Silver Wheaton's Shiny Future

by Deborah Baratz

www.moneymorning.com

Silver prices enjoyed a bullish third quarter and will keep the rally going through the end of 2012.

Reaping the benefits from this precious metal's increase has been silver exchange-traded funds (ETFs) and silver mining companies.

One mining company, Silver Wheaton Corp. (NYSE: SLW), is clearly riding high on these good times.

Back in July as silver was making its ascent, Silver Wheaton sat at $25. Today (Tuesday) it is trading at $39.12, with year-to-dates gains exceeding 34%.

Don't worry investors, you haven't missed out: It also has a bright future.

Gold Avalanche recommends keeping bids well below market. This company has a very high beta of 1.59, which means the stock is prone to large swings to the upside and downside. If interested, try a bid around the 50 day weekly Moving average, which is currently $31.96. Only invest with money you are willing to lose, and employ money management techniques to limit losses (like averaging into the position and taking profits when they are there). This is one stock we feel will be a good one to hold for the long haul.
 

Interested in investing in silver? Here’s everything you need to know.

SLW Soars on Silver Price Climb

Silver Wheaton has found its niche in silver streaming.

The company provides money for capital expenditures on the front end as a project starts to develop. It then acquires rights to purchase the produced precious metals at low, fixed prices.

The company neither pays for ongoing capital nor exploration costs from mines. So its fixed, one-time costs cut down its risks, according to a profile in Forbes.

The company gets silver at fixed price then sells it at current market prices against the volatility of daily prices. Silver Wheaton's gains rise as silver market prices increase.

Currently the company has 15 silver purchase agreements and three precious metal purchase agreements across 13 mining partners worldwide.

Silver Wheaton CEO Randy Smallwood attributes Silver Wheaton's success to its precious metal of choice.

Smallwood explained, "It is all about choosing the right commodity, and being focused on silver has proved to be a good decision for us. We are careful to select projects that will deliver significant organic growth."

Silver Wheaton: Let's Make a Deal

Silver Wheaton owes part of its recent rise to the market's favorable reaction to its acquisition of HudBay Minerals Inc. The $750 million deal closed on Sept. 28, 2012.

Silver Wheaton now has an opportunity to take 100% of production from two of the company's mines. This will allow it to expand from this year's forecast of 28 million equivalent silver ounces to a 2016 forecast for 48 million equivalent silver ounces, reported Trefis.

This is just one of the many benefits from the acquisition.

According to Forbes, the deal gives Silver Wheaton the ability to insulate itself from rising production costs, while also protects it from the downside of lower production.

And the deal-making could continue. The company has more cash to spend on new transactions and is focusing on business development.

Silver Wheaton has a cash balance of $1.1 billion as of June 30, 2012. Since then it's had to pay $500 million to acquire Hudbay and a Barrick payment of $138 million, but has also generated an additional quarter's worth of cash.

Recently Smallwood said to Mining Weekly that the company will finance new projects with its cash stash. He said that approximately 80% of the company's revenue has gone to its funding while 20% has been returned to investors via quarterly dividends.

Smallwood isn't the only one expressing confidence in SLW. Fortune magazine recently named Silver Wheaton as the fastest-growing company thanks to its 340% increase in profits over the last three years to $575 million.

Revenue has increased 76% to $771 million during this time period.

Staying on top could last for "quite a while" said Smallwood.

"We have a strong growth profile and we expect to produce 48-million ounces of silver a year within the next four years - and that excludes any future deals we may decide to enter into," he told Mining Weekly.

With the increased demand for silver in industrial production as well as the ongoing global financial woes, silver prices are expected to continue rising.

For Silver Wheaton, this is a very good thing. 

It May Be Time to Book Some Profits in the Mining Stocks

By Toby Connor
www.goldscents.blogspot.com

IT MAY BE TIME TO BOOK SOME PROFITS IN THE MINING STOCKS: It's been a great run over the last two months but it may be time to tighten stops on mining stocks. You can see in the chart below that at least during this stage of the new C-wave gold is still inversely tethered to the dollar index, as are miners.

During the period from September 2011 to July 2012 the dollar was moving generally higher out of its three year cycle low and that forced a 10 month correction in the precious metals sector.

It's been my opinion that the three year cycle in the dollar topped at that point, and should drift generally lower until the next three year cycle low sometime in mid-2014 (with occasional counter trend rallies from time to time).

I've been expecting one more leg down in the dollar to test the February intermediate low before the first counter trend rally.

However, this bounce is now on the 10th day and in jeopardy of generating a right translated daily cycle (a cycle that rallies longer than half its duration and tends to form higher highs and higher lows).


If a right translated daily cycle occurs it will probably signal that an intermediate degree counter trend rally has already begun. As you can see in the chart above just as soon as the dollar started to rally gold stagnated, mining stocks started to correct, as did the stock market.

If this bounce in the dollar turns into a full-fledged intermediate degree rally then we can probably expect a 3-4 week correction in asset markets. 

I find it hard to believe that Bernanke is going to allow the dollar to rise and asset markets correct right in front of an election but the possibility definitely exists if the dollar doesn't turn down early next week.

Those of you not willing to hold through a 10-15% correction in miners should probably consider tightening stops, possibly right below Thursday's intraday low. If that stop level gets violated it would start a pattern of lower lows and lower highs which is generally the definition of a down trend.
 
If, on the other hand, Monday morning finds the dollar getting hit hard then I think we may see gold test $1900 before the next intermediate degree correction. In my opinion what happens Monday & Tuesday to the dollar index will probably set the stage for market direction over the next month and into the election.

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Pocket of Strength - Employment in the Mining Industry: Frank Holmes

By Frank Holmes
CEO and Chief Investment Officer
www.usfunds.com

Did you know that one of the industries that has seen the best job growth in the U.S. is mining? As you can see below, from the end of December 2007 through May 2012, U.S. employment in the mining sector has increased 16 percent. This percentage change is far better than any other sector, according to data from the Bureau of Labor Statistics.

The number released on July 6 showed that unemployment remains stubbornly stuck above 8 percent and Business Insider shared once again its “SCARIEST JOBS CHART EVER”. However, global investors should keep in mind that there are always pockets of strength. If you break out the June unemployment rate by industry, you can see that mining, quarrying and oil and gas extraction remains the lowest.

This trend is set to continue, according to Citi GPS. Citi believes as many as 3.6 million new jobs may be created by 2020, with 600,000 jobs in the oil and gas extraction sector and 1.1 million jobs in the related industrial and manufacturing activity. The firm says this could drive national unemployment to fall by as much as 1.1 percent.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Source: http://www.usfunds.com/investor-resources/frank-talk/pocket-of-strength-employment-in-the-mining-industry

Equities the Way to Benefit from Gold's Strength: Henk Krasenberg

By Brian Sylvester of The Gold Report  (7/2/12)

Henk J. Krasenberg, analyst and founder of the European Gold Centre and author and publisher of the GOLDVIEW newsletter, sees no lack of potential among small-cap equities, especially for investors willing to look beyond the U.S. borders. He offers names in Europe and Africa—what he calls "the poorest and richest continent"—and reminds us that Mexico produces a lot more than silver. In this exclusive Gold Report interview, Krasenberg counsels patience because "you have to wait for the development."


The Gold Report: Henk, what did you make of the June 17 Greek election? What does the country's apparent decision to stay in the Eurozone say about the sustainability of the European Union (EU)?

Henk Krasenberg: I am happy with the result because it shows that common sense prevailed. It seems that Greece will do everything to stay in the EU. Also, it prevented immediate chaos in the European markets.

Of course, it does not mean all the problems are over, but the immediate threat of a chain reaction in Spain, Portugal and Italy is gone for the time being. I don't think the Eurozone will fall apart. It would be awkward for us all to go back to our own currencies again. I am confident that the EU and the euro will stay.

TGR: Do you think the average European retail investor is as concerned about European debt problems as investors in North America?

HK: I do not think the European retail investor is really a party. In general, European private investors are pretty quiet and not so spontaneous in their investment reactions.

What is more important is the attitude and investment behavior of the institutions. They are concerned about European and American debt. In general, we are confident that the EU, the European central banks and the International Monetary Fund will come up with solutions, although most of those solutions are political.

TGR: The interest rate on Spain's 10-year Treasuries is now 7% and its economic growth is less than 1%. How does that affect the stability of the EU?

HK: Interest rates are important for governments, institutions and corporations, but not so much for investors. I remember a prominent Dutch investment manager saying 20 years ago, "I only talk about interest rates when I'm drunk." I have always remembered that.

People cannot influence interest rates. They are beyond our reach. We can look at interest rates, we can comment on them, but someone else is deciding what will happen.

TGR: In the past, you have said the real problem with the global economy is that the U.S. refuses to admit that it is bankrupt. Yet, over the last two years, U.S. markets have outperformed European markets by nearly 40%. How do you argue against that?

HK: If you are big enough, you usually do not go bankrupt. So, the U.S. will not go bankrupt. But if you look at its financial situation, it is in fact bankrupt. If it were to really fail, the impact would be too severe, so it will be saved.

The Federal Reserve is handling the situation quite well, manipulating a lot of things, including gold. And I think the Fed is doing everything to hide the real situation.

I think there is excessive optimism in the American markets, and I think the pessimism in the European markets is an overreaction.

TGR: Fed Chairman Ben Bernanke announced a continuation of the Twist program, basically an exchange of short-term debt for long-term debt. What do you make of that?

HK: Bernanke is in a terrible position. The Fed will not make any statement that would really hurt itself or change things overnight. If you change short-term debt for long-term debt, it is only delaying the execution. Sooner or later, you have to admit that you cannot pay your debts.

TGR: You like gold because you believe it will hold its purchasing power over time, but you like small-cap gold equities because they offer what you call flexibility. What do you mean by that?

HK: I like gold, but it is too static. When you own gold, you sit there and wait. Only very sophisticated investors sell and buy or steer with instruments like options or futures.

With mining shares, you can be much more flexible. You can keep your commitment to the metal, but you can adjust your holdings as things change within the companies, within the industry, with the preference of metal and with the performance of metal prices. Eventually, if you play your cards right, equities should be a better way to benefit from the underlying strengths of the metals.

TGR: Over the last 18 months investors would have been a lot better off holding their money in "static" gold versus gold equities.

HK: People get impatient. The mining and exploration companies are longer-term plays. You have to wait for the development. Some of those companies are grossly undervalued while they are doing great. Sooner or later, the market will have to correct itself.

TGR: When will that happen?

HK: That is difficult to say. Internationally, only 2% of people's money has been invested in gold and mining shares. I expect that to increase in due time. We are waiting for institutions to make a shift. But before that happens, the industry has to make some changes, too.

"If you play your cards right, equities should be a better way to benefit from the underlying strengths of the metals."

When mining and exploration companies come to Europe to present themselves to the investment community, the most often heard reaction is that they are so small. Professional European investors cannot look at a company with a market cap of $10 million (M) or less. I expect there will be many more mergers in the next 12 months because we need bigger entities in the market. Pension funds are starting to nibble now, but they would like to see more larger companies.

TGR: Is that not related to the amount of risk a fund is allowed to own?

HK: Perhaps, but it is also the practical response of big investment fund managers who are mostly managing very large portfolios, too large to spend time and effort to look at all those small companies.

That is why the exchange-traded funds (ETFs) and mining investment funds are growing. It would be ideal if the European pension funds and other institutions would take part in these funds to get them more comfortable with the industry.

Up until now, there is only a relatively small group of European institutions that buy mining shares, and you really have to look for them. That is what I try to do with my publications: to find the metals- and mining-receptive people in the institutions.

TGR: There are hundreds of companies seeking economic metals and mineral deposits in Europe. What do North American retail investors need to know about investing in Europe?

HK: The general thing I would like to say to American investors is that the world is a lot larger than your own country. Asia, Australia, Africa, Europe and Latin America all offer great opportunities. Canada and Mexico are in your backyard, and there are opportunities there. You do not need to invest in Europe. If you do, great, but it is not a priority.

TGR: What are some of your favorite European mining plays?

HK: Sweden is the most active country here in Europe. Historically, it had a lot of zinc and iron mining, but nowadays its mining and exploration of many more metals are all over the place. Sweden has some nice producing gold mines, Nordic Mines AB (NOMI:ST; NOM:OSLO) and Gold-Ore Resources Ltd. (GOZ:TSX.V), for example.

"Asia, Australia, Africa, Europe and Latin America all offer great opportunities."

In other metals, Northland Resources Inc. (NAU:TSX; NPK:FSE) is constructing one of the world's largest iron mines. Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.A; TASXF:OTCPK; T61:FSE) has built a great portfolio of rare earth element metals and will do remarkably well. Mawson Resources Ltd. (MAW:TSX; MWSNF:OTCPK; MRY:FSE) originally built an extensive position in uranium but has recently reorganized the company and its holdings. Its flagship is now in gold/uranium in Finland.

Spain and Portugal have long mining histories, primarily in coal. However, the EU wants to stop coal mining. Several companies are now exploring and some are moving closer to mining in both countries. Spain and Portugal have good potential and an experienced labor force waiting; exploration activities have increased and will be directed to gold, tungsten, copper and zinc.

Astur Gold Corp. (AST:TSX.V) acquired a former gold producer and is now in the permitting stage. Because it is located just a few hundred meters from the coast, the company had to change the infrastructure to dewater the mine to avoid pollution. The Spanish and local governments are very cooperative and laborers are waiting to be employed.

Also in Spain, I like Ormonde Mining Plc (ORM:LSE) and Edgewater Exploration Ltd. (EDW:TSX.V). Edgewater is also active in Ghana in Africa. It just announced that it commissioned a finance firm to raise $120M to put its Spanish project into production.

TGR: Are the Spanish and Portuguese governments more likely to fast-track these operations to spur economic development?

HK: At an EU minerals conference two years ago, the Spanish Minister of the Economy said the government would do everything to accommodate the resource industry; the provincial governments in Spain also have a good attitude toward more mining and exploration.

Portugal recently opened up new tenders for additional licenses and has been awarding them. Avrupa Minerals Ltd. (AVU:TSX.V) just acquired some of these new Portuguese licenses. Avrupa is the Turkish word for Europe. But that is the only Turkish thing about the company, apart from the president's 15 years as a geologist there. He is looking for gold, tungsten, zinc and copper. Colt Resources Inc. (GTP:TSX.V; COLTF:OTCQX) is also in Portugal with gold and tungsten projects.

TGR: You note in your newsletter that European investors are more likely to invest in African metals plays. Is the reason as simple as proximity?

HK: That depends on your definition of proximity. Not as a matter of geographic proximity, no. But Europeans have a background in Africa. Colonialism is not the proudest part of our history, but it must be recognized. As a result, Europeans have more direct experience with Africa. Americans have no ties there, thus there is very little sentiment toward investing in Africa.

TGR: Which African countries do you like?

HK: Most people look at the historical gold areas in South Africa and Ghana. Both are solid gold producers. Several exploration projects in Ghana are close to resuming production. Other historically important countries are the Democratic Republic of the Congo (DRC) with gold, copper, diamonds and important strategic metals such as coltan, and Zambia with its famous copper belt.

Newer mining countries like Tanzania, Burkina Faso and Mali (now ridden with political troubles) and lesser known Eritrea, Ethiopia and Mauritania are interesting. Also in East Africa the interest in natural resources is moving forward.

I always say Africa is known as the poorest continent but it is also the richest continent on earth. It has resources everywhere, but still remains largely underexplored. There is great potential.

TGR: Which African companies do you like?

HK: In the production sector, I adore SEMAFO Inc. (SMF:TSX; SMF:OMX). It has producing mines in Burkina Faso, Niger and Guinea. It has first-class management and social programs to be proud of.

I used to like Etruscan Resources Inc. (EET:TSX), which was taken over by Endeavour Mining Corp. (EDV:TSX; EVR:ASX). The company solved some problems and now has two producing gold mines in Ghana and Burkina Faso and a great portfolio of properties.

Of course, African Barrick Gold Plc (ABG:LSE) is by far the best choice you can have. I also like Randgold Resources Ltd. (GOLD:NASDAQ; RRS:LSE), a company with four producing mines in Mali and Côte d'Ivoire; it is developing a big mine in the DRC, as well as several advanced exploration projects in Mali, Côte d'Ivoire, Burkina Faso and Senegal.

Also, Toronto-based New Dawn Mining Corp. (ND:TSX) is steadily producing gold in Zimbabwe, a most difficult country, and is worth mentioning.

Tanzania is perhaps the most promising country for exploration. Tembo Gold Corp. (TEM:TSX.V) is well organized. Its management is highly experienced in Tanzania and has worked with Barrick. The local office is dealing with the local infrastructure, the project and the exploration site. Everything else is done from Toronto. That is an impressive corporate structure, and I feel comfortable with David Scott as CEO.

"Tanzania is perhaps the most promising country for exploration."

TGR: Tembo has a property next to African Barrick's Bulyanhulu mine. If Tembo outlines a significant resource, will it become a takeover target?

HK: There is that possibility, but Tembo's management may not be eager to do that. First, a lot of development work remains to be done. If anyone has a chance to know what the territory could bring, it is the people at Tembo.

TGR: African Barrick has had issues in Tanzania with local artisanal miners. Has that been a problem for Tembo?

HK: I do not think so, although artisanal mining is a problem all over Africa. There are two ways to deal with it. You can scare them off. That means complicated situations, which turn local forces against you. Or you can work with the artisanal miners. Artisanal mining is not a threat; it only goes 5 or 10 meters deep. Companies should turn the negative into a positive and use the artisanal miners as an extension of their own exploration forces.

In Ghana, African Gold Group Inc. (AGG:TSX.V) reached an agreement with the artisanal miners. While making it clear that the property belongs to the company, the agreement gave the artisanal miners a part of the property where the company would not explore for the time being. It said, go ahead; everything you find is yours with one obligation—tell us what you find. We will not take it, but we want to know. That is how to handle artisanal miners.

TGR: Tembo also has the backing of major financial institutions. How important is that?

HK: A few intelligent young guys are behind Tembo. They have a very good rapport with financiers and they know where to get money. This makes David Scott very happy because he can focus on his skill: advancing the property.

TGR: Any other African names?

HK: In Tanzania, I like Helio Resource Corp. (HRC:TSX.V), a Vancouver company. It also is exploring gold properties in Namibia. These companies complete my list: Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.A) and Sunridge Gold Corp. (SGC:TSX.V) in Eritrea and Stratex International Plc (STI:LSE) in Ethiopia and Djibouti.

TGR: Your supporters include a number of companies operating in Mexico. Tell us about them.

HK: Mexico is a priority country for mining and exploration and is generally mining friendly. But in the past, it was difficult to acquire large pieces of land. Only in the last 10 years has the industry has really materialized. Companies like Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A), Excellon Resources Inc. (EXN:TSX), Minefinders Corp. (MFL:TSX; MFN:NYSE) [recently taken over by Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ)], AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE), Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE), First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE) and SilverCrest Mines Inc. (SVL:TSX.V; STVZF:OTCQX) all have moved from exploration to successful production over the last few years and will continue to do well.

I also like Aurcana Corporation (AUN:TSX.V; AUNFF:OTCQX), which is increasing capacity at its La Negra mine, Scorpio Mining Corp. (SPM:TSX), which has been kind of quiet, and Avino Silver & Gold Mines Ltd. (ASM:TSX.V; ASM:NYSE.A; GV6:FSE), a silver producer in the past that is now restarting production.

In the exploration sector, MAG Silver Corp. (MAG:TSX; MVG:NYSE) is a very good one to mention; it will probably be one of the next producers.

I have followed Canasil Resources Inc. (CLZ:TSX.V) for a long time. Its president, Bahman Yamini, is an intelligent mining operator and explorer, but people have not recognized the promise of his project base. Canasil is a great takeover candidate, although Yamini is a shrewd negotiator; an acquirer will have to pay the price.

Newer companies include Riverside Resources Inc. (RRI:TSX), Revolution Resources Corp. (RV:TSX; RVRCF:OTCQX) and El Tigre Silver Corp. (ELS:TSX.V; EGRTF:OTCQX; 5RT:FSE). It is not hard to find good candidates.

But Mexico is not only about silver; it also has other metals such as gold, copper and zinc. As a gold producer, I like Timmins Gold Corp. (TMM:TSX.V; TGD:NYSE.A). It brought its San Francisco mine into production in a relatively short time and has good potential to grow.

TGR: Aurcana is developing a silver mine in Texas, where uranium mines have also come into production. What do you think of Texas as a viable mining jurisdiction?

HK: When I saw Aurcana's presentation in Geneva just a month ago, I was very surprised to learn about silver mining in Texas. Hearing Lenic Rodriguez talk about the Shafter mine, I did some homework and discovered it is situated in an historical silver mining area.

There is a kind of revival of U.S. mining and exploration. And it is not just Texas. Developments are taking place in Montana, Idaho, the Carolinas and Arizona. I even heard one company talking about exploring in Washington state.

TGR: Is that due to the economy?

HK: In part, but more broadly, people recognize that the resource industry is not just a short-term play. They recognize the world will continue to need metals and that metal prices offer viable opportunities. Aurcana, for example, can produce silver at $7–8/oz and sell it at $28/oz. What other business has profit margins like that? Other industries are looking at eroding end prices, but not the resource industry. I think that is behind this revival of mining in America.

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

Henk J. Krasenberg is the founder of the European Gold Centre, which analyzes and comments on gold, other metals and minerals and international mining and exploration companies in perspective to the rapidly changing world of economics, finance and investments. The Centre publishes GOLDVIEW, Mining in Africa, Mining in Europe and Mining in Mexico, all available at no cost to investors. Krasenberg's career has included security analysis, investment advisory, portfolio management and investment banking.

Want to read more exclusive 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 Exclusive Interviews page.


DISCLOSURE:

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Tasman Metals Ltd., Tembo Gold Corp., African Gold Group Inc., Sunridge Gold Corp., Great Panther Silver Ltd., Timmins Gold Corp., Aurcana Corporation, SilverCrest Mines Inc., MAG Silver Corp. and Riverside Resources Inc. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.

3) Henk Krasenberg: I personally and/or my family own shares of the following companies mentioned in this interview: None. Astur Gold Corp., Aurcana Corporation, Avino Silver & Gold Mines Ltd., Avrupa Minerals Ltd., Canasil Resources Inc., Great Panther Silver Ltd., Mawson Resources Ltd., New Dawn Mining Corp., Northland Resources Inc., Tasman Metals Ltd., Tembo Gold Corp. and Timmins Gold Corp. are supporting companies of the European Gold Centre. I was not paid by Streetwise Reports for participating in this interview.

( Companies Mentioned: AGG:TSX.V, AST:TSX.V, AUN:TSX.V; AUNFF:OTCQX, AUQ:TSX; AUQ:NYSE, ASM:TSX.V; ASM:NYSE.A; GV6:FSE, AVU:TSX.V, CLZ:TSX.V, GTP:TSX.V; COLTF:OTCQX, EDW:TSX.V, ELS:TSX.V; EGRTF:OTCQX; 5RT:FSE, EDV:TSX; EVR:ASX,
EDR:TSX; EXK:NYSE; EJD:FSE, EET:TSX, EXN:TSX, FR:TSX; AG:NYSE; FMV:FSE, GOZ:TSX.V,
GPR:TSX; GPL:NYSE.A, HRC:TSX.V, MAG:TSX; MVG:NYSE, MAW:TSX; MWSNF:OTCPK; MRY:FSE, MFL:TSX; MFN:NYSE, NSU:TSX; NSU:NYSE.A, ND:TSX, NOMI:ST; NOM:OSLO,
NAU:TSX; NPK:FSE, ORM:LSE, GOLD:NASDAQ; RRS:LSE, RV:TSX; RVRCF:OTCQX,
RRI:TSX, SPM:TSX, SMF:TSX; SMF:OMX, SVL:TSX.V; STVZF:OTCQX, STI:LSE,
SGC:TSX.V, TSM:TSX.V; TAS:NYSE.A; TASXF:OTCPK; T61:FSE, TEM:TSX.V, TMM:TSX.V; TGD:NYSE.A, )

Source: Equities the Way to Benefit from Gold's Strength: Henk Krasenberg:

(Mining) Investors Need to Understand Basic Geology: Chris Wilson:

By Sally Lowder of The Gold Report   (6/29/12)

Chris Wilson, president of Exploration Alliance, a niche consulting group, believes education is an investment basic. In this exclusive interview with The Gold Report,Wilson shares his guidelines for winnowing out the crowded junior mining sector to find the companies worth serious investigation and urges investors to know their porphyries from their narrow veins.

The Gold Report: Chris, you have described the junior mining industry as being "in disarray." Do you have any ideas for investors who might want to participate in the space, but may be a bit confused or discouraged?

Chris Wilson: Well, upfront I would say do not lose heart, but do not go throwing your money at just any junior at the moment.

We have to find 80 million ounces (Moz) of gold a year just to replace what is being mined. That is equivalent to the whole of the production from the Carlin Trend. Clearly, any company with a significant discovery will be extremely valuable. That value will grow exponentially moving forward because new discoveries are getting harder to find. The value most likely will be unlocked by the major companies buying the juniors out.

It is a big leap for a junior trying to be a miner. When the major companies are mining successfully, but not exploring successfully, acquisitions have to become part of the future. The trick will be finding juniors that have a commodity and a deposit style that are attractive to the majors.

"When the major companies are mining successfully, but not exploring successfully, acquisitions have to become part of the future."

There are probably 3,000 junior explorers on the Toronto, Australian and London stock exchanges. So, you have to do your homework. First, you discount the 20% that have managements with a reputation for pumping and dumping or that lack technical prowess. Next, you eliminate companies working in countries you do not like for reasons of geopolitical risk.

With a little bit of research you can see where mines are being built successfully and where potentially good mines are not being built. For example, take Gabriel Resources Ltd.'s (GBU:TSX) Rosia Montana mine in Romania. This mine has been in existence since Roman times. It is a 10 Moz deposit that would make a difference to the region. It would remediate the legacy of 2,000 years of mining history. But, it has been shut down by popular vote and sentiment on the Internet.

Once you discard management and geopolitical risk, you have 1,500 or 1,000 names left. Next, you have to look at deposit style. Irrespective of grade, major companies do not buy small vein deposits with often complex and discontinuous ore shoots. Such deposits will always remain the remit of Junior explorers who may struggle to stack together resources or commercialize production. Neither do major companies want small copper mines with difficult metallurgy. It may take $4 billion to put a big copper porphyry into production. As an investor, you have to target companies with the potential of finding a deposit in the commodity of choice, probably copper, silver or gold, that has the chance to get the attention of the majors.

Of course, you want to look at the number of shares a company has out there and how much cash it has in the bank. If a company is going to have to raise money in the near term, that will be dilutive and something you want to steer away from.

You can go on to the System of Electronic Disclosure by Insiders (SEDI) to see if management has been selling their shares and have a look at the stock curve. If it is a typical up and down parabolic curve, it probably does that for a reason. Juniors with good assets tend not to have that parabolic curve up and down. They may have come off 20% or even 50%, but they are holding steady. What percentage of the shares is held with management? Put that into the equation.

By now, the list of 3,000 companies is probably down to about 100, and that is a manageable number of companies to do your due diligence on.

The last thing I would say is go and talk to a geologist. Not necessarily the company geologist, who will sell you any story the company wants. If you are going to invest in this commodity and you do not understand geology, you need to find a geologist that can help you.

TGR: Is that what Exploration Alliance is? Are you essentially geologists for hire?

CW: Exploration Alliance is a practical, hands-on niche consultancy started by a group of us who had worked as geologists at Ivanhoe Mines and wanted a change, a bit of fresh air. We tailor our services to meet the needs of junior and midtier explorers. We are the kind of consultants who can sit on boards and present to the market. We know what it takes to raise money and spend it wisely. We are very discerning when it comes to project selection and ensuring that each project achieves a definable benchmark before progressing to the next stage. Exploration is a game of statistics and most projects never make it.

Over the last four or five years we have grown to a core group of 10 people. We could make it bigger, but the prerequisite to being an Exploration Alliance consultant geologist is practical, hands-on industry experience. The 10 of us have worked in over 90 countries.

Most of our work has been for private groups. For example, a large, well-funded Kazakh group and a Middle Eastern trust with considerable billions in firepower, as well as some European funds. When you consult for private money, the clients just want to know if they should invest. They want the hard facts, without any lipstick on them. That suits the Exploration Alliance mandate.

What has become apparent over the last two years is that the average individual commodities investor needs geology simplified. So, we are starting to morph the consultancy into an entity that interfaces more with public companies. Before we take on a job, we do our own internal review. We try to hedge our bets by taking jobs in companies that have projects of merit. Then we try to write the reports in a way that the people the report is intended for can actually understand it.

We want to leverage our years of experience, the input and knowledge from hundreds of geologists we have worked with and our familiarity with many types of deposits. If we can simplify that and get it right, that will be valuable for the investors and for companies with good projects. We think that is where our niche will be.

TGR: Do you specialize in looking for precious metals assets or all types of minerals?

CW: We specialize in gold, silver and base metals—copper, lead, zinc, etc.—as well as bulk commodities such as iron ore. We have coal experience but it is limited.

"There is a lot of positive sentiment for gold."

There is a lot of positive sentiment for gold. You can transport gold in a helicopter—fly it out of a property—without the massive capital expense and infrastructure you would have with a big copper porphyry project.

TGR: You are basically banking on the idea that demand for precious metals will continue to increase. Why are you so convinced that gold will increase in value?

CW: Gold is a finite resource. You've got to find 80 Moz a year to be ahead of current annual production. So, from a supply and demand perspective, each year we're spending more in exploration yet finding less. All things considered, that means that good discoveries will be increasingly valuable.

In addition, politics today works in gold's favor. Recent elections prove that people do not want to vote for austerity. People vote for an easier life. In some respects, this forces governments, if they want to be reelected, to print money to keep things humming along pretty much as they have been. That is going to lead to inflation and to paper money being devalued.

TGR: You have years of experience traveling the world, exploring for gold deposits. Some people believe all of the big deposits have been found. Do you agree?

CW: Not all, but a large number of the big gold deposits have been found. Professors Roger Taylor and Peter Pollard, consulting geologists and good friends, are fond of saying that big deposits generally stick out of the ground. That is because big deposits require very large fluid circulation cells capable of carrying the metal endowment, and these hot fluids generally alter the rocks around the deposit, resulting in large and obvious alteration systems. Moreover, large deposits are generally associated with major structures and may present large geophysical targets.

TGR: Based on your years with your boots on the ground, where do you think the remaining big discoveries might happen?

CW: You need both a discovery and a good environment to develop a project. There are countries where you clearly should not invest even if they have good geological potential. China, for instance, has excellent potential, but I have yet to see a mining company succeed. Many people are fans of the former Soviet Union republics. They are very difficult places to get ahead. There are a lot of insider deals and corruption.

Then you go to the other end of the spectrum to great mining jurisdictions where investments are safe: Canada, Australia, Peru and Chile to name a few. But, those countries have been through several cycles of exploration over the last 100 years, which means it is getting harder to find deposits there.

So, where do you go for new discoveries and what would those new discoveries be like? This is a personal choice, but I favor less explored countries with excellent geological potential that have a manageable degree of political risk. Colombia is an obvious choice, parts of northeastern South America fit the bill, as do countries in West Africa that are emerging from conflict.

"I favor less explored countries with excellent geological potential that have a manageable degree of political risk."

West Africa has some of the greatest mines on earth. For example, Obuasi has produced 30 Moz and probably has about 35 Moz left. To date there has been over 200 Moz of gold discovered in approximately 30 mines and the potential remains excellent.

West Africa was joined to northeastern South America for much of its history and shares the same geology. In comparison to West Africa, northeastern South America is significantly under-explored, so all things considered, countries such as Brazil, Suriname and Guyana have excellent potential. Venezuela also has excellent potential but the politics are problematic.

There also is potential in past-producing mines. There have been some very good discoveries recently. Azimuth Resources Ltd. (AZH:ASX; AZH:TSX) is exploring around the past-producing Omai mine of 4.5 Moz in Guyana. A few weeks ago, the company announced a resource of 1.22 Moz.

TGR: So, you are talking about a contiguous greenstone belt that existed millions of years ago that now extends from West Africa across the Atlantic and into South America.

CW: Correct, although it was actually formed 2.1 billion years ago. My point is that greenstone-hosted gold mineralization is well understood and has been the focus of successful exploration in West Africa, Canada and Australia.

Greenstone belts of the Amazon have not been explored to the same extent.

As long as you are prepared for the geopolitical risk of certain countries, you will probably get a lot of bang for your buck. There will be more world-class discoveries there than in some of the countries that have had more exploration.

TGR: What is Exploration Alliance doing to reach out directly to investors with your expansive knowledge base?

CW: A lot of people who invest in the junior exploration space, the midtier and to a degree in major producers have a fundamentally poor understanding of geology and key concepts. Too often, when I talk to investors, they have no idea of what a strike extension is or what makes for a great intercept. They do not know what the difference is in exploration potential between a porphyry and a narrow vein system.

It is amazing that billions of dollars in speculative money is invested every year by a retail market that really does not know the basics of simple geology. That is a huge issue that needs addressing.

That will become a focus of Exploration Alliance. We will keep the consultancy going because that is what keeps our edge. But, we see an opportunity to offer something along the lines of a one- or two-day course that takes people through basic geological concepts. We want to educate investors in terms of geology, as well as risk and reward.

TGR: Chris, thank you for your time.

Chris Wilson formed Exploration Alliance Ltd. in January 2007 and serves as its principal. He has been the chief executive officer of Hunter Bay Minerals Plc since May 2007. He is an established geologist with over 20 years of experience in the design, implementation and management of exploration projects from grassroots to feasibility. Wilson has worked in over 40 countries and holds a Bachelor of Science (Honors) in geology from University College of Wales, Aberystwyth, and a Ph.D. from the Flinders University of South Australia. He is a Chartered Professional Geologist, a Fellow of the Australian Institute of Mining and Metallurgy and a Fellow of the Society of Economic Geologists.

Want to read more exclusive 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 Exclusive Interviews page.

DISCLOSURE:

1) Sally Lowder of The Gold Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: None. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.

3) Chris Wilson: I personally and/or my family own shares of the following companies mentioned in this interview: Hunter Bay Minerals Plc. I personally and/or my family am paid by the following companies mentioned in this interview: Hunter Bay Minerals Plc. I was not paid by Streetwise Reports for participating in this interview.

( Companies Mentioned: AZH:ASX; AZH:TSX, )

Source: Investors Need to Understand Basic Geology: Chris Wilson:

Ian Gordon: Why Gold Stocks Outperformed Other Gold Investments

By Brian Sylvester of The Gold Report   (6/22/12)

www.theaureport.com

Ian Gordon of Longwave Analytics and Longwave Strategies believes we're on the precipice of very difficult and frightening times and predicts complete financial collapse. But it's in those periods of darkness that gold really shines. Gordon, who recently published a special edition of his Investment Insights entitled "The Gold Rush of the 1930s Will Rise Again," believes that companies with gold in the ground now will be the ones to prosper. In this exclusive Gold Report interview, Gordon discusses where he thinks the Dow will bottom and what companies will come out on top.

The Gold Report: In a recent edition of Investment Insights, you charted the NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) of senior gold stocks, gold itself, the TSX Venture Exchange as a proxy for junior mining stocks and a specific company, Temex Resources Corp. (TME:TSX.V; TQ1:FSE), from Dec. 29, 2000. All four were equalized to $100 to make the comparison accurate. What did they show?

Ian Gordon: I wanted to look at relative performance since 2000, when gold bottomed out at around $250/ounce (oz)—that was the beginning of the big bull market. The chart shows that the HUI has outperformed all the other benchmarks since 2000. Since then the value of the HUI has increased about 10 times. The second best performer has been gold itself, which has increased about six times. The Venture Exchange has increased just over two times.

I used Temex because it happens to be one of my favorite junior mining stocks, but the performance of Temex as a junior miner has been pretty miserable. That's generally true of any junior mining stock, at least since 2006. In 2008, the price of Temex was destroyed in the panic sell-off. It was down to one-tenth of where it had been in 2000. The price of Temex has recovered since that disaster, but it is still down at about half the price in 2000.



TGR: The chart seems to make a case for the senior gold miners versus the juniors.

IG: It certainly does. That's something that I've noticed in my own portfolio performance. My portfolio performance to about 2006 was outstanding. Thereafter, the junior stocks' performance has been pretty abysmal, which correlates to the performance of my portfolio.

TGR: You've been monitoring the trading volumes of junior precious metal equities, which are down significantly from levels established in the previous decade.

IG: They're at about 20% of the volumes in 2008 when the Venture Exchange began to perform very well. That performance was enhanced by rising volume. Since its peak, which was in about April 2011 on the Venture Exchange, the volume has been falling quite dramatically, along with price.

I maintain that is actually bullish rather than bearish because normally volume should follow price. What we have here is volume that is not going anywhere near where price is going. Volume has been decreasing in a downward market. People have been moving their money out because they are scared of the risk associated with investing in the junior stocks, but there has been essentially no buying coming into the Venture Exchange to offset the selling.

TGR: You believe we're now in the winter of the Kondratieff Cycle and that it started in 2000 (http://www.longwavegroup.com/kondratieff-cycle).

IG: It's not that I believe—I'm convinced. We're in the winter, the deflationary depression stage of the cycle when debt is essentially washed out of the economy. That process is always a very difficult period. This is only the fourth winter in the long wave cycle. The same process of debt deleveraging occurred in all of the previous winters. In 1837, the stock market peaked followed by a crash, which ushered in the winter depression. The same happened after 1873 and 1929. We are enduring the same process again, going through debt elimination, concurrent with the winter of the cycle.

The reason we picked 2000 for the chart is because winters are always signaled by a peak in stock prices concluding the big autumn stock bull market. Some people will say that the Dow Jones Industrial Average actually made a higher high in 2007 and that's true. However, the speculative end of the market never got anywhere near where it had been in 2000. That's what happens in the final stage of the big autumn bull market—there's a massive amount of speculation. In the current cycle, speculation occurred in the NASDAQ. The NASDAQ is absolutely nowhere near where it was at its peak in March 2000.

TGR: Is it typical for junior stocks to perform as well as they did in the winter of the Kondratieff Cycle?

IG: I don't have a record of the actual trading in the junior sector at the beginning of the depression stage following the 1929 stock market peak. All I know is that the money was moving dramatically into the physical metal as well as into the producing gold mining companies' shares. What we do know is during the 1930s, huge amounts of capital were employed to fund exploration and build gold mines throughout Canada and the United States. There were many mines developed here in Canada at that time and, according to the U.S. Bureau of Mines, there were 9,000 gold mines operating in the United States in 1940.

There is the example of Homestake Mining. Homestake enjoyed very dramatic moves in its share price in the '30s even though the gold price was fixed at $20.67/oz until 1934, when it increased to $35/oz. Investors were buying gold stocks regardless of a massive decline in the Dow, which dropped 90% between 1929 and 1932. Homestake's share price fell to $65/share during the stock market crash of 1929, but was up to $83/share in 1930 to $138/share in 1931. By 1933, it reached $373/share. During those years the company paid out significant dividends as well.

TGR: The Dow Jones is around 12,500 now. Are you surprised at all that the Dow continues to do as well as it's doing?

IG: I'm pretty sure that the stock market is manipulated by the authorities. I know that people will say that's just conspiracy nonsense. However, Fed Chairman Ben Bernanke and former Chairman Alan Greenspan both have said they feel that stock prices are extremely important to the confidence of the American people. That confidence leads to confidence in the economy. If stock prices can be held at high levels, people feel wealthy when they look at their mutual fund statements and when they spend money. I don't believe that this kind of manipulation is sustainable. I'm a big believer that markets follow natural law.

TGR: Once the Federal Reserve loses the ability to prop up the stock market, will we see a collapse and a rush into gold, much as we did in the early 1930s?

IG: Yes. I believe that the Dow will bottom at around 1,000 points or less, mirroring the economic depression caused by the debt bubble collapse.

TGR: Allow me for a minute to play devil's advocate. The investors of the 1930s didn't have the options that investors now do. There are now currency markets. Investors can put their money in renminbi, German bonds, Swiss bonds, exchange-traded funds, real estate or other commodities. Why is it going to be gold?

IG: Because gold is money. Unlike paper money, there's no debt attached to gold. The Chinese are buying gold. The central banks are buying gold. They're buying gold because it's the money of last resort.

TGR: Do you expect interest rates to go up dramatically?

IG: Yes. The big debtor nations are having problems with interest rates. Look at Greece. Go to Spain and then Portugal. Interest rates in Spain are over 6%. Italy is getting up over 6%. Imagine what happens to the U.S. if interest rates go to 6%. It's going to be a massive problem. The whole system is collapsing here. It's going to be very traumatic. The move to gold is going to be very dramatic as a result. The move for anybody who has gold assets in the ground is going to be very big, as it was in the 1930s.

TGR: You've helped raise hundreds of millions of dollars in equity financings for juniors that you feel are deserving companies. What are some examples of those?

IG: Let me tell you what I think a deserving company is, first of all. Deserving companies are well managed with good assets in areas without major political risk.

In the early days, I financed Minefinders Corp. at about $1/share. It just got taken over by Pan American Silver Corp. (PAA:TSX; PAAS:NASDAQ) for better than $10/share. I remember financing a little company called Pelangio Exploration Inc. (PX:TSX.V), which is still around and which I like very much. We financed Pelangio at $0.11/share and its share price exceeded $5 a few years after that financing and was then taken over by Detour Gold Corp. (DGC:TSX).

It's been much more difficult lately to find companies that you want to get involved with simply because political risk has increased in many parts of the world, Argentina and El Salvador, for example.

TGR: Do you do site visits?

IG: I do fewer now than I used to. I'm getting to be 70 years old and I just find that a lot of traveling is a little onerous. I spend a lot of time discussing companies. I often make several calls a week to different companies that I have an interest in.

TGR: You wrote in your paper, "What we must do is hold shares in companies with already good gold in the ground assets, properly managed, and with sufficient cash to last at least another 18 months, even if that means cutting back on planned exploration expenditures." Does that mean we can expect at least another 18 months of poor performance from junior precious metal equities?

IG: I don't expect that's going to happen, but I want to be prepared because it might be a difficult period for companies to obtain financing. Things in Europe are going to unravel pretty quickly. I don't think it's going to take 18 months for this thing to completely collapse, but it might.

TGR: What are some companies that you're following and are invested in?

IG: I like PC Gold Inc. (PKL:TSX). PC Gold owns the past producing Pickle Crow mine, which incidentally was placed into production in the previous long wave winter in the 1930s. I've been up to Pickle Lake. It's easily accessible by a six-hour drive from Thunder Bay. The company has been achieving good drill results. It has an NI 43-101 resource of about 1.2 million ounces (Moz). Investors can buy PC Gold for about $8/oz of gold in the ground.

I continue to like Temex. It's got 1.8 Moz gold in the ground on its Juby property, half of which are in the Indicated category. I see little to no political risk in being in Ontario. Investors can buy Temex today for about $8/oz gold in the ground. I think that's pretty cheap when gold's at $1,600/oz.

Temex owns 60% of another property, the Whitney project, in the Timmins camps, which it has been drilling near the past-producing Hallnor mine and getting some really good results. Goldcorp Inc. (G:TSX; GG:NYSE) has a 40% ownership in the property. There are five past-producing mines on that property, of which three, including the Whitney, were put into production during the 1930s.

Temex has recently added two new prominent members to the Board of Directors.

I also have a significant investment in Barkerville Gold Mines Ltd. (BGM:TSX.V). Its property is situated in the Cariboo Gold Belt in British Columbia. The property is easily accessible by road. Barkerville the town and Barkerville the company are named after Billy Barker, credited with the gold discovery in the 1860s. Barkerville Gold Mines is now finding the source of that placer gold, which was the gold that Billy Barker and his contemporaries discovered 150 years ago.

TGR: And it's already in production, Ian.

IG: It's been in production, but production ground to a halt. It didn't have the ore to continue production, but it does have a mill. The company anticipates bringing Bonanza Ledge into production, which will produce about 25,000 oz (25 Koz).

The thing about Barkerville is the huge potential that the property could host multimillion ounces of gold. We haven't seen an NI 43-101 on the property since 2006 and there's been a massive amount of drilling since that time. The next NI 43-101, which should be published this month, should substantially increase the 840 Koz that we saw in 2006.

There have been some management issues. I am an adviser to the board. There have been promises that just haven't been met, because management anticipated and published that certain things would happen much faster than they actually have. But I really believe that the property, which is 60 kilometers (km) by about 20km and has seven past producing mines on it, is going to host multimillion ounces. I know mining people who have looked at it believe that's a distinct possibility as well.

TGR: Do you know Frank Callaghan, the president and CEO, personally?

IG: I know him very well. I just got off the phone with him.

TGR: Knowing him as you do, do you think the company has the issues that you referred to sorted out?

IG: I'd like to see the board strengthened. Actually, the company has just added Norman Anderson to the board and this is definitely a step in the right direction. Mr. Anderson is a registered Professional Engineer. He was at Cominco as CEO and chairman and left there after the Teck Resources Ltd. (TCK:NYSE; TCK.A:TSX) takeover. Then he went to Hudbay Minerals Inc. (HBM:TSX; HBM:NYSE) as chairman. He is also a former director of TD Bank. Another board member of Mr. Anderson's caliber would make me very happy.

TGR: But you believe it's a good bet because of the gold potential in that property?

IG: Yes, I do.

TGR: The last time we spoke, we discussed Northern Freegold Resources Ltd. (NFR:TSX.V; NFRGF:OTCQX) and Terraco Gold Corp. (TEN:TSX.V). What's happening with those companies now?

IG: Northern Freegold is one of the few companies in the Yukon with a property that is road accessible. It's been developing a very large gold porphyry system, which typically has other metals associated with the gold that might add value. However, I don't give the base metals that much value because I'm a deflationist.

The grade is low, which is typical of a porphyry, but it's developing into a massive tonnage system. It's pretty close to 5 Moz gold right now, but the potential is something significantly larger than that. The fact that the gold price is going significantly higher makes this a very valuable resource. Investors are paying about $7/oz gold in the ground for the current gold resource.

The company has had to issue a lot of stock. It changed management. President and CEO John Burges seems to be very effective. I own the stock and continue to like owning the stock.

TGR: In May, the company raised about $750,000. Is that, combined with the money it already had, enough to ride out this economic storm that we're experiencing?

IG: Hopefully. Someone like John Burges has a lot of credibility. He has the ability to go and get the money if he needs to. But, at these prices, shareholders are being diluted.

TGR: Terraco has a couple of significant projects: the Almaden project, which has about 1 Moz in Idaho, and the Moonlight project in Nevada, which is on trend from Barrick Gold Corp. (ABX:TSX; ABX:NYSE) and Midway Gold Corp.'s (MDW:NYSE.A) Spring Valley gold project.

IG: I really like this company. One of the most interesting things is that Todd Hilditch, the CEO, has developed a very good relationship with a fund manager out of New York. The relationship seems to be very fair to Terraco. Through this fund manager, Terraco has bought royalties on the Barrick/Midway property. Those royalties are going to be worth a substantial amount of money. It has five years to pay for them. You know that the Barrick/Midway property is going to grow considerably in ounces simply because of the amount of money that Barrick has to spend in the next couple of years to earn its percentage.

TGR: It added another rig at Almaden to continue infill drilling there. Do you expect it to significantly boost that resource once the new NI 43-101 is out?

IG: I don't think it will be a huge boost. It will give us more confidence in the resource.

TGR: What are your thoughts on Todd Hilditch, the president and chief executive?

IG: I like him a lot. The fact that he's been able to build this relationship with the fund manager in New York and get these royalties means he's got a very good way with people. He's very effective. This is a good little company.

TGR: Do you have some parting thoughts for our readers, Ian, before I let you go?

IG: What we face here is something that is actually quite frightening: the breakup of the world monetary system, which is a credit-based system. I don't know how the economy functions without credit. It's very difficult and we are facing frightening times. But it's in these periods of darkness that gold really shines. Gold companies are going to come to the fore, just as they did in the 1930s, particularly the ones such as those that we've been discussing today with good gold-in-the-ground assets in politically safe locations.

TGR: Thank you, Ian.

A globally renowned economic forecaster, author and speaker, Ian Gordon is founder and chairman of the Longwave Group, which comprises two companies—Longwave Analytics and Longwave Strategies. The former specializes in Gordon's ongoing study and analysis of the Longwave Principle originally expounded by Nikolai Kondratiev. With Longwave Strategies, Gordon assists select precious metal companies in financings. Educated in England, Gordon graduated from the Royal Military Academy, Sandhurst. After a few years serving as a platoon commander in a Scottish regiment, he moved to Canada in 1967 and entered the University of Manitoba's History Department. Taking that step has had a profound impact because during this period he began to study the historical trends that ultimately provided the foundation for his Long Wave theory. Gordon has been publishing his Long Wave Analyst website since 1998. Eric Sprott, chairman, CEO and portfolio manager at Sprott Asset Management, describes Gordon as "a rare breed in the investment-adviser arena." He notes that Gordon's forecasts "have taken on a life force of their own and if you care to listen, Gordon will tell you how it will all end." Readers can subscribe to Gordon's Long Wave Analyst newsletter here.
Want to read more exclusive 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 Exclusive Interviews page.

Disclosure:

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Detour Gold Corp., Goldcorp Inc., Barkerville Gold Mines Ltd., Northern Freegold Resources Ltd. and Terraco Gold Corp. Streetwise Reports does not accept stock in exchange for services. This interview was edited for clarity.

3) Ian Gordon: I personally and/or my family own shares of the following companies mentioned in this interview: Temex Resources Corp., PC Gold Inc., Northern Freegold Resources Ltd., Barkerville Gold Mines Ltd. and Terraco Gold Corp. I personally and/or my family am paid by the following companies mentioned in this interview: PC Gold Inc., Temex Resources Corp., Northern Freegold Resources Ltd. and Terraco Gold Corp. I was not paid by Streetwise Reports for participating in this story.

( Companies Mentioned: BGM:TSX.V, NFR:TSX.V; NFRGF:OTCQX, PKL:TSX, PX:TSX.V,
TME:TSX.V; TQ1:FSE, TEN:TSX.V)

Source: Ian Gordon: Why Gold Stocks Outperformed Other Gold Investments:

Everything You Need to Know About Junior Mining Stocks

June 17th, 2012
By Peter Krauth
Global Mining Specialist
www.moneymorning.com

Let's make something clear up front: junior mining stocks are not for the faint of heart. Legendary investor Doug Casey calls them "the most volatile stocks on earth." They can and do regularly undergo massive swings, both positive and negative. It's a really tough business. Many flame out. But all it takes is just one 10-bagger to make up for all the dogs in the pound.

Thanks to a new discovery, a takeover bid or full-blown investment mania, it's not uncommon for some of these stocks to return as much as 1,000%, 5,000%, and even 10,000%. Those are not typos. In fact, there are countless examples. Aber Resources was a $3 stock in 1993 before it made a big diamond discovery. Four years later, the stock hit $28/share, handing early investors over 900% returns.

Then there's Diamond Fields Resources. Its shares were $4 before geologists made a massive nickel discovery in 1994. Not long after, the stock hit a pre-split equivalent of $160 for a 4,000% return.

That phenomenal 4,000% return was repeated in 2006, when Aurelian Resources Inc. made a high-grade gold discovery in Ecuador. Shares of the junior miner went from $0.89 to almost $40. So what makes a stock a "junior miner"?

In a pure sense, junior mining companies have market caps somewhere between $5 million and $100 million. But here's the thing the makes them not for the faint of heart. Usually, junior miners don't make any money. They just raise money from investors to explore properties for gold, silver, base metals, oil, gas, potash, or uranium, just to name a few. And even if they make a significant find, junior miners rarely develop it themselves. Instead they sell the project to a major miner, who can more easily raise the required funding and has the experience to build and operate a mine.

OK, so now you're pumped with the idea that one of these little mining companies could help you retire in two years. And you're right, they can. But not so fast. The truth is you need to approach this mining subsector with a game plan -- an investment "toolkit" if you will - to help you to cast aside the dogs and focus on the "diamonds in the rough." Essentially, there are four main areas you need to vet in order to decide if a given junior miner is one to add to your portfolio.

Junior Mining Stocks and Geopolitics

When considering a junior miner, geopolitics is always a concern. In this case, stability is what you are looking for. For instance, it is important to know:

• Where the company's main project is located.
• And what the political regime is like in that jurisdiction.

I make no bones about avoiding projects located in places unfriendly to mining, and neither should you. That includes most of Africa, Russia, and some areas in Asia and Latin America. Places favorable for miners include much of Canada, Australia, parts of Europe and Scandinavia, Latin America, and Asia. It's simple. The last thing you want is for some kleptocrat to wait until tens of millions have been spent to discover a massive gold deposit, only to turn around and revoke a key permit or expropriate the land.

What also tends to happen in these "hostile-to-mining" locations is that, after a project is built, the government decides to change the rules, ask for a significant share, and/or up the royalties. For the most part, the places I like for mining have an established legal framework that allows the miner to know the rules and doesn't make drastic changes too often.

The second aspect of geopolitics is the surroundings and placement of the property. Many times there can be people living nearby, or the land may have significance to an indigenous population. Some projects also need to get entire small towns to move, while others need to negotiate with a native group for some sort of compensation.

To avoid these hurdles, a Stakeholder Engagement Program is a great way for the company to gain favor with the locals. By involving the local community through sponsorships and hiring, and by working with educational institutions for consulting or research, the company can demonstrate how they are able and willing to contribute to the economic benefit of the area. Obviously, a deposit in the middle of nowhere is less likely to affect people. But that could also mean there is little or no infrastructure like electricity, water, or roads nearby. Generally, the closer the access to these, the better, as it allows access to the property, facilitates exploration and development, and simplifies eventual mine operation

The Importance of Management for Junior Mining Stocks

When it comes to junior mining stocks, management is the key. It is so important that many times a less-than-stellar property can be made viable simply by a great management team that has the ability to prove its deposits are economically attractive, or even potentially very profitable. Investors need to be sure the guys running the junior miner have a ton of experience, ideally directly related to the same commodity involved in the project at hand.

Even better is when management and/or the company's geologists have made significant discoveries in the past, and some of those deposits have made it all the way to becoming mines. Experienced management will also know how to navigate the legal, political, and financial issues sure to arise. Look for companies where the key people have plenty of "skin in the game," ensuring their shares and stock options align their interests with those of shareholders.

Don't Overlook the Balance Sheet

Balance sheets can be intimidating for some investors, but they don't need to be. Here are a few things you want to look for. First, determine the market cap of the company and the number of outstanding shares. If the share float looks excessively big, it could be that management raised money at really low equity prices when they were desperate. It could be a question of bad luck or timing, or it could be bad planning. You need to figure out which.

Second, you don't want a junior miner that has debt, or at least significant debt on its balance sheet, if it has no cash flow. As well, their cash balance should be able to take them through to their next significant milestone. If that's the case, and the news pointing towards that milestone is positive, it may allow management to raise money at a significantly higher share price, avoiding overly diluting existing shareholders.

Also, take a look at their monthly costs to keep the lights on, employees paid, and exploration moving forward. In certain cases, a junior may actually earn income from an ongoing related business. I've come across one company with significant earnings from mine remediation, which actually helped them gain invaluable information on interesting properties they eventually picked up. Another, a small silver miner, manufactures, sells, and repairs mining equipment for competitors, helping to pay the bills.

The Drilling Results are Paramount

An important ingredient that helps separate the wheat from the chaff is the drilling results. It's one thing to drill a hole and hit gold. It's quite another to know where to keep drilling, and to keep finding more. The best junior miners are the ones that use a process, involving plenty of science, geology, geophysics, and yes, some art.

All the scientific aspects help geologists know where to look. But it's decades of experience that allow some geologists to interpret the drill results and assays. Only then can they use that info to formulate a concept of what the deposit may actually look like. Prospective investors will want to look for high grade (concentration) of the resource for every ton of ore. Typically, the higher the concentration, the higher the value, as eventual mining and processing costs will be lower per gram or per pound of final product.

In that vein, investors want to see higher grade, and drill results that consistently hit quality material. That tells you two things: the geologist is looking in the right place, and the deposit is likely growing in size. This in turn helps boost the value of the asset, while allowing for a more economic extraction of the contained resource in the future.

So there you have it. Now you know what things to look for to significantly increase your odds of investing in a junior resource company that's going to hit the jackpot. Remember, even doing all this provides no guarantees. You need to do plenty of due diligence to narrow down the vast pool of potential candidates to the select few deserving of your hard-earned capital. You also need to arm yourself with patience and be willing to allow a given investment months and even years to play itself out. Good management needs time to execute, and resource exploration is a tough business.


But there are few other industries where $1 spent drilling in the right place can return $100 dollars to early investors. Junior miners offer that explosive potential. Now you just need to decide... do you want a piece of it?

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Source: Everything You Need to Know About Junior Mining Stocks:

10 Point Model to Pick Mining Winners: Dr. Michael Berry

Ten-Point Model for Picking Mining Winners: Dr. Michael Berry:
The Gold Report: The Gold/Philadelphia Gold and Silver Index (XAU) ratio recently surpassed its high in 2008, slightly crossing 11 and peaked in the high 10s at the bottom in 2008. Do you think we have put in a bottom?

Michael Berry: If I were 100% sure, I would be a very wealthy person. I think we're close to a bottom here. Gold is too important. The long-term secular bull markets, such as we've seen in gold and silver and in fact in many of the metals, do not end this way. They end with a parabolic move upward. That is why I don't think this is the end of the gold bull market at all. I think it's probably a welcome reprieve. But ultimately, if we are not at the bottom, we're fairly close to it.

TGR: You testify to the Federal Reserve Board twice a year. In the last meeting, was there any indication of more easing on the way?

MB: There is every indication of more easing; there is every necessity of more easing. But the Fed is divided. Some of the Federal Reserve Bank presidents and governors believe we should tighten, while others have followed the Bernanke line, pushing easing. I cannot even imagine how we could raise rates in this market. I'm not saying that we don't have food price inflation, but the Fed really wants to inflate out of this problem. So I think we'll have more easing. But for now, the Federal Open Market Committee is divided between hawks and doves in a way it has never been in the past. It is going to be very interesting to see what happens as we move forward.

TGR: Many of your preferred companies have significant byproducts, primarily copper. Is this because you think copper has a bright future or because having significant byproducts tends to lower cash costs for gold and silver miners?

MB: I think it's the former. If we are going to go into an irrecoverable economic depression, then there's no future for copper. But I'm an optimist, and even though these are very difficult days for global growth, I think companies that own copper deposits are going to be very valuable when we exit this down period.

Therefore, I like copper—not necessarily as a byproduct, but as a major primary product. And if you look around the world right now, many countries are nationalizing their copper deposits. Good copper deposits are hard to come by. Copper is clearly an indicator of global economic health, and we are going to continue to grow again. It's just going to take some time, perhaps a long time.

TGR: When it comes to silver and gold companies, what do you look for in a possible investment?

MB: I have developed a 10-factor model for discovery micro-cap and small-cap companies. First, in extractive resources we look for world-class deposits or at least the potential for world-class deposits. The second critical factor is management. There are a lot of good management teams right now. But it is a very difficult time. Many of these companies have been sold down. And some of them are not going to survive. It's a pity but that's just the way it is.

A number of companies that I would have said were good if we were speaking a few months ago are less good today, because a lot of them cannot access capital markets to raise money. One of the characteristics of all junior miners is that they are constantly raising money because, by definition, they don't have production and cash flows yet. There are some great bargains out there, but it is going to take a strong stomach to buy some of these companies.

One company that I think is really excellent is the silver company Alexco Resource Corp. (AXR:TSX; AXU:NYSE.A). The company is in the Yukon cleaning up the old silver dumps from the past century. There are 35 old mines up there with extraordinarily high-grade silver, 40 ounce (oz) silver that it is now beginning to mine. Clynton Nauman is the CEO; I really respect him and I think he has assembled a good team.

Alexco is an example of a company that will have $20–30 million (M) on the balance sheet in cash, so it is sustainable. It probably will make $30M this year and next year. That is the kind of company we like, those with sustainability especially in this tough market environment.

TGR: Do you think Alexco might buy Monster Mining Corp. (MAN:TSX.V) since it owns the rest of Keno Hill?

MB: Alexco is in production and the management team is spending all its time right now trying to figure out how to expand the 8 million ounces (Moz)/year it is currently mining on its property. The company has about 22 targets that were old mines and adits. I would be surprised if it bought Monster. If it were to look for an acquisition, it would look for something a little bigger to move up into the next segment of silver producing companies.

And remember, Alexco is really two companies. It does environmental clean-ups and mining. It will likely split off the environmental side and either vend that out to shareholders or IPO it at some point.

TGR: You have mentioned Galore Resources Inc. (GRI:TSX.V), another Canadian company, before. Are you still following them?

MB: Yes. I really like the idea that Galore is in Canada. There is a lot of talk now about a possible mining unfriendly NDP government coming to power in British Columbia, but Galore is a really interesting play. It is right in the middle of several big developments. I like the company's Dos Santos Mexican project as well. It is just drilling it out now, but it has a lot of potential.

TGR: Galore is at $0.085 now. Are there any catalysts coming up that could move that company up?

MB: I don't think catalysts matter today because right now the Toronto Stock Exchange Venture Exchange is off approximately 50%. This isn't just a bear market, it is a disaster for these exploration stocks. All of these stocks have been taken out and shot, metaphorically. I am not sure such catalysts are going to do much until we unwind the sovereign debt problems. Companies are just learning how to survive through this. So would I be buying something like Galore for $0.08? Yes. It's a bet the company will survive and will be worth a lot more money.

TGR: Any other silver companies you like? Maybe in Mexico?

MB: Mexico is a country in a bit of turmoil right now. It is a little more difficult to work there. But Mexico and silver go hand in hand. The Faja de Plata, the plain of silver, is famous. The Peñasquito mine, which is now owned by Goldcorp Inc. (G:TSX; GG:NYSE), is the largest silver mine by net asset value in the world and the second largest gold mine by net asset value.

Southern Silver Exploration Corp. (SSV:TSX.V; SEG:FSE) is an exploration company down there. I think it is trading around $0.06 , but it has four deposits, two in Mexico and two in the United States. The best deposit is Cerro Las Minitas. The company is exploring that now. I think it has great potential. It is a very cheap stock, very cheap indeed.

Quaterra Resources Inc. (QTA:TSX.V; QMM:NYSE.A) has a property called Nieves, which is not very far from Southern Silver's property. It has about 80 million ounces silver at a 15 gram cutoff in Indicated and Inferred categories on that property, according to the NI 43-101. It has real potential.

Quaterra is also one of three companies working on the Yerington project in the former major copper mining district in Nevada. That project is a company-maker in itself. A preliminary economic analysis issued last week showed a 41 million pound/year copper mine for 18 years. It is oxide and calcacite, so it is acid-leachable. That district could add up to 20 to 50 billion pounds of copper over time. Yerington, MacArthur and the Bear deposits are the company's primary assets.

TGR: Doesn't Quatterra also have a joint venture with Grande Portage Resources Ltd. (GPG:TSX.V) near the Coeur d' Alene Corp. (CDM:TSX; CDE:NYSE) property in Alaska?

MB: Yes it does. Grande Portage and Quaterra have a 65/35 joint venture on Herbert Glacier. It is about 20 miles south of Coeur d' Alene's Kensington mine, just north of Juneau, Alaska. Herbert is very high-grade gold, a six-parallel vein system. The company will probably drill at the Herbert Glacier in June. I think it is possible that it could have 0.5 Moz of reasonably high-grade gold after this year's drilling program, a very nice discovery. Right now neither company is getting much credit for it in their share prices.

TGR: How is the U.S. doing getting project permits through bureaucracy and what projects are you looking at that might work?

MB: That's a great question. We are doing a lot of work in Washington D.C. now trying to educate the staff of various congressmen and senators on the importance of pending natural resource legislation. The Obama administration is trying to shut off mining for alternative energy solutions. And it is a huge mistake. But at least there is awareness in Washington that we have to have a transparent, faster permitting regimen. The Canadians are going to that. And we need to do it here, because we need to be developing some of our own natural resources. The good news is a pending senate bill could simplify the permitting process. If we have a Republican administration in January, it will be easier to get that passed into law.

In the meantime, Revett Minerals Inc. (RVM:TSX; RMV:NYSE.A) has the Rock Creek project in Montana, a potential world-class development near the Troy mine, a beautiful copper/silver mine. I think the general economic environment will push Rock Creek down the road. I have great faith in the efforts of John Shanahan, the CEO. The company has already jumped through every hoop to meet environmental demands.

Once that mine is built, the bigger boys, Rio Tinto (RIO:NYSE; RIO:ASX), BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) or Freeport-McMoRan Copper & Gold Inc. (FCX:NYSE), will want to have that company.

TGR: Any thoughts on Mines Management Inc. (MGT:TSX; MGN:NYSE), which has the Montanore deposit near there. What are its chances?

MB: It has more complex geology and will not be quite as easy to mine as Rock Creek. I am not sure it will ever be permitted. At some point I think that Revett will probably have an opportunity to take on Montanore as well. We will see.

TGR: Nevada seems to be a hot spot, both for silver and gold. Are there some plays that you like there?

MB: Nevada is a great place because it is a mining state. Utah, Nevada and Arizona are great places to find things and get permission to mine them. Terraco Gold Corp. (TEN:TSX.V) has the Moonlight deposit, which is in northern Nevada, not very far from Reno. It is in the same Black Ridge Fault zone with Pershing Gold Corp. (PGLC:OTCBB), a new company with a new management team led by Steve Alfers, formerly one of the key managers at Franco-Nevada Corp. (FNV:TSX). The company is consolidating the bottom of that trend in a land position around the Relief Canyon mine. I really like that management team. I have been out to see the property and spend time with management. I think it has a lot of potential. More than 150,000 oz of historical gold has been drilled out and I think both companies will find a lot more plus there is a fully commissioned gold plant that is not in operation at the present time.

Yes, I am bullish on Nevada. I think there is a lot of opportunity in gold, silver and copper there. Why go to Africa or China, when you can go to a place like Nevada and make great discoveries and subsequently mine?

TGR: Any other companies you would like to share that meet your model standards?

MB: Graphite has been a hot topic. One of the farthest along companies in this space is Northern Graphite Corporation (NGC:TSX.V; NGPHF:OTCQX) in Ontario. It has a great management team led by Greg Bowes. The company is on the road to getting into operation and has an NI 43-101 coming. It is in a great location halfway between Ottawa and North Bay. That is certainly a company to consider.

Northern Gold Mining Inc. (NGM:TSX.V) is also in Ontario. It is pretty close to production, has a great gold deposit and is a very cheap stock right now. I think it will get financed and back into production soon.

I really like the Canadian scene. Carlisle Goldfields Ltd. (CGJ:TSX; CGJCF:OTCQX) is in the Lynn Lake Greenstone Belt of Northern Manitoba. It has 2 Moz of Measured and Indicated that could grow to 5 Moz of Measured. That is bankable feasibility, but nobody cares about the stock. It is selling for around $0.20 right now. These stocks are way too cheap. Some of them will certainly survive. To be good stock pickers, we are going to have to recognize that and get in on these things.

TGR: What is next for Silver Wheaton Corp. (SLW:TSX; SLW:NYSE)?

MB: Silver Wheaton's business plan is absolutely brilliant. The company has executed it beautifully. These guys are smart. I wish I owned a lot more stock than I do. I think silver is at $29/oz today, plus or minus. I think it is going to be $200/oz before this is all over. It might take five years for that to happen, but it is going to happen.

The company is cashed up with over $1 billion, $400M revolving debt and approximately $125–150M in equity investments. Silver is off from its highs 33% in the short term. But it is going to go back up. It is a very strong story and a stock that should be owned.

TGR: Thanks for your insights.

Dr. Michael Berry served as a professor of investments at the Colgate Darden Graduate School of Business Administration at the University of Virginia from 1982–1990, during which time he published a book, Managing Investments: A Case Approach. He has managed small- and mid-cap value portfolios for Heartland Advisors and Kemper Scudder. His publication, Morning Notes, analyzes emerging geopolitical, technological and economic trends. He travels the world with his son, Chris, looking for discovery opportunities for his readers. His new, free Discovery Investing Scoreboard software covers all companies on all exchanges using a 10-point grid.

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DISCLOSURE:

1) Chris Marchese of The Gold Report conducted this interview. He personally and/or his family owns shares of the following companies mentioned in this interview: Alexco Resource Inc., Silver Wheaton Corp. and Colossus Minerals Inc.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Pershing Gold Corp., Terraco Gold Corp., Northern Graphite Corporation, Colossus Minerals Inc., Revett Minerals Inc., Grande Portage Resources Ltd., Goldcorp Inc., Southern Silver Exploration Corp. and Galore Resources Inc. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.

3) Dr. Michael Berry: I personally and/or my family own shares of the following companies mentioned in this interview: Northern Graphite Corporation, Goldcorp Inc., Revett Minerals Inc. and Terraco Gold Corp. I personally and/or my family am paid by the following companies mentioned in this interview: N/A. Michael Berry was not paid by Streetwise for participating in this story.

( Companies Mentioned: AXR:TSX; AXU:NYSE.A, CGJ:TSX; CGJCF:OTCQX, GRI:TSX.V, G:TSX; GG:NYSE, GPG:TSX.V, MGT:TSX; MGN:NYSE, MAN:TSX.V, NGM:TSX.V, NGC:TSX.V; NGPHF:OTCQX, PGLC:OTCBB, QTA:TSX.V; QMM:NYSE.A, RVM:TSX; RMV:NYSE.A, SLW:TSX; SLW:NYSE, SSV:TSX.V; SEG:FSE, TEN:TSX.V)