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  • Looking For 1,000% Gains? Resource Investor Oliver Gross Has Some Junior Mining Names For You

    The bottom is in, declares Oliver Gross of Der Rohstoff-Anleger [The Resource Investor], and the bulls are ready to charge. In this interview with The Gold Report, Gross says that the woefully undervalued juniors will exploit their leverage advantage, with best-in-class companies gaining as much as 500% to 1,000%-or more.

    The Gold Report: Gold has fallen in the second half of March. Why?

    Oliver Gross: I think it's a correction after the strong rally since December. And the situation in Ukraine has quieted down. We've also seen a strong uptrend since the beginning of 2014 and now it feels like a healthy consolidation.

    TGR: Since December, we've had a very significant rise in gold equities. What is the cause? Gold rising from $1,180/ounce [$1,180/oz]? Or is it a cyclical change?

    OG: It's a combination of bottom-building in the gold price and the end of the bear market, which resulted in one of the heaviest selloffs ever. The gold equities NYSE Arca Gold BUGS Index [HUI] to gold price ratio hit a multidigit low in 2013 [HUI:Gold]. We have a solid double-bottom formation in the gold price in place and the end of the selling pressure from the gold exchange-traded funds [ETFs] and exchange-traded products.

    We also see continuous strength in the physical gold market, especially the huge buying power from China, now the world's largest gold consumer and producer. And you can assume that China isn't a speculator regarding its aggressive purchases, but rather a prudent long-term investor. Maybe it has already developed a gold-backed yuan currency model that could be the new world currency.

    The first quarter is always very important for equities. More and more market players have now realized the tremendous performance potential in gold mining stocks and joined the recent rally.

    TGR: The NYSE Arca Gold BUGS Index has risen even as the broader market has been shaky. What do you make of that?

    OG: It wasn't a surprise, as valuations in the gold mining sector were not far from complete depressions. In addition, the gold producers have reformed after the big selloff in their equities. We have noted a significant change in business philosophy and a newfound drive to create a more robust and sustainable business model. The gold producers have successfully changed their focus from growth at any cost to maximization of profitability, growth in capital efficiency and real shareholder value.

    The gold producers' income margins at price levels around $1,300/oz are still extremely slim. So there is a fantastic leverage in place, and with higher gold prices, the margins are going to explode. With a new gold bull market, which could lead to gold prices far above $2,000/oz in the next two to three years, we might see new, all-time highs in the NYSE Arca Gold BUGS Index. But I believe the next bull market rally will be more specific and focused on the best-in-class stocks.

    TGR: Could we see the broader equities markets taking substantial losses, even as precious metal stocks increase in price?

    OG: That would make sense, as we have had a very strong bull market in the broad equity markets and a very tough bear market in precious metals and other mining stocks.

    TGR: The Market Vectors Junior Gold Miners ETF (GDXJ) has risen significantly higher than the majors. Does this surprise you?

    OG: The Market Vectors Junior Gold Miners ETF fell from an all-time high of nearly 180 points at the end of 2010 to a historic all-time low of only 29 points at the end of 2013. So its strong rally didn't surprise me. Most important has been the astonishing rise of trading volume. This is the key in every turning point. The juniors, with their low valuations, usually have far higher leverage, and that is the reason why we see even more volatility in both directions.

    It's a very good sign that the juniors have outperformed the majors, as appetite for risk in the junior mining space is essential. We have seen a strong increase in financings and financing volumes in the junior gold equities market during Q1/14. That's a very healthy development.

    TGR: There was a significant drop across the board in gold and silver equities in March. Was this mere profit taking, or have we reached an intermediate plateau?

    OG: It really feels that we have seen the bottom now, and the bottom-building process always takes some time. The next few years will be a very attractive period to invest in high-quality resource companies.

    TGR: How do you determine the price buy limits for the stocks you recommend? In other words, why are stocks good buys at one price and not another?

    OG: When it comes to choosing mining stocks, I put a strong emphasis on deep research and fundamental analysis. This is crucial in a market where more than 80% of all junior mining companies will ultimately fail. It's all about quality and investors always have to be very, very picky in selecting picks that could become their favorites.

    After my thorough due diligence and conversations with managements and fund managers, I select my favorites, which I buy for the middle to long term. The other crucial factor is timing. For instance, you could have invested in the best-of-class companies from 2011-2013, and it wouldn't have made any difference, as the whole sector was punished. But when the timing is right, which seems to be now, it doesn't matter if an investor buys a great junior mining company at $1 or $1.50/share.

    TGR: What are the specific criteria you seek in your research and analysis?

    OG: I seek experienced and excellent management teams with strong track records and large networks; companies with healthy cash balances, solid financing outlooks and tight share structures with patient and successful investors; and projects that are decent-sized, attractive and well-located with exploration and expansion potential, projects that are economic even in low metal price environments. Aggressive project-development schedules are also very important. I also want to see strong and clear ambitions.

    TGR: What gold companies come to mind in this respect?

    OG: My favorite among the major African gold producers is Randgold Resources Ltd. (GOLD).

    TGR: You favor very few silver companies as compared to gold. Why?

    OG: When things get serious, gold is the best storage of wealth and the best protection against turbulence. Silver's role will always be a combination of industrial metal and investment asset. And most silver supply comes from base metal mines as a byproduct, so its producers don't really care about the silver price.

    Moreover, the silver market is extremely tight and thus even more so than gold subject to manipulation by the likes of J.P. Morgan, Goldman Sachs, HSBC and other influential players in the paper markets. I try to play the trends regarding the gold-silver ratio, which remains extremely high. If this trend reverses, I will buy more silver and silver mining stocks.

    TGR: It sounds as if you are sympathetic to the manipulation argument made by the Gold Anti-Trust Action Committee [GATA].

    OG: COMEX is the biggest gold exchange in the world and has by far the most influence on daily and short-term gold prices. J.P. Morgan and the others I mentioned are the biggest players in COMEX, and we can assume they have the biggest influence on daily and short-term gold prices. Facts don't lie: J.P. Morgan and other big financial players control more than 80% of all precious metals derivatives and you can assume that these influential players always know about the crucial positioning at the COMEX.

    It seems that these players are always doing the opposite of what they say publicly. For example, Goldman published a gold report in 2013 in front of the huge selloff. It made more than $500M in this selloff, then turned around and reinvested heavily in gold. So it also made millions in the recent gold price recovery. Goldman has recently invested more than $80M in the SPDR Gold Trust ETF. We can assume that Goldman and J.P. Morgan are, in fact, long on gold. That also demonstrates to me that the gold price bottom is in.

    TGR: Which companies stand out in the junior copper sector?

    OG: I like one in Arizona and one in Nevada. My favorite is Augusta Resource Corp. (AZC) and its world-class Rosemont copper project near Tucson. Richard Warke is a director. Augusta is currently in a takeover battle with its largest shareholder, HudBay Minerals Inc. (HBM). I believe that Augusta is worth more and remains a Hold recommendation. Mostly likely, a higher takeover price will be reached. When Rosemont gets its final construction permit-this should happen in Q2/14-it will lead to a lucrative revaluation.

    TGR: What's your Nevada copper pick?

    OG: Nevada Copper Corp. (OTC:NEVDF) [NCU:TSX] and its Pumpkin Hollow project. In view of its last cash balance, its overall valuation is extremely low-its enterprise value is really choked right now. But with the strong support of its largest shareholder, Pala Investments, it will be able, in my opinion, to put the first phase of its project into production. There is also tremendous development and expansion potential here.

    TGR: Do you think that the recent downturn in gold equities might scare off investors who have become gun-shy since 2011?

    OG: The last three to five years in gold, especially junior mining, have been really traumatic and unnerving for investors. I really hope, however, that they will not be unduly influenced by the high volatility in these markets and sell after a 30% or 50% rally when there's potential for a 300% to 1,000% rally.

    We have just seen the bottom. The cyclical nature of this market should lead to gains in best-in-class mining stocks of 500% to 1,000% and more. Investors must be not only long-term ambitious but also patient.

    TGR: Oliver, 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.

    Oliver Gross is a passionate resource expert, prudent investor and adviser with more than 10 years of experience in the mining and junior sector. He is the chief editor and analyst of the newsletter Der Rohstoff-Anleger [The Resource Investor], which specializes in the global junior resource sector. It is backed by the GeVestor Financial publishing group, the largest online publishing house in Germany.

    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) Oliver Gross: I own, or my family owns, shares of the following companies mentioned in this interview: Augusta Resource Corp. 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.

    Apr 02 5:54 PM | Link | Comment!
  • Jeff Killeen: A Picky Player's Guide To A Cautiously Optimistic Mining Market

    Source: Kevin Michael Grace of The Gold Report (3/26/14)

    www.theaureport.com/pub/na/jeff-killeen-...

    Jeff KilleenThe price of gold may be enjoying a double-digit increase so far this year and some equities may even have doubled their value, but Jeff Killeen of CIBC World Markets says it's not time to jump into metals with both feet. Be selective, he counsels. In this interview with The Gold Report, Killeen shares the higher-quality names that have prospects for development.

    The Gold Report: The price of gold has increased 14% this year. Is that due to gold's safe haven status?

    Jeff Killeen: The safe-haven mentality is one element that's supporting the gold price. There is uncertainty in the market about the strength of the U.S. economy. A number of economic indicators reported during the last two months have not met forecasts. The rebound may be slower than expected. Buyers are coming back to bullion.

    Unrest in the Ukraine is also helping to support the gold price, however, to a lesser extent than U.S. economic data. If weaker-than-expected indicators persist-and severe weather in the U.S results in soft data -such a scenario could be positive for gold in the near term.

    "Pilot Gold Inc.'s drill holes have very good grades and breadth."

    Even before this rebound, there was very strong physical buying around the $1,200 per ounce ($1,200/oz) level from Asia. The investment community believed that there was a base established and started putting money back into the space with much less risk of a downside move.

    TGR: It's now six years since the economic crisis of 2008. Is it possible that a consensus could form that a traditional economic recovery is not going to occur? And if this consensus does form, would it be a big boost for gold?

    JK: Certainly. However, I think that that consensus may take a little while to form because most of the U.S. economic indicators started moving in the right direction in 2013. In the next three to six months the impact from severe weather last winter will obscure the data picture.

    TGR: The mood at this year's Prospectors and Developers Association of Canada (PDAC) conference has been described as "cautious optimism." Would you agree?

    JK: I'd say the tone was divergent-some senior management teams were feeling very cautious about commodity prices and general market appetite for mining equities, whereas a lot of the junior management teams had a much greater conviction that 2014 would be a strong year for the metals and equities.

    TGR: If you look at the juniors and mid-caps, a lot of these stocks have gone up 25%, 50% and even 100% this year. I would have thought you would've seen a lot of smiling faces at PDAC as a result of that.

    JK: Very true, but even a 100% uptick still leaves some share prices below where they may have been at better points in 2012. There is still that rearward-looking view to where the stock prices have come from, and a lot of them are a long way from there.

    TGR: As capital returns to the mining sector, would it be correct to say that it will return first to the producers, second to companies with late-development assets and then, third and finally, to explorers?

    "In the junior nonproducer space, my top picks includePretium Resources Inc."

    JK: That succession sounds reasonable; however, new capital investment will certainly be selective. I would expect to see capital flowing into the space across the market-cap spectrum, but those companies or projects that are marginal at the current gold price or require further appreciation in the price to generate acceptable returns are likely to find it difficult to attract any new investments in 2014.

    TGR: How can smaller companies, specifically explorers, demonstrate that they are worthy of financing?

    JK: The first question anyone should ask when looking at the explorer space concerns the management team. Pick a solid team, especially in a market where accessing capital can be difficult. Spending dollars wisely is important.

    Beyond that, a project with strong grades can give a comfort level to the buy side that a project could be profitable in the future, considering it's very difficult to assess where gold prices might be four, five or seven years from now.

    Other benefits-geographic or logistic-such as being in the right region for having a smooth permitting process and having good roadways, rail or power, can add value.

    TGR: Which major gold producers do you like?

    JK: We like Goldcorp Inc. (G:TSX; GG:NYSE) and Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE)because they have high-quality, high-grade cornerstone assets that generate a large amount of cash flow, have strong balance sheets with a lot of cash and the potential to use that cash to help grow their businesses through mergers and acquisitions. They have strong management teams with good-quality assets that will have secure cash flow even in a softer gold price environment. And that's where investors should be focusing.

    TGR: What are your top picks in the gold sector?

    JK: I cover some nonproducing explorers and some producing juniors and intermediates. In the junior nonproducer space, my top picks would be Continental Gold Ltd. (CNL:TSX; CGOOF:OTCQX), Premier Gold Mines Ltd. (PG:TSX) and Pretium Resources Inc. (PVG:TSX; PVG:NYSE). All three have assets with higher grades, are sufficiently financed to complete all planned work for the next year or more in some cases, and will continue to generate meaningful news flow over the next year, which can add value to their assets and keep the investment community engaged.

    Continental is expected to release an updated resource estimate for the Buriticá project in Colombia by the end of Q1/14. In addition to increasing resource confidence by upgrading Inferred ounces to the Measured and Indicated (M&I) category, I anticipate there will be growth in total resources as well.

    Pretium is expected to file an environmental assessment certificate with the British Columbia government within the next month. That will kick off the formal review process for the mine plan. The company will continue to work toward completion of its feasibility study for the Brucejack project in H2/14. In the meantime, the company will continue underground drilling within the Valley of the Kings and is expected to extract another 1,000 ton sample from the zone for processing.

    Premier will continue to work at all three of its core projects. Drilling results from the Cove project in Nevada are looking particularly interesting. Several new mineralized zones have been recognized, both gold mineralization and polymetallic mineralization with gold, copper, lead and zinc. The Hardrock project will have infill drilling completed during the course of this year that will support moving the project from the preliminary economic assessment (PEA) phase to the feasibility stage. Its Red Lake joint venture project with Goldcorp should have drill results from the down-dip area of the Wilmar zone within the next couple of months. The market is anxious to see what this drilling will yield as it is a relatively untested target.

    TGR: What did you make of the PEA on Hardrock that was released in January?

    JK: It was a quality piece of work. You could certainly tell the skill level that's been brought into this company in the last couple of years, including Ebe Scherkus coming on as chairman of the board from Agnico-Eagle and bringing quite a few skilled members from the Agnico-Eagle team over to Premier. Hardrock certainly looks compelling. It's near a highway. It's very close to power. It should get lots of local support. The projected returns are double-digit. Arguably, some might want to see a few more percentage points on that internal rate of return, but ultimately, Premier will do a good job in proving some of those numbers over the course of transitioning to a feasibility stage.

    TGR: Continental's Buriticá project in Colombia shows high grades in gold. Do you expect these grades to decrease as the resource grows larger?

    JK: I expect grades will be similar to what we see today. Most of the drilling between the two principal zones-Yaraguá and Veta Sur-have had very similar numbers since the last resource estimate was produced. It is important to note that the M&I categories within its 2012 resource estimate are substantially higher than the Inferred grade. As we see some of the Inferred ounces converted into those higher-confidence categories, grades may even improve as drilling becomes denser within the zones. I'm not building that expectation into my valuation, but it is a possibility.

    It's also important to note that it's very small scale, but there is an active producing mine at the site. This mine has been operating and producing gold for more than 20 years with a head grade of roughly 20 grams per ton (20 g/t) in recent times. There is a bit of real-world proof that those high grades do exist at site.

    TGR: What other gold companies have you rated Sector Outperformers?

    JK: Among the producing companies that I cover, B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX) is my top pick and rated Sector Outperformer. The company has an attractive cost profile across its asset base, and all-in costs are expected to decline in 2015 and capital spending at the Otjikoto mine in Namibia will wind down next year. This is a mine that's currently being constructed now. We expect all-in costs to be sub-$900/oz in 2015 and that the company will be positioned to generate significant free cash flow by next year. Otjikoto coming on-line will contribute to a nearly 50% increase in gold output from 2013 to 2015.

    That does not take into account the recently discovered Wolfshag zone. I would expect that once the company is able to incorporate the higher-grade Wolfshag zone into the Otjikoto mine plan, we'll see further improvement in cost and gold output from that project.

    Beyond the development of Otjikoto, B2Gold's management has shown improvements at each of the company's three projects currently in production, and we're expecting modest increases in output from each of the La Libertad, El Limon and Masbate mines this year. With B2Gold projected to exceed a half-million ounces (0.5 Moz) gold by 2015, that certainly puts it into a fairly substantial production base.

    The bottom line is that B2Gold is a company with attractive margins and significant near-term growth that's all internally funded. That's a great combination for any producer to have.

    TGR: There were concerns raised about B2Gold's acquisition of Volta Resources Inc. Do you think that's a good fit?

    JK: It was an acquisition the market didn't expect, but I can understand why the company likes the asset. It liked the exploration and management team. Plus, it was a rather small acquisition, at roughly 3% of its market cap, for something that could be important in the longer term. I think it made sense.

    TGR: Which other gold producers do you like?

    JK: Primero Mining Corp. (PPP:NYSE; P:TSX). The company put out a revised resource and reserve estimate for San Dimas mine that showed increases in all categories for total ounces and grade. Its acquisition of Brigus Gold Corp. will help bring total production for the company into a new bracket. It remains one of the lower-cost producers in the space.

    TGR: Let's talk about some of the companies you've rated Sector Performers.

    JK: The names I cover that are Sector Performers include Alamos Gold Inc. (AGI:TSX), Asanko Gold Inc. (AKG:TSX; AKG:NYSE.MKT), Argonaut Gold Inc. (AR:TSX), Belo Sun Mining Corp. (BSX:TSX.V),OceanaGold Corp. (OGC:TSX; OGC:ASX) and Orezone Gold Corporation (ORE:TSX). Each has its rating for different reasons. Some are simply calls on relative valuations. Some are based on project returns and so forth.

    For Argonaut and OceanaGold, the rating is largely a valuation call relative to peers in the space. Argonaut is trading at roughly 13x our 2014 cash flow per share (CFPS). The stock trades at a sharp premium to most of the midtier peers in the group. The company has an attractive low-cost profile. It is increasing production as the La Colorada mine comes into full stride in Mexico in 2014.

    Orezone is operating an exploration program at Bomboré project in Burkina Faso. The company has completed scoping studies and is trying to move toward feasibility. The project return may be smaller than what many in the investment community would look for in a new developable asset. The company is looking at how it can reduce the upfront capital expenses (capex) and potentially reduce the operating costs for Bomboré, as well as improve the metallurgy. How those elements come together toward the later part of this year certainly could change the way that we view that project.

    TGR: Can you tell us about Alamos?

    JK: Alamos' Mulatos mine in Mexico is still one of the lowest-cost producers and better-quality names in the space. But looking at it relative to peers, it is trading at a fairly steep premium. Alamos is trading at roughly 18x our 2014 estimated CFPS compared to 9x for the peer group.

    However, I do see some upside. It has one of the strongest balance sheets of any company I cover, with more than $400 million ($400M) in cash. There are very good development assets in Turkey, which are being held up by permitting issues. Until we get more clarity on that, it could be a headwind for the stock.

    TGR: What can you say about Belo Sun?

    JK: Belo Sun's Volta Grande project in Brazil looks like a great project with fairly simple geology. It's an open-pittable, greenstone-hosted gold deposit much like what you find in many places in Canada. The bigger concern has been the capex estimate of more than $700M. That was certainly a holdback for this stock. The company has explored how to reduce that upfront capex and has produced a PEA that effectively cuts the capex in half. It needs a little bit of help from the gold price or reduced costs to improve the overall economics.

    TGR: What is interesting about Asanko?

    JK: Asanko's merger with PMI Gold Corp. has been completed. It's a positive because it gives more optionality for development in Ghana. The merger puts two 5 Moz deposits within about 25 kilometers of each other under one company. Looking forward, Asanko will reassess PMI's Obotan deposit. I'd like to see more details about how that will look before we can revise the valuation.

    TGR: Are there other companies that you can talk about?

    JK: Earlier this year Pilot Gold Inc. (PLG:TSX) released two drill holes from its Mount Kinsley project in Nevada; they have very good grades and breadth. The headline hole that it reported was 6.9 g/t over almost 42 meters (42m). This mineralization was within a new shale unit where very little or no drilling had been done by previous operators, and only one hole by Pilot had been drilled in late 2013. That could open up a new horizon at the Kinsley project for exploration that hadn't been identified before.

    TGR: Which streaming royalty gold companies do you like?

    JK: My go-to answer would be Franco-Nevada Corp. (FNV:TSX; FNV:NYSE). It has a best-in-class portfolio and management team. It has lots of cash on its balance sheet to make acquisitions. It has cornerstone assets that will continue to generate free cash flow even if commodity prices drop significantly.

    I also like Silver Wheaton Corp. (SLW:TSX; SLW:NYSE) because it is the best way to get exposure to the silver space, as silver producers are having difficulty securing positive cash flows and margins.

    TGR: Any other companies?

    JK: Allied Nevada Gold Corp. (ANV:TSX; ANV:NYSE.MKT) did a good job at turning around the heap-leach operations at its Hycroft mine, but it does have a significant amount of debt. We find it difficult to see the Hycroft heap-leach operations being able to generate enough cash flow to repay that debt at these commodity prices. It would need a fairly significant increase in the price of gold, on the order of $200-300/oz, to be able to generate enough cash flow.

    It also has a lot of work ahead of it on its proposed mill sulfide recovery project. At this point, it seems that the test work is going well, but it's in the early stages.

    TGR: Given the recent increase in the price of gold and the significant uptick in a lot of equities, do you think that investors are embracing the sea change?

    JK: There is a belief within the investment community that we're finding a bottom for the commodities. We do know that equities underperformed to the down side of the gold and silver price. Even just to revalue based on current spot prices means that there is probably still some upside to be had in a lot of the equities. With that in mind, investors are feeling better, but not excited to the point where there's going to be broad-scale investment across the mining space. It's going to be selective. It's going to be higher-quality names or those that have a higher prospect for development. It's not going to be widespread just yet.

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

    Jeff Killeen has been with the CIBC Mining research team since early 2011. He covers and provides technical assessment of junior exploration and mining companies worldwide. Previously, Killeen worked as an exploration and mine geologist in several major mining camps, including the Sudbury basin and the Kirkland Lake region. Killeen earned his Bachelor of Science degree from Carleton University and is an executive committee member of the Toronto Geological Discussion Group.

    Read what other experts are saying about:

    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 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: Continental Gold Ltd., Premier Gold Mines Ltd., Pretium Resources Inc., Argonaut Gold Inc., Primero Mining Corp. and Pilot Gold Inc. Goldcorp Inc., Allied Nevada Gold Corp. and Franco-Nevada Corp. are not associated with Streetwise Reports. Streetwise Reports does not accept stock in exchange for its services.
    3) Jeff Killeen: 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.

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    Mar 28 3:38 PM | Link | Comment!
  • Big Data Goes Hollywood: Alfred Maydorn

    Source: Peter Byrne for Streetwise Reports' Special Situations (3/27/14)

    www.streetwisereports.com/cs/special/pri...

    Alfred MaydornAnd now a word from Europe: Investment advisor and author Alfred Maydorn publishes the Maydornreport in Kulmbach, Germany, where he researches disruptive high-tech companies with great growth prospects. In this interview with Streetwise Reports' Special Situations,Maydorn reveals his top North American picks in the exponentially expanding media and big data spaces, highlighting firms with low profiles, remarkable products and what look to be explosive futures.

    Special Situations: The ability to introduce technological innovations that disrupt established markets has long been a hallmark of capitalist success, as new firms with cutting-edge technologies overtake older, less-nimble companies tied to outmoded systems. What are some notable examples of innovations that have changed the way information and data services are sold?

    Alfred Maydorn: The major technological transformation of our time is in how information is created and distributed on the Internet. Within that historic disruption there continue to be multiple disruptions and opportunities for gutsy investors. Never forget that Amazon.com Inc. (AMZN:NASDAQ) and Google Inc. (GOOG:NASDAQ) began as small, disruptive start-ups. These companies are now e-commerce giants, rivaling Wal-Mart Stores Inc. (WMT:NYSE) for market share.

    Another disruptive innovation in information technology was the advent of the smartphone, which, incidentally, was not developed by a small company. It was invented by Apple Inc. (AAPL:NASDAQ) and launched in 2007, with incredible results. At the time, cell phones manufactured by BlackBerry Ltd. (BBRY:NASDAQ) and Nokia Corp. (NOK:NYSE) dominated the talk and texting industry. It did not take long for the iPhone to take over and spawn countless imitators.

    "Gener8 Media Corp.'s big data software business could be even bigger than its bread-and-butter 3-D business."

    Apple brings to mind a great example of disruption in the high-tech realm: the film industry. Pixar was cofounded by Steve Jobs when he left Apple-temporarily, as it turned out. Risking all its capital, Pixar entered the multibillion-dollar film business market with a fresh technology, and quickly produced major motion pictures that captivated audiences. At the time, The Walt Disney Co. (DIS:NYSE) was a big player in the film production space. At first, it took no notice of Pixar. But then Disney not only noticed, it became very afraid and, in the end, it bought Pixar at a premium.

    Large or small, a truly innovative company will risk everything to fundamentally disrupt the status quo with a breakthrough product. The smaller firms are usually more eager to challenge the status quo, since they have nothing to lose.

    SS: Speaking of Pixar, filmmakers are increasingly dependent upon using the latest developments in advanced graphics technology, such as three-dimensional technology (3-D), to make the next blockbuster even more spectacular than the last one. What companies are realizing success in the virtual-reality creative space in Hollywood?

    AM: Because moviegoers absolutely love special effects, the film industry is focusing more on creating snazzy, spectacle-filled shows with state-of-the-art computers. The 3-D film business is growing fast, and several small, specialized companies in this space are gaining market share.

    For instance, Gener8 Media Corp. (GNR:CNX) is a Vancouver-based company that works in 3-D for most of the big Hollywood studios. Its proprietary software, G83D, can transform two-dimensional (2-D) movies into 3-D movies after the film is shot. It can also enhance the quality of films originally shot in 3-D format. Gener8 essentially created the content of The Amazing Spider-Man and Harry Potter and the Deathly Hallows: Part 2 inside its computers.

    SS: Would Gener8 be able to take a movie like, say, Gone with the Wind and turn it into a 3-D film?

    AM: Yes. Even large parts of new movies are filmed in 2-D and then converted to 3-D. It typically takes six months to turn a 2-D film into 3-D, working scene by scene, frame by frame. It requires a lot of human sweat and advanced technology, but the final product is worth it, since 3-D is the future of film entertainment.

    SS: Given its massive computational abilities, is Gener8 able to diversify into other types of technology markets?

    AM: Gener8 recently started up a new division specializing in visual effects called The Feder8tion. The company already employs 200 people, and is growing very fast. It is based in Vancouver, where many film companies are relocating because of the well-educated people who live there. Gener8 is constantly hiring programmers to keep up with the increasing demand for its services. And it is branching out into other functions in the big data field.

    SS: Please explain what you mean by big data.

    AM: Gener8 was originally set up to focus on 3-D film technologies, which require huge amounts of data to generate every scene. It invented special big data software to make sense of very large, cinematic, pixelated data sets. It turns out that this software can also be used for other businesses, which is very exciting. Thus, Gener8's second venture is building big data software for a variety of business applications. It has entered the cloud-based data management business with its Cumul8 product. The cloud is taking over the information world as we speak.

    SS: Wikibon author Jeff Kelly estimates that the total market for big data will be $47 billion ($47B) by 2017. How much of a role will this part of the business have in moving Gener8's stock forward?

    AM: Gener8's big data software business could be even bigger than its bread-and-butter 3-D business. Big data is an exponentially growing market because society generates so much new information every day. The trick is not so much about collecting this data; the disruptive issue is to be able to analyze data to find meaningful behavioral patterns. Gener8's patented software performs this task within a convenient user format.

    "A truly innovative company will risk everything to fundamentally disrupt the status quo with a breakthrough product."

    A lot of companies are in the business of developing big data analytics, but the space is growing so fast there are seemingly no limits to growth for true disrupters. For a lot of tech guys, big data has become their sole obsession.

    SS: What attracts you to a particular start-up company in this arena?

    AM: In the end, only a few start-ups will get really big. The current situation with big data is comparable to the first days of the Internet. In the late 1990s thousands of companies were competing for market share, but only a few survived the shakeout of 2001. It will be the same in the big data business.

    SS: What is the key to survival?

    AM: To survive, a junior firm needs a great product-a unique, disruptive, saleable and friendly product. Gener8's big data software is not only powerfully competent, it is user friendly.

    SS: Gener8 has a corporate interest in Reelhouse Media Ltd., an online entertainment distribution start-up. How does Reelhouse compare to giants like Netflix Inc. (NFLX:NASDAQ) and Redbox, which is owned by Outerwall Inc. (OUTR:NASDAQ)?

    AM: Reelhouse is Gener8's third business, existing alongside its big data and the 3-D/special effects lines. It owns a 66% share of Reelhouse, which is an online movie platform. Reelhouse is not directly competing with Netflix, Amazon, Hulu LLC (private) or the other platforms. It started out presenting small, private, independent movies for online streaming, and now it has a pilot project with Warner Bros. and a working pay-to-watch model.

    "The trick is not so much about collecting big data; the disruptive issue is to be able to analyze data to find meaningful behavioral patterns."

    The Reelhouse concept is unique because it allows customers to not only watch movies, but also extras, such as special scenes and interviews with the stars. It is a flexible platform that allows the big studios to market their movies online, which they had tried to do on their own unsuccessfully. The basic idea is to grow Reelhouse's market share, and then sell it to a big studio for a profit.

    SS: Is Gener8's customer base international?

    AM: The company has plans for Reelhouse to broaden internationally, and it also plans for the big data component to go international. But Gener8 is currently focused on North America, except for the 3-D business, where it is working very closely with a Chinese partner. China is poised to be one of the biggest markets for 3-D movies, so that is a really good combination.

    SS: Will Reelhouse and Gener8 play the same kind of disruptive role in the film business that, say, iTunes played in the music business?

    AM: iTunes is focused on promoting the interest of Apple, as we all know. And Apple wants 30% of the revenues. The big film studios want their own online distribution platform, and Reelhouse could be the solution that they seek.

    SS: Any business with a retail consumer base needs to parse the big data tied to their customers' purchasing behaviors. Vast streams of mobile data have overwhelmed the ability of cyberspace to extract useful information from white noise. Are you following any firms using new technological innovations to collect, sort, tag and visualize these mammoth data sets?

    AM: I follow them avidly. A lot of junior companies are in the big data space because the big, established companies are not eager to disrupt themselves. I particularly like Splunk Inc. (SPLK:NASDAQ), which went public two years ago. Its stock price doubled on the first trading day, to $34. Splunk stock is now worth about $74/share. Splunk is a fast-growing company-valued at an amazing $7.9 billion-and investors are paying a high valuation for it. That valuation is about 20x its annual revenue.

    SS: What is so special about Splunk that it has attracted all of this capital?

    AM: Splunk is tech-focused. It is not so much concerned with data presentation issues as it is with discovering new ways to analyze unfathomable numbers of data points. It is an expensive stock, but well worth buying.

    SS: Are there firms similar to Splunk in North America?

    AM: Two highly valued juniors in the space are Tableau Software Inc. (DATA:NYSE) and Qlik Technologies Inc. (QLIK:NASDAQ). The valuations of these companies are also very high. Tableau is valued 16x this year's revenue, and Qlik is valued at 5x revenue. Tableau is still not profitable, and the 2014 price/earnings ratio of Qlik is more than 100.

    "Information is the oil of the 21st century, and the trick is to learn how to drill for it quickly and profitably."

    The best way to think about this special situation with big data is that people who invest in a wide range of the newest information technologies are positioning themselves to make a lot of money when one or several of the smaller firms finds its feet and becomes a Splunk, Tableau or Qlik.

    SS: Is there still room for Splunk, Tableau or Qlik stock to move up?

    AM: Splunk, Tableau and Qlik are not cheap, but they are also not overvalued. On the other hand, Amazon has been overvalued for the last 16 years. And its stock is up 5,000%. In the end, if an investor wants to make money in this fast-growing space, he or she has to take on some high valuations alongside the riskier but cheaper companies.

    SS: Are these firms paying dividends?

    AM: Most of the smaller companies of this type are not generating profits right now. It is like in the old days of the Internet. This is a thought worth repeating: Some companies will survive, and will make big money for early investors, and some companies will disappear in the inevitable shakeout.

    SS: Who are the primary customers for young firms inventing and developing power apps to negotiate the oceans of big data collected every hour by billions of interlinked devices located all over the planet?

    AM: The big e-commerce companies are most in need of the new technologies that start-ups are developing. They want to analyze the kinds of products and services people are looking at in definite places and at specific times. For instance, the ability to crunch big data allows the large e-marketers to target special offers to people at the point of purchase.

    But the applications for big data platforms are endless. For example, mining companies can collect and analyze immensely complicated, nonlinear data about drilling operations to better predict pay-offs. And nonprofit organizations engaged in social engineering are jumping to purchase big data analytics and cloud-based data platforms. Governments everywhere are contracting with companies that can provide big data services. And so is the military. Not to mention the National Security Agency.

    "To survive, a junior firm needs a great product-a unique, disruptive, saleable and friendly product."

    In short, all business pursuits need software to parse and model growing streams of data, or they will be left behind. Information is the oil of the 21st century, and the trick is to learn how to drill for it quickly and profitably. In the end, there is so much space for young companies to grow in this market that a truly innovative and disruptive technology is almost guaranteed success.

    SS: What about applying big data technologies in the life science sector, such as investigating the huge data sets in cancer-related genetics? Is there an opening there for the smaller companies?

    AM: Yes. A huge opportunity lies ahead in medical research, as you can well imagine. Also in healthcare. Doctors are getting much better about computerized record keeping. Thousands of hospitals across the country generate incredible amounts of information about their clients, which can be invaluable for research if it can be collected, collated and patterned into user-friendly formats.

    SS: Are there any other companies that you would like to bring to our attention today?

    AM: Frankly, while there are a lot of private companies in the big data space, there are not many public companies available at this time, although that will change. The big plays right now are comparable to Splunk, Qlik and Tableau. Gener8 is a real find. It is an established 3-D company that is branching out as a big data start-up.

    Big companies are working hard to find their market niches in this space. Amazon is very active in the cloud arena, as are EMC Corp. (EMC:NYSE) and International Business Machines Corp. (IBM:NYSE). But the young, dynamic companies, like Gener8, have the potential to truly disrupt the status quo and become the next Apple.

    SS: How much longer will Gener8 stock remain cheap?

    AM: Gener8's current valuation is for its core 3-D business, and its big data business is getting a free ride. If the big data unit gets really big for Gener8, which is a real possibility, the company will be a fantastic growth story. But it is still in a very early stage compared to its potential. It is clearly a worthwhile play.

    SS: Thank you, Alfred, for your expertise.

    AM: You are welcome.

    Alfred Maydorn is a German journalist and newsletter writer. He began writing about the stock market 20 years ago and is the cofounder of Der Akionär. With a weekly circulation of about 40,000, it is Germany's top-selling stock magazine. In his own newsletter, Maydornreport, he focuses on fast-growing technology stocks, mainly from North America. Maydorn appears regularly on German financial television as a stock market expert.

    DISCLOSURE:
    1) Peter Byrne conducted this interview for Streetwise Reports' Special Situations and provides services to Streetwise Reports' Special Situations 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 Streetwise Reports' Special Situations: Gener8 Media Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
    3) Alfred Maydorn: I or my family own 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.
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