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  • Companies Brent Cook Expects To See On The Other Side Of The Gold Market Wasteland

    Markets are cyclical and even though it feels like the end of the world after years of junior resource stock market declines, history indicates that bear markets are actually an opportunity to own tomorrow's superstars for pennies on the dollar. In this interview with The Gold Report, market veteran and Exploration Insights author Brent Cook shares his travel stories and the companies he thinks will shine when the sun returns to commodity prices.

    The Gold Report: You recently wrote a piece in Exploration Insights reminiscing about the 1997 to 2002 resource market. What did we learn about investing in gold and silver in that five-year window?

    Brent Cook: I first started working for Rick Rule in 1997, just as the last resource bull was dying. The market just kept going down, way below where people thought it could possibly go, and it continued to get worse in 1998, then 1999 and 2000. Eventually it did stop dropping; people started putting money into this sector, and it leveled off.

    What I learned is that successful investing in a bear market takes patience and caution. When you do make an investment, make sure you're betting on good people.

    TGR: One of the things Rick Rule always says is that he's waiting for capitulation. How can you tell if we've had capitulation, and what causes it?

    BC: I don't think we're going to see a capitulation moment; I think it will be more gradual. I see it in my newsletter subscribers. Most of them have been around for a long time, but in the last few months, people who have been with me from the beginning have started falling by the wayside even though we had a 16% gain last year and we are not doing too awfully bad so far this year. They all say they will be back as soon as the market turns. This is what it starts to look like on the bottom.

    I envision it as a band of pioneers walking across the salt flats in July, one by one dropping to the side. One day, we'll turn around, look back and notice the hills are starting to get greener. That's how we'll know capitulation happened, by looking behind us at the wasteland and desolation we crossed.

    TGR: Rick also says that bear markets create bull markets. The years 2002 to 2010 were pretty good for the commodity markets and everyone started to look really smart. Are there lessons to be learned from a bull market?

    BC: There always are. A big one is to take profits along the way and keep some sense of perspective with regards to what a project is actually worth. This is a cyclical business. We go up and down. This has been true going back to the salt traders in early Africa. Supply and demand drive markets. During the last boom, China was building infrastructure and the world was growing. That created a metal shortage, which drove prices way up. That has busted. China's growth is slowing. I don't know what's going to bring the bull market back in commodities this time, but it always comes back and is usually the result of something we were previously unaware of.

    TGR: How is the wasteland you describe as our current market scenario different than what you went through in 1997 to 2002?

    BC: There are actually more similarities than differences. In 1998 nearly every economist said gold was antiquated and of no value in the new age. Financial publications all said you would have to be a fool in a tin hat to buy gold. Today, investors and financial publications are shunning this market again, and to some degree with good reason. In the most recent boom, profits barely increased due to increased input costs and the shift to mining lower grade ore. That left a lot of investors who got the commodity price rise right disillusioned with the sector. The metal prices rose but profits didn't. It is going to take a fair bit of time for previous investors or new investors to see a reason to be in the natural resources market. But it will happen.

    TGR: Does that hold true both for the retail and the institutional investors?

    BC: Yes. Retail investors were hammered in the 1997 downturn. The Bre-X scam triggered the realization that everything was overvalued and much of what was being presented was not true. New NI 43-101 requirements were put in place in an effort to provide more transparency for investors. It certainly helped, but the reality is that a technical report is only as good as the data that goes into it and the persons doing the report.

    I am afraid a lot of these reports are poorly done and do not reflect reality. People must still do their own due diligence and follow results closely. One of the most common problems I see in these reports relates to the resource estimates. A large number of those turned out to be inaccurate, making the financial models based on them wrong. So investors got burned again, this time believing the final mine economics in the report that may have been based on sloppy resource estimates. When a company spends hundreds of millions buying trucks, building mills and excavating rock only to find out the ore in the ground is not what was presented in the resource estimate, it usually loses money. There is a long list of mines that fall into that category.

    TGR: Who are some of the trustworthy veterans still around putting their experience to work in the market now?

    BC: Rick Rule, Ross Beaty, Lukas Lundin and Frank Holmes are people I would listen to when they speak. A number of experienced brokers in Vancouver have proved to be smart people. Those people have been through this before and recognize that now is the time to really make money by buying when the market is down. You just have to be patient.

    TGR: You've traveled the world visiting projects. Do things look rosier in other countries? Has the impact of the strong dollar on projects in Canada and Mexico been good for the bottom line?

    BC: Most certainly. The drop in oil and energy prices, as well as the drop in the Canadian dollar, the Australian dollar, and even the euro, has been an advantage to companies operating in those countries versus in the U.S. We have seen a decrease in operating costs. It is a real advantage to companies mining in Australia and Canada, especially.

    We have also seen mining companies severely cut back on development, exploration, and even maintenance. This will lead to the next bull market when supply is eventually constrained due to these short-term cost cutting measures. The metal prices are going to have to move up because companies can't make money right now, and if it isn't profitable to mine, there will eventually be a shortage.

    TGR: In your travels, what are some of the companies that are well positioned for a market rebound?

    BC: I like companies that are fully funded and building a mine. That includes Asanko Gold Inc. (NYSEMKT:AKG) and Guyana Goldfields Inc. (OTCPK:GUYFF) [GUY:TSX]. They're well positioned to be in production when the market turns.

    Further down the line Continental Gold Inc. (OTCQX:CGOOF) [CNL:TSX] is drilling out resources that will one day be profitable.

    TGR: Asanko just announced plans to combine two of its mines in Ghana. Is that about cutting costs?

    BC: I think it was the plan all along. Because the two deposits are so close together, the cost savings in the capital expenditure [capex] on the second mine are substantial. It always made sense to bring that second deposit in as soon as possible to push up production and profitability without too much extra capex.

    TGR: The market seemed to like it.

    BC: Yes. There are very few companies out there building mines in stable places that people can invest in.

    TGR: Continental just updated its resource estimate on the Buriticá project in Colombia. Did you like what you saw?

    BC: I did. In the past, I was a bit negative on the company, particularly on the resource estimate because I had some issues with it. The most recent underground sampling pulled together the high-grade center of the deposit. It looks to me that it has enough gold there to really kick off a mine. And the details of what's happening at depth and along strike will be much better worked out from underground rather than continued drilling. I think it looks pretty good.

    TGR: Is Guyana Goldfields still on schedule to start production this year?

    BC: Yes, as far as I know. It appears to be on schedule, on budget and moving ahead. It's funded, moving toward production. There are not many projects out there that are doing that these days. Funding is tough to come by.

    TGR: What else have you visited recently?

    BC: Richmont Mines Inc. (NYSEMKT:RIC) is an old company that recently discovered considerably more value beneath its Island Gold deposit in Ontario. It's been a decent mine, not great, but recent drilling and underground work have discovered mineralization that's twice as thick and about twice the grade. The advantage is that the mine is already operating. It has the plant. It has the infrastructure. It just needs to dig down and get it.

    This is one of the companies that a major should be looking to take over. It's in a safe jurisdiction. It's built and running. We know what it looks like. This would be extremely profitable once it gets into the higher-grade zone at depth.

    TGR: Based on what we have learned from the last few cycles, how should investors move forward?

    BC: Mining and commodities are cyclical. The most money I ever made was from the stocks I bought in the bust between 1997 and 2002. It was extremely hard to do because it was scary. I would buy a stock and then it would drop by half again. You are all alone and the market gives you no encouragement at all. As I said earlier, we are walking across the wasteland in the heat of the day into a dust storm while nearly everyone you know is back at the ranch buying Apple and biotech stocks. I remember I bought Virginia Gold for $1.50, bought it again at $0.75. It had $0.50/share in cash, and at one point, it was selling for $0.35. Over the following decade or so the stock was acquired for $13 and we are still making money on that by way of Osisko Gold Royalties Ltd. [OR:TSX]. In retrospect, that was a fantastic buy, but at the time, I was close to giving up all hope. I posted an article on my website titled "What was it like, Dad?" that relives that last bust.

    We are in a similar situation now. People have given up all hope. I suspect most of your readers have no desire to buy another junior exploration company, but there are some companies out there that have the cash to survive, strong management that knows what a deposit looks like and the ability to make those discoveries. If you can buy them for near cash, that's a screaming deal.

    TGR: You're speaking at the Sprott-Stansberry Vancouver Natural Resource Symposium at the end of July. What do you hope attendees will take away from that event?

    BC: This bouncing along bottom could go for a long time, but this is the time to start identifying the groups, the managements and the projects that really have a chance at succeeding. You can buy them for a lot less now than you will be able to buy them somewhere in the future. My guess is next year things start to look better, but this takes patience.

    TGR: Thank you for your time.

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

    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.

    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 Interviews page.

    Bottom of Form

    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences 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) The following companies mentioned in the interview are sponsors of Streetwise Reports: Richmont Mines Inc., Continental Gold Ltd., Asanko Gold Inc. and Guyana Goldfields 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) Brent Cook: I own, or my family owns, shares of the following companies mentioned in this interview: Richmont Mines Inc., Continental Gold Ltd. and Asanko Gold Inc. 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.

    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 (NYSE: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

    Jul 13 3:10 PM | Link | Comment!
  • China, Greece And The NYSE: Black Swans Or Red Flags?

    Scary. That is the word that kept coming up over and over as the news came in this week. Greece technically defaulted. The Shanghai Composite index dropped some 30%. And then a computer glitch caused the NYSE to be down for three hours. Are these headlines just blips on the equities markets? Do they have long-term implications for resource stocks? To answer these questions, we did what we do best at The Gold Report and asked the experts what is causing all the black swans and what they are doing to protect themselves.

    John Mauldin, the man behind Mauldin Economics and author of "Bull's Eye Investing: Targeting Real Returns in a Smoke and Mirrors Market," gave some background on the China crisis. He credited the current problems in Chinese markets to a shift away from the previous top-down command economy to an organic market. "Inevitably, this transition is causing pain for people accustomed to the old ways," he said in his weekly Thoughts from the Frontline blog.

    That pain came in the form of a 20% fall in the Shanghai Composite over two weeks. Even after the government cut interest rates and bank reserve requirements, halted trading on some stocks, required and participated in stock buybacks, the market fell another 3% on Monday and 6% after that. "Western traders sniffed panic and headed for the exits," Mauldin said.

    And Mauldin doesn't believe the red ink is over yet. "Expect more volatility from China in the second half of this year and, really, for years to come," he warned.

    When asked if he would invest in China at this point, he was not enthusiastic. "Probably not-at least until we see more signs of a bottom and Chinese buyers piling in again. China is a traders' market right now and will be for some time. The best you can do: Follow the momentum and get out quickly when it starts to fade. I think that longer term, China is going to be a fabulous market, but most people are just not going to be able to handle the volatility."

    Harry Dent, author of Survive and Prosper newsletter and the book "The Great Boom Ahead," said a version of "I told you so" when we asked him about the bad news on Wednesday. "I have been the greatest forecaster of the greatest overbuilding and debt bubble in the history of emerging markets and that this bubble would burst, especially in the last year where everyday investors have piled into the Chinese stock market as the real estate bubble finally started to cool. This is the beginning of the end and I have been warning that major bubbles like China would see 30% to 40% declines in their first wave down and therefore it was better to get out a bit early than late," he warned.

    Dent credited the slowing of China and world trade in general to the collapse of industrial and energy commodities. A further collapse of China's economy and broader real estate bubble will be even more devastating ahead for oil, gold, iron ore and copper.

    These are not isolated problems, Dent said. "China's bubble burst is much greater than Greece. However, Greece will be a trigger for a chain of defaults from Puerto Rico to Portugal to Illinois-and the first big one in the U.S., the frackers with a $1 trillion industry with over $600 billion in risky or leveraged loans due to default when oil gets back down near $40 or lower. I see $32 per barrel [$32/bbl] in oil in the next year or so and $10-20/bbl by 2023."

    Dent recommended investors get out of all bubble assets: stocks, real estate, commodities and higher yield bonds. Get into cash or reliable cash flow positive investments. Wait for this unprecedented global bubble to burst-then the world is your oyster if you have cash. Cash was king in the Great Depression; it will be again in the next several years."

    Frank Holmes, CEO and chief investment officer at U.S. Global Investors Inc., also warned of more downside to come. "The Chinese stock market has had a great run," he said, pointing out that the Shenzhen index was up 122% for the year, trading at 14 times earnings, before the recent declines. "It still has another 30% to fall before it returns to the mean," he observed.

    While it is easy to get distracted by Greece or China or the next trouble spot, he pointed to the Purchasing Managers Index [PMI], the indicator of operating orders in the manufacturing economy, as the main indicator to watch and right now it is not looking good for China, he said. The HSBC China Manufacturing PMI for China in June was 49.4, a sign that the sector is deteriorating. "90% of the time a negative PMI leads to falling commodity prices," Holmes said. Reduced manufacturing leads to less metal and energy demand.

    Holmes is adjusting by keeping 15-20% of his funds in cash so when August comes, he can buy companies with strong balance sheets. "Right now airlines are doing well because of lower energy costs and healthcare is benefitting from Obamacare and an aging demographic."

    This is a Special to The Gold Report.

    Marin Katusa, author of "The Colder War," says recent changes highlight the problems in China, "which is critical to resources." Back in May, Katusa warned that the next Asian flu pandemic would be caused by the bursting of the Chinese stock market bubble. He credited the rise at least in part to the Shanghai-Hong Kong Stock Connect program, which spiked trading volumes on both indexes. "The beginnings of the Shanghai-Hong Kong Stock connect program caused a shopping spree by mainland Chinese investors inflating the market. In one year the Shenzhen Stock Exchange A shares' price to earnings ratio doubled to a 50 times valuation; over 2x higher than the NYSE composite index," he wrote. "The value between dual-listed Chinese stocks on the Shanghai and Hong Kong exchanges has become distorted. This is partially attributable to more international investors in Hong Kong markets, as well as to less restrictions on balancing the market with short sellers who put downward pressure on stock prices."

    Chris Berry, Disruptive Discoveries Journal writer, described the $3.2 trillion decline in value in the Chinese equity markets as a self-inflicted blow. He took to the Twitterverse Wednesday to talk about the implications for miners. "It appears that metals will be weaker for longer and we may not be truly at the bottom as I once thought we were. Nevertheless we will eventually find a bottom as all economic processes dictate. Each metal has its own supply and demand dynamic, but as markets have become more integrated in recent years, correlations have become more positive. Put simply, as one commodity goes, so goes the rest of them, though correlations aren't always perfect. This has served to make calling a bottom a pointless exercise."

    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 Interviews page.

    Top of Form

    Bottom of Form

    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences 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) 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.
    3) 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

    Jul 09 1:45 PM | Link | Comment!
  • Adrian Day's Embarrassment Of Riches: Gold Companies Cheap To Buy But Not For Long

    Fund Manager Adrian Day believes that the U.S. dollar is fundamentally overvalued and we can expect a devaluation at some point. This is good news for the price of gold. In this interview with The Gold Report, Day adds the even-better news for investors in gold equities is that so many good shares now sell for so little, and he discusses several companies that won't remain bargains for long.

    The Gold Report: Despite the lack of an economic recovery and the reality of ever-increasing debt, the U.S. dollar and the equity markets remain strong, while gold [as denominated in U.S. funds] remains weak. Do you expect these conditions to change?

    Adrian Day: Yes, absolutely. The strong dollar and equity markets are two of the main reasons why gold has been down over the last 18 months. The third reason is anticipated higher interest rates.

    Gold will recover because the U.S. dollar is overvalued against most other currencies, by as much as 25-30% against most Asian currencies. We're not expecting an equities crash any time soon, but the risk level in the market has increased, and stocks are no longer fundamentally cheap. So investors will increasingly look to the protection gold affords. As for higher interest rates, the U.S. Federal Reserve has, by its actions if not its words, made clear it is waiting for perfect conditions before raising rates. I'm not quite sure when we're going to see such conditions. In any event, higher rates are already factored into the gold price, and should the Fed approve a quarter-point rise, I would actually expect gold to rise on that news.

    TGR: The current bear market in precious metals equities began in April 2011. Despite all the talk of "creative destruction" among mining equities, are there still too many "zombie" companies?

    AD: Far too many. It is too easy to raise mining money in Canada. If you discount a company's stock and give a five-year warrant at a small premium, someone will buy it, even if it's only an existing shareholder who liquidates his current holding to get a more attractive deal in the new round. In addition, there is flow-through financing, which would often not be possible were there no tax benefits.

    In 2014, 57% of the financings in the gold sector were for less than $1 million [$1M]. We're now seeing financings for as little as $100,000 or even $50,000. This money is spent merely to keep the lights on and pay salaries. It's not spent on actual work in the ground. I've even heard of financings where the entire point was to repay old debt owed to directors and managements. About 45% of TSX-listed gold companies have less than three months cash on hand.

    TGR: A higher number of listed companies means more fees for the exchange, but what effect does the continued existence of hundreds of zombie companies have on the gold sector as a whole?

    AD: It affects the whole sector negatively because every $1M put into a bad company is $1M that's not going into a better company. Investors burned by investing in zombie companies turn away from gold companies for good.

    TGR: Which companies have you been buying lately?

    AD: Over the last couple of months, we have been buying a lot of companies. The seniors include Franco-Nevada Corp. (FNV) and Goldcorp Inc. (GG) [G:TSX]. Smaller producers include Eldorado Gold Corp. (EGO) and B2Gold Corp. (BTG) [BTO:TSX; B2G:NSX]. We've also bought Pretium Resources Inc. (PVG).

    TGR: Which prospect generator do you like in Europe?

    AD: Reservoir Minerals Inc. (OTCPK:RVRLF) [RMC:TSX.V], though not specifically because it's in Europe! It already has a big discovery, the Timok copper-gold project in Serbia, which has an Inferred resource of 65.3 million tons [65.3 Mt] at 2.6% copper and 1.5 grams per ton [1.5 g/t] gold, including 6.8 Mt at 9.6% copper and 5.9 g/t gold. This is a JV with Freeport-McMoRan Copper & Gold Inc. [FCX:NYSE]. Should Freeport take the project to feasibility, Reservoir will retain 30%. Freeport is drilling Timok extensively now, and if the existence of a large enough deposit is confirmed, it's pretty clear it will buy that remaining 30%.

    Reservoir Minerals Inc. has several other JVs in the Balkans and North Africa. The company has about $40M in cash, about 25% of its market cap. This puts it in an excellent position to develop what it has and generate further prospects. And this cash also allows it to take a strong position with Freeport with regard to the sale of Timok. Simon Ingram, Reservoir's president and CEO, is technically very competent and knows how to tell his company's story.

    TGR: How have the majors come out of the bear market?

    AD: As a group, they bought at the top and sold at the bottom. They bought heavily in 2009-2011, and they've sold heavily ever since then. They've taken over $50 billion in write-offs. For an industry as small as gold mining, that is really quite appalling.

    Now we have a situation where many companies with advanced projects are valued so cheaply, but few of the bigger companies have taken advantage. There are some exceptions: Franco-Nevada, Agnico Eagle Mines, Goldcorp. But even today, some of the majors are continuing to try to sell their assets into a weak market.

    TGR: Would two of those be Barrick Gold Corp. [ABX:TSX; ABX:NYSE] and Newmont Mining Corp. [NEM:NYSE]?

    AD: Yes, as they were two of the companies that went a little crazier during the good times. We are beginning to see a pickup in mergers and acquisitions [M&As], and as gold begins to move up on a sustained basis, which I expect by early next year, we should see a sustained increase in M&As.

    As I mentioned above, the gold companies need reserves. Barrick Gold went from 104 million ounces [104 Moz] to 93 Moz in reserves, even though it kept the price at which it values its reserves the same. Goldcorp reserves are down 8%, while IAMGOLD Corp.'s [IMG:TSX; IAG:NYSE] are down 15% and Coeur Mining Inc.'s [CDM:TSX; CDE:NYSE] 27%.

    TGR: Why have you been buying Goldcorp?

    AD: It has shown a strong growth profile. Over the last year, it has brought three new mines on-stream: Éléonore in Quebec, Cochenour in Ontario and Cerro Negro in Argentina. It has a good jurisdictional-risk profile, operating as it does mainly in Canada and the Americas. And it has the lowest net debt to market cap of any major mining company at 24%. The sector average is about 47%.

    Goldcorp is a disciplined company. Remember that after its hostile offer for Osisko Mining, Osisko found white knights in Agnico Eagle Mines and Yamana Gold Inc. [YRI:TSX; AUY:NYSE; YAU:LSE]. Goldcorp then raised its offer, but after Agnico and Yamana raised theirs in turn, Goldcorp walked away. That's unusual. Most companies let ego get in the way in battles of this sort. Having increased its line of credit and sold off its shares in Tahoe Resources Inc. (TAHO) [THO:TSX], Goldcorp is now poised to make a major acquisition.

    TGR: Which companies in the royalty/streaming sector are your favorites?

    AD: Franco-Nevada and Royal Gold Inc. (RGLD) [RGL:TSX]. There's not much to say about Franco except to say that, if you want only one gold company, buy Franco. It has the best people in the business. It has a great balance sheet, strong cash flow and a diversified asset base with a strong growth profile. It has about 350 mineral royalties, of which about 35 are producing now, so there is plenty of potential. It is a good buy at less than $50/share.

    Royal is also a great company, although its balance sheet is not as good, and it is not as diversified as Franco. But it probably has more near-term upside, and with Thompson Creek Metals Co. Inc.'s [TCM:TSX; TC:NYSE] Mt. Milligan mine in B.C. now producing, it will probably see a bigger revenue increase than Franco over the next 12 months.

    We also like Altius Minerals Corp. (OTCPK:ATUSF) [ALS:TSX.V]. This is non-gold, of course, but it is a diversified company with roots as a prospect generator that has consistently sought out royalties.

    TGR: Are you confident that Pretium will get the permits for its Brucejack project in B.C.?

    AD: Pretium will get the permits, but it's a long process. While it waits, it continues to drill and is coming up with some very good results. I believe that this stock still suffers an overhang from the dispute a couple of years ago about the reserve calculation. Considering its Proven and Probable resources of 6.9 Moz gold, the mine capital expenditure [capex] of $747M is quite reasonable. Pretium is a very good buy right now.

    TGR: Is the purpose of Pretium's current drilling to define what it has, expand what it has, or both?

    AD: Both. This is a very "nuggety" deposit, so much tighter drilling is required.

    TGR: How do you expect the capex will be raised?

    AD: I doubt Pretium will have much difficulty financing once it starts getting the building construction permits. The Zijin Mining Group Co. Ltd. already owns 9.6% of the company. I suspect that a Chinese group will come in and take over the company eventually.

    TGR: On June 3, West Kirkland published a prefeasibility study of its Hasbrouck project in Nevada. Were you impressed?

    AD: Yes. Hasbrouck is a relatively small, relatively unexciting project of 567 Koz gold. The after-tax net present value is $75.3M, with an internal rate of return of 26%. But it's also a simple project with no metallurgical problems, so all-in mining costs will be cheap at $779/oz, and the initial capex is only $54.3M. Permitting in Nevada is more time consuming than it once was, but given Hasbrouck's economics, shares are just ridiculously cheap at $0.06. Part of the problem is that investors are always looking for more excitement, for the big killing, and you won't get that with West Kirkland.

    TGR: Will the company have difficulty raising the capex?

    AD: Well, $54.3M is not a lot of money in absolute terms, but it is a lot for a company with an $18M market cap. I have faith in Mike Jones, West Kirkland's president and CEO. He's not going to do anything foolish. He will raise the money in the most appropriate way, debt mostly. West Kirkland has little downside and represents a possible triple or quadruple over the next 18 months or so.

    TGR: How long do you think that gold equities as a class will remain cheap?

    AD: Much depends on the gold price. Investors want a higher price on a sustained basis before they really come back to this sector. Anyone still in the gold market must be patient. That said, the senior gold companies are trading at pretty much their lowest valuation levels ever, and many of the juniors have market caps lower than cash on hand.

    Investors can afford to be selective. They need to look at market caps and ask what they are getting for their investment. They need to consider not the number of ounces but their quality. They want companies that have sufficient cash to pursue at least the next stage or two of their business plans. It may take another year or 18 months before we see a general recovery in this sector, but in the meantime, this is just a great time to be buying gold companies. There's an embarrassment of riches.

    TGR: Adrian, 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.

    Adrian Day, London born and a graduate of the London School of Economics, heads the eponymous money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund [EPGFX]. His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."

    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 Interviews page.

    Bottom of Form

    DISCLOSURE:
    1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an employee. 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: Pretium Resources Inc. and Tahoe Resources Inc. 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.
    3) Adrian Day: I own, or my family owns, shares of the following companies mentioned in this interview: Altius Minerals Corp., Franco-Nevada Corp., Freeport-McMoRan Copper & Gold Inc., Goldcorp Inc., Reservoir Minerals Inc. and Royal Gold Inc. In addition, clients of Adrian Day Asset Management own shares in Franco-Nevada Corp., Goldcorp Inc., Eldorado Gold Corp., B2Gold Corp., Pretium Resources Inc., Agnico Eagle Mines Ltd., Yamana Gold Inc., Royal Gold Inc., Altius Minerals Corp. and West Kirkland Mining Inc; clients of Adrian Day Asset Management hold more than 5% in the following stocks mentioned in the interview: Reservoir Minerals Inc. 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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    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 (NYSE:I) only in whole (and always including this disclaimer), but (ii) never in part.

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