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  • Harry Dent's Simple Strategy For Surviving Withdrawals From 'Markets On Crack'

    An aging world is a deflationary one, according to "The Demographic Cliff" author Harry Dent. In this interview with The Gold Report, he predicts a major, painful crash in the next two years based on population statistics and historic patterns. He has some positive short-term predictions for gold, and investment suggestions for how to be one of the ones still standing after the dust settles.

    The Gold Report: Your book, "The Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019," predicted a great deflation based on demographic trends. Were you surprised by the strong stock market over the last year?

    Harry Dent: Yes, I was. I'm always surprised. Bubbles go and go until they suck everybody in. It's been this way all throughout history. This is a bubble. It looks like a bubble, quacks like a bubble and tracks every bubble in history. It's going to burst, but we continue to have outside influences propping it up. The Federal Reserve announced tapering of quantitative easing, but then the Bank of Japan and the European Central Bank stepped up their bond buying, and the markets are eating it up.

    I actually think we're probably not going to peak until early next year, perhaps around March, with the Dow Jones Industrial Average as high as 19,000. There are certain indicators we look for at a top. One we have already seen is small caps underperforming large caps without making new highs. That is one classic indicator. Another one is selling pressure increasing in a final rally, which shows you the smart money is leaving. That did not happen in this recent rally, as sharp as it was and as crazy as it looked. I call this the "markets on crack."

    Bubbles act like grains of sands dropped on the floor. They form a mound that gets steeper and steeper until at some point one grain of sand causes an avalanche. Something is going to happen here that governments can't respond to and control. Germany keeps weakening. China is showing signs of unraveling and cracking, but it hasn't totally burst. . .yet.

    This market is not going to crash 10% or 20%. It's going to crash worse than it did in 2008 and 2001 and 1930 and 1973. This is going to be the biggest crash ever.

    TGR: What are the indicators that are warning you about this crash?

    HD: We always look at demographics. The demographics for spending in Japan peaked in 1989 and pointed down in the 1990s. That was the indicator that Japan was going to have a tough decade. Germany is in an even worse predicament. It underperformed this year and will keep underperforming. That country has the steepest downtrend in demographic spending patterns of any country in the world, especially between 2014 and 2022. It is the second fastest aging country in the world. To make it worse, Germany is holding up Europe's economy at the moment. What happens to bailout efforts of the already weak countries if Germany keeps declining? China's housing bubble is cracking. Developers are discounting and the government is still encouraging overbuilding.

    We are also looking at demographics in the U.S. The average age of 46 for peak baby boomer spending occurred in 2007. That plateaus until the average age of 53 and causes demographic headwinds. We're hitting that final plateau this year, 2014. That's why the governments are stimulating at such unprecedented rates, just to get 2% growth on average. I am predicting that car sales are going to start to plummet next year, and the more affluent people who peak later are going to start spending less. Next year, 2015, will be a weaker year than the markets are expecting.

    TGR: In the U.S. today, the official unemployment rate is close to 5.9%, but some, including John Williams at Shadow Stats, peg it closer to 23%. What's happening in the U.S. economy, and is it part of what you call the Great American Reset?

    HD: If you adjust for the decline in workforce participation, we're still closer to 11%. John Williams is probably including underemployment and full-time-optimized people taking part-time jobs. The bottom line is that the job market is worse than the figures tell. Of course, the government is not going to tell anybody that because it wants to keep confidence up. It seems to be working. That is why I call this the "markets on crack." The markets ignore bad news. They don't look very deeply as long as the Fed keeps supporting the markets and holding interest rates at essentially zero short term. It is creating free money and convincing the markets that the economy can't fail.

    There is recent proof that is not the case. Japan's economy failed in the early 1990s when its demographics turned down sharply, even through the rest of the world boomed. I don't think governments will be able to fight this next demographic decline. Debt is at unprecedented levels in almost all countries around the world. China has two to three times the debt that an emerging country, with its standard of living, normally has. We're in the greatest debt bubble in history. You can't keep growing when debt is growing and global growth is slowing. At some point, a grain of sand is going to break this thing. Something's going to go wrong, and the markets are going to realize the future doesn't look rosy and you can't get something for nothing. We're not going to get a sustainable recovery by creating money out of thin air.

    TGR: What does the Great American Reset feel like when you're living through it?

    HD: It is painful. That is why governments are fighting so hard to avoid a reset. Debt bubbles like the one we experienced in the early 1900s cause financial asset bubbles in stocks and real estate and commodities. Then, at some point, they burst and cause a reset. Stocks tend to go down 80% on average. That's what they've been down in Japan. Real estate went down 60% in Japan. Imagine your house going down 60% and not bouncing back for 24 years. That is what is happening now in Japan. Unemployment goes to the highest levels we'll see in a lifetime. It hit 25% in the Great Depression in the U.S.

    These resets are very painful, but they're necessary. Unless financial assets come down, young people can't invest for the future. Unless we burst this education and healthcare bubble, people aren't going to be able to afford doctors or school in the future. Unless we reset entitlements so we retire later, there's no way we can afford what's been promised. Unless real estate goes back down to pre-bubble levels, and that is still 40% lower than where we are in this bounce, then young families aren't going to be able to afford houses.

    We need this reset, but it is incredibly painful. Deflation is the reset. It is like a financial detox. Detox is painful. That is why it is important to get liquid, lock in your job and hunker down. Those who take this advice ahead of everybody else will do well. They will benefit from this reset. But most people will just go off the cliff and not know what the hell happened.

    TGR: When we talked in January, you pointed to Australia as the golden country because of its low debt-to-GDP ratio and possible population growth through immigration. What impact are lower resource prices having on a country where mining is responsible for almost 20% of the economy?

    HD: Australia is a great place. It has low debt, low crime and a civil society. It has the strongest demographics because of high-quality immigration from Asia, and is one of the few countries with a bigger echo baby boom than the baby boom. But there are two challenges looming. The first is high trade with China, a country that is going to blow bigger than any country in modern history. That will affect Australia, which already has a real estate bubble that is as big as any Western country, except for England. The other negative is commodity prices. The Australian stock market is 20% off its highs, almost the same percent that commodities are off their highs right now. Commodities are Australia's Achilles' heel. Still, I consider it the best place to live in a crisis. It will come out of this stronger than most countries, but it also will feel the next downturn much more than the last one because of China and commodity prices.

    TGR: Your predictions are largely based on demographics. I recently interviewed Frank Holmes from U.S. Global Investors, and he pointed out that in the emerging world, 100 million people are having sex right now, and in nine months that will mean one million screaming babies who will consume three million pounds of minerals, metals and fuels each in their lifetimes. Wouldn't that be a positive demographic statistic for natural resources demand?

    HD: You would sure think so, but the question is when. The positive demographics of many emerging countries won't peak for 20 years or more. India will peak 50 years from now, and some countries in Africa could reach their highs 80 years from now. Having babies is good. But emerging countries are largely commodity exporters and their economies follow the developed countries. They don't lead them. When we go down, they go down more. In the 2008 crash, despite all these positive demographic trends, the emerging markets crashed more than the U.S. market. The Emerging Markets Index went down 65%. I'm positive about emerging markets longer term, but we have to get over this worldwide downturn.

    We are projecting that commodity prices are going to go much lower in the next several years. Commodity prices peak like clockwork every 30 years, and then go down for 10 to 15 years or more. We're in a downward cycle that doesn't bottom out until around 2023.

    TGR: You predicted that while gold could return to $1,400 an ounce ($1,400/oz), it could also go as low as $700/oz. Is that still a possibility? And, if that were to happen, wouldn't mines just close and there'd be no new gold entering the market?

    HD: I think gold is extremely oversold right now. People are very bearish on it after the recent fall, but this isn't the time to panic and sell. It is due for a bounce back up to $1,300/oz or even $1,400/oz. That would be the time to lighten up before it goes down again. I think gold is ultimately going to hit somewhere between $250/oz and $400/oz. I just think the next major stop is $700/oz. I think silver is going to hit $5-10/oz before it comes up again.

    People bought gold because central banks were printing money like drunken sailors and they reasoned that would cause inflation. But when the global financial bubble bursts, that destroys money, creates deflation and is bad for commodity prices and gold.

    TGR: What are your predictions for uranium and oil?

    HD: We see commodity prices in general going down over the next several years. Oil is going to hit $10-20 a barrel. It's not going to stay there. I think oil is also extremely oversold here and is probably due for a bounce. But I would not want to be long oil or uranium over the next several years.

    TGR: How can investors survive or even prosper during all of this mayhem?

    HD: The best thing is to get liquid. Sell real estate that is not critical to your business or that you don't want to live in forever because real estate is going to go down again. If you've got a mortgage, it's going to be really painful. Sell stocks and risk assets and commodities. Focus on cash, safe securities, some shorts if you want to take some risk or hedge some dividend stocks, and long the U.S. dollar versus the major currencies in the world. That's the way to make money in volatile times. I just like having cash and sleeping. This way I can be totally objective, so when the next bubble bursts, which I think is very likely to happen in the next two years, I can step in with a clear mind and buy the emerging markets, like India and Southeast Asia and then Mexico, maybe even Turkey.

    A good bet based on demographics would also be the healthcare sectors-medical devices, biotech and things that benefit from the aging of the baby boomers. Once there's a crash and the stock valuations go down, you'll have the cash to buy whatever you want.

    TGR: Thanks for your time.

    Harry S. Dent Jr. is founder of Dent Research, an economic research firm specializing in demographic trends, and editor of the Survive and Prosper and Boom and Bust newsletters. His mission is "Helping People Understand Change." Dent is also a bestselling author. In his book, "The Great Boom Ahead," he stood virtually alone in accurately forecasting the unanticipated boom of the 1990s and the continued expansion into 2007. In his new book, "The Demographic Cliff," he continues to educate audiences about his predictions for the next great depression, especially between 2014 and 2019, which he has been forecasting now for 20 years. Dent regularly lends his economic expertise to the media on television, in print, and on the radio, and is sought after as a panelist and speaker for international forums around the world. He earned his master's degree in business administration from Harvard Business School, where he was a Baker Scholar. Subscribe to the free daily Survive & Prosper newsletter at harrydent.com.

    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) 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) 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) Harry Dent: I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. 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.

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    Nov 26 5:07 PM | Link | 2 Comments
  • So Bad It's Good: Surviving 2014

    As we approach Thanksgiving in the States, Streetwise Reports reached out to some of our most popular experts for perspective on the natural resource market during this volatile time. While some thought 2014 was so bad it was good-for contrarian investors-others will be all too happy to see the year in the rearview mirror.

    Streewise Reports: What is the 2014 development for which you are most grateful?

    Marin Katusa: I am grateful for the current correction in the resources area. It is what we've been waiting for. We have been saying to stay in cash for a while, be very patient, we're going to have a correction. If you are a true contrarian investor, you have to buy when there is blood on the streets. I can assure you that in Vancouver, the junior resource hub of the world, there is blood on the streets. It's going to probably take longer than most people want for the market to turn around. That's irrelevant to me; I don't take a quarterly or a monthly perspective. I look at the longer-term perspective. I'm thankful for the correction because it's providing me opportunities to get into some of the best companies at prices that two years ago would seem unimaginable.

    Frank Holmes: I am thankful for the royalty model and the MLP model, because with these you have higher margins along with dividend income. In particular, I was happiest with names such as Virginia Mines Inc. (OTCPK:VGMNF) [VGQ:TSX] most recently, along with Franco-Nevada Corp. (NYSE:FNV), Royal Gold Inc. (NASDAQ:RGLD) and Silver Wheaton Corp. (NYSE:SLW).

    John Kaiser: The collapse of valuations in the resource sector has widespread negative repercussions, but a positive outcome. What I am thankful for is that we are no longer in an environment where everything is overvalued because of positive momentum in both the market and the key commodity cycle and in gold bug narratives. Instead, now it is possible to find good value adjusted for fundamental and external risks. 2014 killed the last greater fool. Going forward, investors in the resource sector will only look smart for the right reasons.

    David Morgan: As I say at the end of The Morgan Report every month, "health above wealth, and wisdom above knowledge." As always, I am grateful to be alive and surrounded by wonderful people.

    Rick Rule: I am thankful for the young individuals I work with at Sprott who are really developing and making an impact at the company. Those are the people who will take the sector to the next level.

    Chris Berry: I definitely think we've bottomed in the metals. This doesn't mean that certain metals like iron ore can't fall further, but generally, metals prices such as copper or lithium seem to have stabilized. The real questions now are how long do we stay at these depressed levels and what will be the catalyst for the next leg up in the cycle? It may be 2016-2017 before we know the answers.

    Brent Cook: I am thankful that my daughters are doing well and off the dole, and for some great beach volleyball in Mexico as I celebrated my 60th birthday.

    Investment wise, I am also thankful that two of the companies in the Exploration Insights portfolio-Papillon Resources Inc. (OTCPK:PAPQF) and Virginia Mines Inc. were bought out at premiums. Both had high quality, legitimate economic deposits that can make money at any foreseeable gold price. Companies like those are few and far between.

    I am also grateful that my thesis of declining economic discoveries leading to increasing demand for these very few developable deposits is playing out. It will take time, however. What I don't think we have seen yet is capitulation. When Rick Rule capitulates, then we have complete capitulation and the market can start to turn.

    Kal Kotecha: I am grateful that gold is only down marginally by my calculation. It is actually the U.S. dollar that is rising and making gold look weak.

    Chen Lin: I am grateful that I saw the correction of commodities coming during the summer and was able to raise a lot of cash in early September. Otherwise my portfolio would have suffered huge damage.

    SWR: What was the biggest turkey of 2014, what are you glad is behind us as we move into 2015?

    Rick Rule: I was the biggest turkey. I was really expecting a surge in the retail resource marketplace. I was expecting capitulation. I have been hanging in there and was really surprised at the degree of volatility. Instead of capitulation, we took another leg down. That makes me a turkey. Now we have to see if I will be right in 2015.

    John Kaiser: The biggest turkey was the updated feasibility study Goldcorp Inc. (GG:NYSE) published in late March for its Eleonore gold mine in Quebec. Eleonore was the greatest Canadian gold exploration discovery made by a resource junior [Virginia Gold Mines] during the past decade. When Goldcorp bought Virginia in March 2006, gold was at about $550 per ounce [$550/oz], less than half where it is today. After the pre-resource estimate in 2006 for $750 million [$750M], the company outlined 3.8M Proven and Probable ounces and another 4M Inferred ounces at a somewhat higher grade, nearly doubling the projected 9 year mine-life. The 7,500 ton per day underground mine will average 400,000 oz annually, but the feasibility study indicates that at a 5% discount rate using $$1,300/oz gold, the after-tax net present value is negative $172M and the internal rate of return is 3.15%, thanks largely to a capital cost of $1.85 billion.

    Eleonore is a symbolic turkey for the exploration sector because it has raised the bar for what counts as an exploration success at $1,200/oz gold to an impossibly high level. If a junior discovers a new deposit in a remote location that looks like Eleonore tomorrow, the market would have to dismiss it as economically insignificant. Eleonore has already been built, so it would benefit from higher gold price and the doubling of mine life when the resource is upgraded to a reserve, but it would not be built today.

    Chris Berry: The biggest turkey was tin. Based on ore export bans in countries like Indonesia and threats to do the same in the Philippines, I expected the tin price to end the year substantially higher. This did not happen, even though we did see higher prices for similar metals like nickel and aluminum.

    Brent Cook: The biggest turkey is that a sizable portion of humanity has not mentally advanced much past the Stone Age, with the exception of methods of killing each other. The long list of atrocities committed in the Ukraine, Palestine, Israel, Sudan, Congo, etc. by the likes of ISIS, Boko Haram and others, document that there is nothing kind about mankind.

    Kal Kotecha: The biggest turkey of 2014 was coal. In addition to government pressure, the impact of Australia flooding the market with cheap supply and China's demand slowing down has taken a toll. However, with a new Republican majority in place in Washington D.C., prospects may improve for coal in 2015.

    This interview was conducted by JT Long of Streetwise Reports and can be read in its entirety here.

    Chris Berry, with a lifelong interest in geopolitics and the financial issues that emerge from these relationships, founded House Mountain Partners in 2010. The firm focuses on the evolving geopolitical relationship between emerging and developed economies, the commodity space and junior mining and resource stocks positioned to benefit from this phenomenon. Berry holds a Master of Business Administration in finance with an international focus from Fordham University, and a Bachelor of Arts in international studies from the Virginia Military Institute.

    Frank Holmes is CEO and chief investment officer at U.S. Global Investors Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and gold and precious metals. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm's chief investment officer in 1999. Under his guidance, the company's funds have received numerous awards and honors including more than two dozen Lipper Fund Awards and certificates. In 2006, Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of "The Goldwatcher: Demystifying Gold Investing." He is a member of the President's Circle and on the investment committee of the International Crisis Group, which works to resolve global conflict, and is an adviser to the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Holmes is a much sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron's, The Financial Times and other publications.

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

    With a background in mathematics, Marin Katusa left teaching post-secondary mathematics to pursue portfolio management within the resource sector. His hedge fund's five-year track record has beat the peer TSX-V index by over 600%. He is regularly interviewed on national and local television channels in North America, such as the Business News Network (BNN) and many other radio and newspaper outlets for his opinions and insights regarding the resource sector. Katusa is a director of Canada's third largest copper producer, Copper Mountain Mining Corp. Katusa is the chief investment strategist for the energy division of Casey Research. A regular part of his due diligence process for Casey Research includes property tours, which has resulted in him visiting hundreds of mining and energy producing and exploration projects all around the world. You can learn more about his book, "The Colder War" here.

    John Kaiser, a mining analyst with 25-plus years of experience, produces Kaiser Research Online. After graduating from the University of British Columbia in 1982, he joined Continental Carlisle Douglas as a research assistant. Six years later, he moved to Pacific International Securities as research director, and also became a registered investment adviser. He moved to the U.S. with his family in 1994.

    Kal Kotecha is the editor and founder of the Junior Gold Report, a publication about small-cap mining stocks. He was the editor and creator of The Moly/Gold Report, which focuses on critical analyses and open journalism of companies profiting from the precious and base metals sector. The scope of his current activities include worldwide onsite analyses and reporting of developing companies. Kotecha has previously held leadership positions with many junior mining companies. Kotecha completed his Master of Business Administration in finance in 2007 and is working on his Ph.D. in business marketing. He also teaches economics at the University of Waterloo.

    Chen Lin writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling?, published and distributed by Taylor Hard Money Advisors, Inc. While a doctoral candidate in aeronautical engineering at Princeton, Chen found his investment strategies were so profitable that he put his Ph.D. on the back burner. He employs a value-oriented approach and often demonstrates excellent market timing due to his exceptional technical analysis.

    David Morgan (www.Silver-Investor.com) is a widely recognized analyst in the precious metals industry; he consults for hedge funds, high net-worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, the author of "Get the Skinny on Silver Investing" and a featured speaker at investment conferences in North America, Europe and Asia.

    Rick Rule, CEO of Sprott US Holdings Inc., began his career in the securities business in 1974. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. His company has built a national reputation on taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry and water industries. Rule writes a free, thrice-weekly e-letter, Sprott's Thoughts.

    Want to read more articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published.

    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. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) Brent Cook: I own, or my family owns, shares of the following companies mentioned in my comments: Virginia Mines Inc. I personally am, or my family is, paid by the following companies mentioned in my comments: None. The following companies mentioned in my comments have a financial relationship with my company: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. 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.
    Frank Holmes: I own, or my family owns, shares of the following companies mentioned in my comments: None. I personally am, or my family is, paid by the following companies mentioned in my comments: None. The following companies mentioned in my comments are held in U.S. Global Investors funds: Franco-Nevada Corp., Royal Gold Inc., Silver Wheaton Corp., Virginia Mines Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. 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.
    John Kaiser: I own, or my family owns, shares of the following companies mentioned in my comments: None. I personally am, or my family is, paid by the following companies mentioned in my comments: None. The following companies mentioned in my comments have a financial relationship with my company: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. 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.
    Chen Lin: 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. The following companies mentioned in this interview have a financial relationship with my company: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. 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.
    David Morgan: I own, or my family owns, shares of the following companies mentioned in my comments: None. I personally am, or my family is, paid by the following companies mentioned in my comments: None. The following companies mentioned in my comments have a financial relationship with my company: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. 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) The following companies mentioned in the interview are sponsors of Streetwise Reports: Pan Orient Energy Corp., Virginia Mines Inc. and Silver Wheaton Corp. Franco-Nevada Corp. and Goldcorp Inc. are not affiliated with Streetwise Reports. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    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

    Nov 25 4:16 PM | Link | Comment!
  • Florian Siegfried: Seeking Less Risky Business In Mining M&A

    Florian Siegfried, head of precious metals and mining investments with Zurich-based AgaNola, says there are small signs-fewer equities participating in the recent rally, greater spreads in the high-yield market-that the sentiment toward gold is changing. But we will have to wait to see if a trend forms. In the meantime, Siegfried believes all-paper M&A will gain pace, with a focus on companies that are making money at current gold prices, while still trading at multiyear lows. In this interview with The Gold Report, Siegfried suggests playing it safe with some small producers and tiny developers.

    The Gold Report: When we talked in the summer, gold had found a floor at around $1,280/ounce [$1,280/oz]. Where is the new floor?

    Florian Siegfried: With a floor of $1,280/oz in August, the question was will it hold or not. Obviously, it did not. There could be even more downward pressure. The support level could be around $1,070/oz, especially given that the U.S. dollar has more upside. It could take a couple of months before we clear out the weak hands here.

    TGR: What's going to bring upward pressure to gold prices in 2015?

    FS: We need to see a change in sentiment in the overall markets. In September, equities were going up and the high-yield market was running wild. That was followed by a mini-panic in both equities and the high-yield market in October. Then we had a springboard rally in the equities, which was really substantial, but the high-yield market stopped reaching new highs.

    There is a divergence happening now. Not all equities are participating in the uptrend, and there are rising spreads in the yield market. Things are not as robust as they were, which could also support the gold price at these levels. It doesn't confirm a trend yet, but gold is basically an investment that you want to have when liquidity is seeking a safe harbor. There are some small signs in the market that the sentiment is changing.

    TGR: In late October, U.S. Federal Reserve Chairman Janet Yellen announced the end of quantitative easing [QE]. Did the gold price react the way you thought it would? Could it have been worse?

    FS: The Fed officially announced the end of QE, but when we look into the Treasury International Capital [TIC] report, there is a large sovereign entity in Belgium that has become the third-largest holder of U.S. Treasury securities after China and Japan. We don't know who the buyer is, but obviously Russia is dumping Treasury bonds, and with current oil prices the Organization of the Petroleum Exporting Countries [OPEC] has much less capital to recycle into U.S. Treasuries.

    It's puzzling to know how ending QE is going to work. Officially, it worked: the dollar went up and gold tanked. The problem is that the Fed is tapering into economic weakness. As a result, my suspicion is that the zero interest rate policy is going to stay, and we will see yet another round of QE. One of these days gold will react to this central-planning recklessness. So far, the market has perceived the Fed's move as a rising-dollar scenario, probably a rising interest rate scenario, too, but I don't see interest rates rising any time soon.

    TGR: What's a realistic trading range for gold in 2015?

    FS: In a really bearish scenario gold could hit $970/oz. I would say that's the floor. We could see some more downward pressure before the end of the year, but it's difficult to make predictions because basically every market is somehow manipulated and managed. I wouldn't be surprised to see gold at $1,400-1,500/oz in 2015 but if central banks step in and keep pushing equities higher, as they did this year, then $970/oz is more likely. But when this price-fixing scheme comes to an end, there will be some kind of a reversion to the mean for all asset prices.

    TGR: In August, you talked about the continued rotation out of broad market equities into precious metals. Would you suggest that the process has stalled?

    FS: We had a severe break in equities in October but the rebound has been impressive. That rebound has pushed money back into equity markets and has taken some air out of precious metals. Gold is down in U.S. dollars, but in most other currencies, it's up. In Swiss francs, euros and yen, gold is up year-to-date. Should deflationary pressure mount, I think we could see a continued rotation out of the equity and high yield markets into liquidity, namely short-term government bonds and gold. I think this process has not stalled.

    TGR: Do you expect mergers and acquisitions [M&A] to be a major theme in the gold space in 2015?

    FS: Yes, definitely. I think two types of deals will dominate M&A over the next while. First, midtier producers will buy cheaply valued advanced exploration or development companies at roughly a 50% premium in all-share deals. These deals will not be material to the larger companies-they are essentially buying optionality for their project portfolio, which is smart. This is the time to do so.

    The other kind of transaction will be mergers among equals, mostly as acts of desperation. How else will these companies get to the critical mass that excites more shareholders? I doubt most of these deals will create value over time because there will be little operational synergies among these companies.

    TGR: Are these all-paper deals the blueprint for future deals?

    FS: Yes. Every company that has a decent share price can use shares as a currency without spending valuable cash. Every CEO who is prudent will not use cash for M&A at these prices. As for the target companies, those CEOs are executing a takeover bid from a solid producer, so they get something. They would probably prefer quality shares to cash. That way there is a chance to benefit from the upside once the cycle turns.

    TGR: What are some likely takeover targets?

    FS: At current valuations, Alacer Gold Corp. (OTCPK:ALIAF) [ASR:TSX: AQG:ASX] has a depressed multiple. The company is a low-cost producer with solid margins. In Q3/14 the company produced 63,356 oz at all-in costs of $763/oz at its 80%-owned Çöpler mine in Turkey. What could attract the company to any acquirer is the sulfide portion of the mine that has yet to be built. The sulfide project has a preproduction capital expenditure [capex] of $633 million [$633M] but has a 17-year mine life with all-in costs of $810/oz. That is the kind of project companies are looking for-relatively low capital costs leading to a low-cost, long-life operation. On top of that, Alacer has about $350M cash and no debt. An acquirer could use that cash to build the mine.

    TGR: Are companies with polymetallic assets more likely to be targets?

    FS: Probably not in the current environment because base metals and iron prices are all down. The trend is down and that is likely to continue. If you are positive on base metals, the dance would be different. But selling those kinds of assets in this market is rather tricky.

    TGR: When the permitting news reached the market, casual observers like myself thought the price would bump up but the opposite happened. Please explain that further.

    FS: If people want to sell in this market, they sell on good news when there is liquidity in the stock. It's puzzling for the average investor, but that is how the market is right now. It provides opportunities if you can buy on the dips because you still get a high-quality asset in a safe jurisdiction, trading at $0.55/share.

    TGR: Are there other likely takeover targets?

    FS: There is another AIM-listed company called Condor Gold Plc [CNR:LSE]. It just released a prefeasibility study [PFS] and updated preliminary economic assessment [PEA] for its La India project in Nicaragua. It has 2.33 Moz at 3.9 grams per ton [3.9 g/t], and that includes 1.14 Moz at 3.1 g/t in an open pit, which is very high these days. Management has skin in the game and holds 9% of the company and it is leanly managed.

    With the recent financing, the International Financial Corp. [IFC] entered the picture as a strategic partner. That's a commitment that should help to further reduce political risk. In its PFS, Condor looks at a 0.8 million tons per year [0.8 Mtpa] open-pit mine with an annual production of 79,300 oz gold over seven years considering a front load capex of $110M and all-in sustaining costs of $690/oz. Then in the updated PEA there are two options to build La India. One is to include additional feeder pits for a 1.2 Mtpa plant with a capital requirement of $127M and an annual production of 96,800 oz over a 8-year mine life at similar all-in costs. The other option would include the underground resource, a $170M capex and an annual production of 137,000 oz over a 12-year mine life.

    Is it going to be a higher capital cost, higher-production scenario or a lower-capital cost, lower-production scenario? The company wants to be viewed as positively as possible. It is basically saying, "This project has all kinds of optionality, it has strong financing backed by the IFC and it's close to infrastructure." Management gives me the impression that this project is for sale, but not at the current share price.

    TGR: Is grade a key theme for you in these takeover deals?

    FS: Grade is king at the moment. In the end, you want to own quality companies that can make money at current prices or even if we touch $900/oz gold. Because the market has almost no visibility on where gold prices are heading, everything is concentrated on grade because it protects your margins. Should we move into a higher gold price environment, the best leverage is probably with the current marginal producers. They have no room for error, so their valuations remain extremely depressed. Grade is king, at least for the moment.

    TGR: What are some producers that could offset a lower gold price with gains from a weak Canadian or Australian dollar versus the greenback?

    FS: I would watch Detour Gold Corp. (OTCPK:DRGDF) [DGC:TSX] for two reasons. First, probably 80% of its operating and capital expenses are directly linked to the Canadian dollar. So you benefit from a weaker Canadian dollar. Second is leverage to the oil price in the form of lower diesel costs. Oil is down 20% YTD and you can take advantage by investing in big-scale, open-pit, high-tonnage, low-grade operations because those mines are energy and diesel sensitive. You essentially get a "double whammy" with the lower oil prices and the lower Canadian dollar.

    TGR: Will takeover rumors resume on that name in 2015?

    FS: Detour is still fine-tuning its operations. The company is not cash flow positive at current prices. But it should be in 2015, assuming gold prices stay where they are or move higher and tonnage increases. If that happens and you're looking for a world-class project in a safe jurisdiction, then Detour should be on the list.

    TGR: Any other updates on companies you mentioned in your last interview?

    FS: We discussed Asanko Gold Inc. (NYSEMKT:AKG). Since then, it released what it calls the Definitive Project Plan for phase 1 of the Asanko gold mine project in Ghana.

    The market did not get really excited about it. Basically, Asanko reconfirmed the mine's economics, but a base-case price assumption of $1,300/oz gold is too high. If the assumed gold price drops to $1,150/oz, the net present value shrinks by more than 30%. That also means that it has a lot of leverage to the gold price. The market's reaction to the stock is more a function of the gold price right now.

    TGR: Are there other companies that you're following?

    FS: In the silver space First Majestic Silver Corp. (NYSE:AG) is back to its 2008 levels. It should produce 11.5 Moz silver in 2014, but requires a higher silver price to be profitable. If you expect higher silver prices, I think First Majestic offers a good leverage.

    TGR: What words of wisdom do you have for investors in the gold space?

    FS: I would still play it safe here. Look for producers that make money at these prices to protect your downside risk-as long as those companies have little chance of issuing new shares. Also, have a look at selective exploration and development stocks that have done well this year. A few stocks are up 20-60% YTD based on progress on fundamentals.

    I would be reluctant to buy into any company that is high grading at these prices to survive. If companies mine their best deposit at current gold prices at small margins, those firms are basically giving away their upside when the cycle starts to turn upward. I would rather see those companies shut down and wait for better prices.

    TGR: Thank you for your insights, Florian.

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

    Florian Siegfried is head of precious metals and mining investments at AgaNola Ltd., an asset management boutique based in Switzerland. Previously Siegfried was the CEO of Precious Capital AG, a Zurich-based fund specializing in global mining investments. Prior to this Siegfried was CEO of shaPE Capital, a SIX Swiss Exchange-listed private equity company that was founded by Bank Julius Baer & Co. Siegfried holds a masters degree in finance and economics from the University of Zurich.

    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: Asanko Gold Inc. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    3) Florian Siegfried: I own, or my family owns, shares of the following companies mentioned in this interview: Alacer Gold 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 determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. 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.

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