James West: Falling Back In Love With Gold

Includes: ABX, AEM, GG, NTR
by: The Gold Report

There's a saying that old love never rusts. James West, publisher and editor of The Midas Letter, might have broken it off with the gold space for a while, but he always knew he'd be back when the time was right. In this interview with The Gold Report, West talks about what has convinced him to start shopping for gold stocks again and the unconventional indicators he's using to signal a buy.

The Gold Report: James, you took a leave of absence, so to speak, from the gold space, opting instead to focus more heavily on the oil and gas market. While you're still in oil and gas, you've come back to the mining space. Why are you returning to the gold and silver business now?

James West: There's been an overreaction. Some valuations are so beaten up that they defy all logic. The companies that I'm interested in have the following characteristics: They are in production or are going into production within 12 months; they have cash costs well below $1,000 an ounce [$1,000/oz], but preferably $900/oz or lower; they have a solid management team that is able to access capital on good terms; they still have a strong share structure; and they operate in a safe jurisdiction.

I wouldn't say that I am prepared to proclaim that the worst is over and it's time to go all-in on gold and silver stocks. There are still a lot of risks out there.

TGR: What sources of information are you using to inform your investment decisions?

JW: My ideas emanate from monitoring press releases and volume spikes, and obviously I follow successful management teams. I get attracted to companies that are suddenly active or trading at volumes outside of their norms. If a company intrigues me, I will research its share structure, insider ownership and cross-reference board members with other deals that they've been involved with to ascertain a track record.

Generally, if there's slowly building volume over time without any news, that's an indication that people who are involved with a project or peripheral to the company are aware of some aspect of the project that has not yet been made public and are starting to accumulate shares.

TGR: Barrick Gold Corp. (NYSE:ABX) said recently that Peter Munk, longtime chairman and founder, would be stepping down after the next annual meeting. Does that make Barrick more or less appealing to investors?

JW: How do I say this diplomatically? The only thing that could make Barrick appealing to investors, in my estimation, would be a complete reversal in the price of gold to levels above $1,500/oz. I don't think that Peter Munk's retirement is going to affect the valuation of the company positively or negatively.

TGR: Why do you think small-cap gold equities are a better play than large-cap gold equities?

JW: Small exploration companies have a microscopic fraction of the overhead that a Barrick-type company has. If a small company with a burn rate of $200,000/month discovers a 2 million ounce deposit in a safe jurisdiction and the cash costs are equal to Barrick's, then the operating profit per share is going to be much higher than it would be in Barrick's case, because Barrick has such tremendous overhead to maintain.

TGR: Are there large-cap gold stocks that are worth a look?

JW: If I were going to invest in a large-cap gold mining company for the relative security, I would opt for Agnico-Eagle Mines Ltd. (NYSE:AEM) or Goldcorp Inc. (NYSE:GG).

TGR: Because of their growth profiles?

JW: They have less reclamation liabilities on their balance sheets and their strategy of acquisitions and execution is better handled.

TGR: Are there some specialty metal miners you follow?

JW: Agrium Inc. (AGU) has stated publicly that it is looking to acquire its own North America-based phosphate deposit. It doesn't have much of an option outside of Lac à Paul. Somebody's going to buy it sooner or later. Given the current price, it's a steal.

TGR: What is your forecast for the market going forward?

JW: Quantitative easing is starting to have less of an ability to generate economic numbers. The great inflection point where quantitative easing fails to generate any economic benefit can't be too far off.

At that point, currencies will collapse and gold and precious metals will rise and dominate. That will defeat the futures market for gold and silver and let the physical demand drive the price. That's when gold is going to sail through $2,000/oz. Whether that's going to be tomorrow or next year or in 10 years, I can't say.

TGR: You still like gold-is that the bottom line?

JW: I love gold and silver in the long term. It's the only store of value since the beginning of recorded history that has lasted through every age of man. It's the only one. All paper currencies have ultimately failed through the abuse inherent in hyperinflation. We are in massive hyperinflation now, so one would argue that we're on the brink of the expiration of the viability of paper currencies in this particular age and gold and silver will return as the primary stores of value. It's just a matter of time.

TGR: Thanks, James. It's been a pleasure.

JW: You're welcome.

This interview was conducted by Brian Sylvester of The Gold Report.

James West is publisher and editor of The Midas Letter, and an independent capital markets entrepreneur and investor. He has spent more than 20 years working as a corporate finance adviser, corporate development officer, investor relations officer, media relations and business development officer for companies involved in mining, oil and gas, alternative fuels, healthcare, Internet technology, transportation, manufacturing and housing construction.


1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

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3) James West: I or my family own shares of the following companies mentioned in this interview: All. 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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