Stock Exchange [TSX] weren't worth the paper their stocks were written on, but that some have been priced so low, they could increase 100 times. What are some examples of some sure things in the mining sector?

    DC: Of the roughly 1,500 so-called mining stocks traded in Vancouver, most of them don't have any economic mineral deposits. Many that do don't have any money in the bank with which to extract them. The companies that I think are worth buying now are well-funded, underpriced-some selling for just the cash they have in the bank-and sitting on economic deposits with proven management teams. There aren't many of them; I would guess perhaps 50 worth buying. In the next year, many of them are likely to move radically.

    TMR: Are there some specific geographic areas that you like to focus on?

    DC: The problem is that the whole world has become harder to do business in. Governments around the world are bankrupt so they are looking for a bigger carried interest, bigger royalties and more taxes. At the same time, they have more regulations and more requirements. So the costs of mining have risen hugely. Political risks have risen hugely. There really is no ideal location to mine in the world today. It's not like 100 years ago when almost every place was quick, easy and profitable. Now, every project is a decade-long maneuver. Mining has never been an easy business, but now it's a horrible business, worse than it's ever been. It's all a question of risk/reward and what you pay for the stocks. That said, right now, they're very cheap.

    TMR: Let's talk about the U.S. Are we in better or worse shape as a country politically and economically than we were last year? At the Casey Research Summit last year, I interviewed you the morning after former Congressman Ron Paul's keynote, and you said that you hoped that the IRS would be shut down instead of the national parks. There's no such shutdown going on today, so does that mean the country is more functional than it was a year ago?

    DC: It's in worse shape now. The direction the country is going in is more decisively negative. Perhaps what's happening in Ferguson, Missouri, with the militarized police is a shade of things to come. So, no, things are not better. They've actually deteriorated. We're that much closer to a really millennial crisis.

    TMR: Your conferences are always thought provoking. I always enjoy meeting the other attendees-it's always great to talk to people from all over the world who are interested in these topics. But you also bring in interesting speakers. In addition to your Casey Research team, the speakers at the conference this year include radio personality Alex Jones and author and self-described conservative paleo-libertarian Justin Raimondo. What do you hope attendees will take away from the conference?

    DC: This is a chance for me and the attendees to sit down and have a drink with people like Justin Raimondo and author Paul Rosenberg. I'm looking forward to it because it is always an education.

    Another highlight is that instead of staging hundreds of booths of desperate companies that ought to be put out of their misery, we limit the presenting mining companies in the map room to the best in the business with the most upside potential. That makes this a rare opportunity to talk to these selected companies about their projects.

    TMR: We recently interviewed Marin Katusa, who was also excited about the companies that are going to be at the conference. He was bullish on European oil and gas and U.S. uranium. What's your favorite way to play energy right now?

    DC: Uranium is about as cheap now in real terms as it was back in 2000, when a huge boom started in uranium and billions of speculative dollars were made. So, once again, cyclically, the clock on the wall says buy uranium with both hands. I think you can make the same argument for coal at this point.

    TMR: You recently released a series of videos called the "Upturn Millionaires." It featured you, Rick Rule, Frank Giustra and others talking about how you're playing the turning tides of a precious metals market. What are some common moves you are all making right now?

    DC: All of us are moving into precious metals stocks and precious metals themselves because in the years to come, gold and silver are money in its most basic form and the only financial assets that aren't simultaneously somebody else's liability.

    TMR: Thanks for your time and insights.

    Sign up for the Casey Research 2014 Summit here.

    This interview was conducted by JT Long of The Mining Report and can be read in its entirety here.

    International investor Doug Casey, chairman of Casey Research, LLC, has written several books on crisis investing, including the groundbreaking "Crisis Investing: Opportunities and Profits in the Coming Great Depression" [1979]. He has appeared on NBC News, CNN and National Public Radio, and he's been featured in periodicals such as Time, Forbes, People, Barron's and The Washington Post. He has also written countless articles for his own publications.

    Want to read more Mining 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) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee.
    2) Doug Casey: 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.
    3) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    4) 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.
    5) 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. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Mining Report is Copyright © 2014 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.

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