Gold & Precious Metals

John Embry said last month that the rally at the beginning of the year was encouraging, but to remember that sentiment for gold was still extremely negative. He says that the stock market’s new highs are a result of the Fed ‘jamming cash into the economy.’ With nowhere else to go, cash is creating bubbles in stocks, real-estate and bonds, he warns.

Hello John. Gold has fallen back down over the last month. Do you think optimism for a fast recovery in gold has fizzled out?

John Embry:I believe that is probably a fair assessment of what has happened since. I think that the decline in the last month has hurt confidence in the West. But I can assure you that the Eastern interests are rubbing their hands and piling into all the physical gold they can get. Once they realize that there is a limited amount remaining for them to pour their U.S. dollars into, I believe the price will move up sharply.

I think that people should be focusing more on the eventual upside — which is going to be huge–than on the short-term downside which is due to the paper markets.

What is your view of gold in the next few years? What if we continue to have low inflation, or even deflation? How will gold fare?

Well, I don’t think that the situation that we have here is sustainable. We are going to have to create a sufficient amount of money to keep the debt load afloat. We are going to have to keep interest rates low because if those basic requirements are not met – that is lots of liquidity and maintenance of low interest rates – the system is going to collapse.

I think that’s why you own gold; because the odds favor something going badly wrong – a ‘black swan’ if you like. And to continue they will have to jam liquidity, and at some point there will be a massive recognition that the money is no good and people will want out into real things. So I don’t worry about low interest rates and low inflation keeping gold low.

Low interest rates suggest that there is a low demand for capital in the economy. High amounts of cash on corporate balance sheets also indicate that companies are no longer finding profitable opportunities to deploy cash. Do we need to see a higher demand for capital in order to see higher inflation and rising interest rates?

Well, yes, companies are finding it hard to re-deploy capital – and for good reason. There are just not enough credit-worthy borrowers or investment-worthy opportunities to exploit. This happens because the economy is so weak. I don’t believe it for a minute that the economy is as strong as people suggest. As the economy continues to weaken, inflation becomes a currency event.

It’s not inflation like in the 70s’, where a higher demand for things led to prices going up. This time, it’s the currency that is being severely debased and that is what will lead to – I believe – hyperinflation before this is over.

In a weak economy, where there is nowhere for companies or banks to deploy capital, could cash continue to accumulate in banks and corporate balance sheets, preventing this cash from causing inflation?

Well, I guess that could happen. But the question becomes: Why would you want cash, when it generates no return?

I mean, I don’t accept the fact that there is no inflation anyway. I am a big believe in John Williams’ ShadowStats. I think his inflation number may be too high at 5 percent or so right now.1 But the real number is probably somewhere between that and what they report. So if you’re putting your money in bonds, particularly in the short-term ones, you’re losing purchasing power every single day that is sits there.

So we are waiting for investors to recognize this guaranteed loss in purchasing power from holding bonds?

Well quite frankly, Henry, I am amazed that people, given what is unfolding, are prepared to hold bonds. I my view, these things won’t buy a loaf of bread by the end of the experience. And yet there are trillions and trillions of these bonds in the hands of investors everywhere. Now, obviously, nobody wants to buy American bonds quite so much. That’s why the Fed has been forced to step in and buy so many of them.

I think that the next shoe to drop will be the geopolitical mess that is unfolding in the Ukraine and elsewhere. I believe there will be others: the Chinese have already stated their intention of diversifying away and pricing everything in Yuans. I think the Russians are going to head in that direction too. I believe there is going to be an overhang of U.S. dollars in the market, which is going to lead to the price of the Dollar declining. It’s not that the Dollar is particularly overvalued against Euros or any other currencies. It’s just that people are going to want to get rid of all of them, and I think the Dollar is extraordinarily vulnerable.

What else is on your mind today that is important for gold and silver investors?

Well, there is something I would like to comment on. It’s this whole paper gold market. I don’t think that people fully understand what a Ponzi scheme it is. I’ve seen numbers, which could even be too conservative, stating that there are at least 100 claims on every single ounce of gold in the Western system.

This continues until it doesn’t, but the minute that it stops, people will be asking themselves what they really own through their ‘paper gold’ vehicles. I think that this will have an unbelievably large impact on the price of physical gold. I believe that to own gold, you should only buy either physical gold or a vehicle that is backed by the metal such as the Sprott Physical Gold Trust, where there is an audit showing that all of the physical gold is there. That is not the case of 90 percent of the ‘paper gold’ products out there.

I think that could be a real catalyst for dramatically higher gold prices soon.

Do you see a chance of a weakening of demand from India or China?

Oh, not at all. I think that the Chinese have changed the whole ball game. You could measure how much gold was being imported into China through Hong Kong and they were importing staggering quantities. They were essentially buying up the equivalent of the world’s entire annual mine production outside of China. Now, they are going to start taking gold in more clandestinely through Beijing and we won’t know how much they are buying, but I think they will buy as much as they can get their hands on.

James Turk had an insightful comment about the gold market; he said that a lot of the physical gold getting into the market were old, 1960s’-style bars. That suggests that we are running out of gold in the Western world.

Why have we experienced new all-time highs in the stock market and record profits from big corporations when the economy is so fragile?

Well, I think it’s very simple. You alluded to it when you said that people don’t know what to do with their money. As more money is jammed into the system by the Fed, the money has to go somewhere. What’s happening is that it’s creating bubbles in lots of things – stocks, bonds, or urban real-estate. Sure, profits look good, but there is a lot of phantom accounting that can make profits look a lot better than they are.

I tend to look at the top line, which is not nearly as good in most instances as the bottom line, which you can tamper with through accounting tricks.

So, I think we’re doing what we did at the end of the 90s’ with the tech bubble. I think we are just having a more widespread bubble in stocks.

What do you make of the Fed tapering, which has taken QEdown to 45 billion dollars2 from 85 billion dollars per month?

Well, quite frankly, I don’t believe a word from these people. Why was Belgium the biggest buyer of Treasuries in the most recent period? Belgium — they’re bankrupt too! So, I would not be surprised if the Fed is operating in some back-door way. If the Fed tapers, somebody still has to buy these bonds.

You see, the U.S. is faced with two challenges, which are mutually exclusive. On the one hand, they are trying to protect their currency, and on the other trying to protect their economy. And I think that one of these will surely fail. And I suspect that the easiest route will be to let the Dollar go eventually than to let the whole economy go. If they continue to tighten up and taper, I think the economy will buckle, and I think that’s the last thing they want.

‘Tapering’ will continue until the pain becomes too strong, at which point it will be violently reversed.

Will the Feds have the capacity to ramp QE back up in order to save the bond market?

Well, I think they will have to at some point because it’s becoming abundantly clear that the previous large buyers, for various reasons, are not buyers anymore – the Chinese and the Japanese for instance.

The Japanese have their own problems to worry about. The fact that Belgium shows up all of a sudden as a large buyer tells you that there is something very wrong in this market.

http://sprottglobal.com/

1 http://www.shadowstats.com/alternate_data/inflation-charts

2 http://www.foxbusiness.com/economy-policy/2014/04/30/fed-continues-taper-holds-rates-steady/

This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.

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  1. Western bank economists continue to make very bold and aggressive statements about lower gold prices in 2014, based on stronger growth in America.
  2. Their thesis is that stronger growth will trigger more ETF selling in gold ETFs. These economists seem to assume that current Western investors are as weak-handed as those who liquidated positions in 2013.
  3. In contrast, I believe the bulk of Western investors who held gold through the 2013 decline can rightfully be described as “stoic”.
  4. Please click here now . That’s a snapshot of the tonnage held in the SPDR gold fund. There’s been very little change in the tonnage. It looks solid, staying in the 780 – 820 tons zone in 2014. It sits at 792 now. I don’t see that number as a cause for any concern.
  5. It’s possible that gold prices could move modestly lower during gold’s weak season, as it often does, but the market is supported by very powerful hands in both China and India. 
  6. In 2013, the gold market moved on the selling action of investors focused on the “fear trade” (Western investors who originally bought gold because of fears that QE would crush the dollar). 
  7. In 2014, the gold price discovery mechanism is based more on the “love trade” (Eastern weddings and cultural/religious events). That’s a trend that I believe is only in its infancy. The East is poised to import immense gold tonnage, in the years to come. 
  8. Please click here now . That’s the daily gold chart. Note the blue channel lines that probably define gold’s current trend. That modest rate of ascent is likely capable of producing 50% returns for gold stock investors, annually. 
  9. I prefer to see gold rise modestly, because it doesn’t attract leveraged speculators. Governments also tend to leave gold alone, when it draws little attention from the media.
  10. In the very short term, gold could pull back a little bit, but that’s not a concern. Please click here now . That’s the hourly bars chart. Gold staged a key breakout over the $1308 area yesterday, and a pullback to the $1285 -$1295 price zone would be perfectly normal. Watch the $1315 area closely. A move above there should send gold to $1332 very quickly.
  11. In 2014, if gold continues to rise at the current general rate of ascent, gold mining companies that have low production costs can make solid profits.
  12. Please click here now . That’s the daily silver chart. Silver staged a tentative breakout from a nice bullish wedge pattern early this morning. Note the bullish action of my Stokeillator oscillator, at the bottom of the chart.
  13. I’ve noticed that Western precious metals investors seem less afraid of lower prices now, and rightfully so. The market is fundamentally solid. Gold and silver have always been the strongest assets in the world, and the growing love trade is making them even stronger!
  14. I’ve asked the gold community to be on the alert for gold to rise, on the release of a jobs report that shows over 250,000 new jobs being created. Western money managers can move enormous amounts of liquidity, and when they are concerned about inflation, they move it into gold and gold stocks. A large spike in jobs creation can be viewed as inflationary. That’s bearish for the stock market, and bullish for gold.
  15. On Friday, economists were stunned when the Employment Situation report showed 288,000 jobs were created. Gold rose strongly on that news. While M2 velocity is still falling, I think transition from deflation to inflation is clearly in play now. 
  16. It’s only a matter of time (and probably not much time) before M2 velocity begins to move higher. That’s good news for gold investors around the world.
  17. Many analysts have noted the large flow of gold from London to Swiss refineries. Western gold bars are refined into smaller ones, and shipped to China. 
  18. Analysts have assumed this is bullish for gold. The problem with their thesis is that Chindian jewellers are relying on Swiss refineries to meet their demand for gold. Supplies can be cut off when banks don’t make enough profits from the bid-ask spread, or when government policy changes, as it did in India.
  19.  A new Dubai refinery may open the door to a more consistent supply flow of gold from Western mines to Eastern jewellers. Dubai is known as “Offshore India”. 40% of the world’s physical gold flows through Dubai, but it is mainly gold that is refined in Switzerland.
  20. Please click here now . Gulf News suggests that the new Dubai refinery will be a game changer. With a capacity of 1400 tons, Dubai will soon be in a position to bring Indian jewellers enormous amounts of gold in a more direct manner, bypassing Western middlemen.
  21. Saudi Arabia is the world’s fourth largest gold market, and the Chamber of Commerce there is working with jewellers to make the market vastly bigger and more efficient.
  22. On that note, please click here now . All gold stock investors should read this news article carefully. Saudi gold dealers are limited in the tonnage they can import, because of government red tape. The government has acknowledged this critical issue, and is working with the gold industry to fix the problem. 
  23. I expect Saudi gold imports to grow at close to 30% a year, once that’s done. Mine supply can’t grow at anywhere near the rates of demand growth that are already occurring in the world’s most important gold markets. Governments in those markets are beginning to boldly embrace the gold industry. This will produce even greater demand for gold from Western mines.
  24. Western gold stock investors have nothing to fear from the bearish prognostications of bank economists. Please click here now . That’s the GDX daily chart. It feels solid, and my Stokeillator suggests that technically, it is solid. The gold market bears keep talking about “one more trip down”. In contrast, I don’t think fear is even relevant to the new gold era. It’s going to be an era of comfort and stability, for Western gold stock investors!

May 6, 2014
Stewart Thomson
Graceland Updates
website: www.gracelandupdates.com
email for questions: stewart@gracelandupdates.com 
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Stewart Thomson
email: stewart@gracelandupdates.com
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email: stewart@gutrader.com

Tuesday May 6, 2014
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May Decline in Gold & Silver Stocks Would Create Opportunity

Posted by Jordan Roy-Byrne - The Daily Gold

on Friday, 2 May 2014 11:50

Last week we noted that the gold and silver shares had formed a short-term rebound in response to an oversold condition. Yet we felt that the downtrend that originated from the hard reversal in March was still in effect. As we go to publish, the rebound appears to be petering out. Be aware that there is more potential downside in May. The good news is a decline in May will likely create a great buying opportunity at the end of the month and in June.

Let me start with the silver complex as its providing the most clarity. We wrote about the coming opportunity in Silver at the end of March. We posited that a break to new lows would likely mark the end of the bear market and signal an excellent buying opportunity. We derived that view from a few charts including the bear market analogs chart which is posted below. The chart (which excludes the 1980-1982 bear) makes a strong case that Silver should bottom sometime in the next four to eight weeks.

may1silverbears

Though Silver has broken below its December 2013 low and is inches from a new bear market low, the silver stocks remain (at the moment) comfortably above their bear market lows. The chart below plots both SIL (seniors), SIL against Silver, SILJ (juniors) and SILJ against Silver. SIL would have to decline 14% to test its December low while SILJ would have to decline 19% to test its December low. The relative strength of the silver stocks amid a breakdown in Silver is a signal that a major trend change is developing.

may1silverstocks

Unlike the silver stocks, the gold stocks haven’t had a chance to prove their relative mettle as Gold is a good $100 above its bear market lows. I reiterate that the gold indices likely bottomed in December. (I say indices because plenty of individual companies have already bottomed). GDX would have to decline 15% to test its December low while GDXJ would have to decline 19% and GLDX would need to shed 22% to test its low. There is a bit of room for these indices to decline but the closer they get to the December lows, the better buys they become.

may1goldminers

The near term prognosis looks cut and dry. Until proven otherwise the short-term trend is down. If that is confirmed in the coming days then let these markets fall to strong support before buying. Also, silver and the silver stocks peaked first in the first half of 2011. Keep an eye on the silver complex as it could bottom ahead of Gold. In any case, be patient and let this potential selloff run its course which it could by early June. We are preparing to take advantage of further weakness in the coming weeks. If you’d like to know which stocks we believe are poised to outperform after this next low, then we invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT

Jordan@TheDailyGold.com

 

About Jordan Roy-Byrne, CMT

Jordan Roy-Byrne, CMT is the editor and publisher of The Daily Gold.

View all posts by Jordan Roy-Byrne, CMT →

Gold & Silver – Prospects For Both From A Russian POV

Posted by Edge Trader Plus

on Thursday, 1 May 2014 16:20

Edge Trader Plus: One of the biggest problems for the West, the US in particular, is its increasingly parochial imagesperspective from the narrowest of lenses, fully colored by the elite’s use of its main propaganda machine, the Maintstream Media. It will not work for people to expect more from their government, rather, people have to demand and expect more from themselves, for in the end, people will discover all they really had to rely upon was themselves and failed to do so.

All of the information one needs to make more enlightened decisions is out there. One has to change their broken habits of spoon-fed expectations from local news and take a more active role in seeking the truth. In a nation that relies upon a police state, increased militarization, and NSA [STASI] spying on its docile population, one cannot expect to hear truth, only lies, and the Obama administration is certainly delivering them.

Ask yourself, what is your impression of Russia, of Putin? Then, consider the following information about both. 

….continue reading this interesting perspective including charts HERE – Editor Money Talks

 

Turnaround Stories Revolve Around Proven Management

When the world’s reserve currency is reset away from the U.S. dollar in the next decade, gold prices will rise and mining equities will follow. Van der Hout and Middelkoop tell The Gold Report that by focusing on producers, near-producers and turnaround stories, they plan to capitalize on the opportunities in North America, Africa and beyond. Willem Middelkoop and Terence van der Hout are of the Netherlands-based Commodity Discovery Fund.

COMPANIES MENTIONED: ASANKO GOLD INC. : DETOUR GOLD CORP. : FALCO PACIFIC RESOURCE GROUP : FISSION URANIUM CORP. : GOLDCORP INC.: IVANHOE MINES LTD. : LAKE SHORE GOLD CORP. : MIDAS GOLD CORP. : NEXGEN ENERGY LTD. : NORILSK NICKEL : OCEANAGOLD CORP. : OSISKO MINING CORP. : PLATINUM GROUP METALS LTD. :PROBE MINES LIMITED : RESERVOIR MINERALS INC. : YAMANA GOLD INC.

The Gold Report: Willem, your first book predicted the collapse of the global financial system a year before the 2008 fall of Lehman Bros. In your new book “The Big Reset: War on Gold and the Financial Endgame,” you’re predicting the demise of the dollar as the reserve currency by 2020. You said it can occur as a carefully planned event or as the result of a crisis. What would these two scenarios look like?

Willem Middelkoop: Authorities always prefer to act within a well-planned scenario. The U.S. and the International Monetary Fund (IMF) understand that the U.S. dollar has to be replaced one day. It could be 2020. It could be 2018. It could be 2023. It has to be replaced by another anchor to support the worldwide monetary system.

Both the U.S. and the IMF will try to stay in the driver’s seat as they propose the transformation of the worldwide financial system. They could introduce special drawing rights (SDRs), an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. The U.S. and the IMF could propose that the SDRs be used to replace the dollar as the anchor for the worldwide financial system.

“Probe Mines Limited’s discovery is important for Ontario because it changes the whole geological understanding of this part of Canada.“

However, the IMF and its partners, the central banks around the world, will need at least five more years to prepare the system for such a change. A crisis of confidence around the dollar could occur before the IMF and its partners are ready for a reset operation. If a crisis of confidence occurs, the IMF would have to mount a rescue operation to save worldwide trade, as we saw in early 2009. We had some similar, but smaller, resets following the crisis in Germany after the Weimar hyperinflation in 1923 and, more recently, in Cyprus.

The SDRs could act like a monetary umbrella and consist of dollars, euros, British pounds and Chinese yuan after a monetary reset.

TGR: A lot of this plan is going on backstage. Most people don’t know about it. What signs should we look for to signal the shift so we can adjust our portfolios?

WM: This is a very important question. Investors need to understand that such a transformation in our monetary system might be introduced over a weekend. In Cyprus, there were not many warning signs. That’s why I started a new blog called thebigresetblog.com, where I follow the latest information, and I’m publishing the latest signs pointing toward such a reset. On March 17, I published a story that was based on an interview with George Soros. In that interview with The Financial Times, Soros said the system is broken and needs to be reconstituted. I also published an interview with Christine Lagarde, head of the IMF. She used the term “reset” multiple times in interviews during the World Economic Forum.

Another important sign is an editorial by the Chinese state press agency recently saying that the time has come for a new international reserve currency to be created to replace the dominant U.S. dollar.

Both East and West sent out specific signals pointing toward this transformation. Of course, it’s important to watch the gold and dollar charts on a daily basis, because when a reset is close, you can expect major moves.

TGR: What does this mean for gold? The signs are out there—why is the price hovering around $1,300/ounce ($1,300/oz)?

WM: It’s quite easy to understand why central banks would like to revalue gold to devalue the dollar at a certain stage of this reset. The U.S.’s official gold reserves, which are still 8,000 tons, are valued at the historical cost price of $42/oz. A revaluation toward $4,200/oz would grow the value of these gold reserves from the current $11 billion ($11B) to $1.1 trillion. Without such a revaluation, gold prices will have to rise as well given the structural deficits in the gold market. Worldwide gold production can’t keep up with the growing demand for physical gold. Recent figures by the World Gold Council show a deficit of 700 tonnes physical gold.

“Fission Uranium Corp. has one of those world-class discoveries that can create billions in value.“

We have seen lots of manipulation of the gold price, similar to the 1960s when the London Gold Pool was keeping gold prices at $35/oz. Central bankers have done this for a number of years by selling large amounts of gold from the official reserves of Western central banks. We’ve seen another round of manipulation of the gold price in the last few years. This can’t go on for another 5 to 10 years.

TGR: If the gold price went up, would the precious metals mining stocks follow or, because of the manipulation, would there not be a connection?

WM: The gold price started to rise at the end of December. When the gold price went up 10%, precious metal mining stocks went up sometimes as much as 30%. Investors will come to understand that the gold price might trade higher in the following weeks and months, and precious metal mining stocks should also go higher.

Countries like China and Russia are also growing their gold reserves enormously. With estimates for yearly deficits in the physical gold market up to around 1,000 tons/year, more investors see precious metal companies as the only ones that own huge amounts of physical tons still in the ground. When they can be sold at higher prices, these companies will become hugely profitable.

We’ve seen that in the past. In the 1970s, we had the last gold rush and lots of free cash flow was generated by gold and silver producers. In the late 1970s and the early 1980s, these amounts were enormous. Senior producers had gains of 200–300% in the last two years of the gold bull market. The junior producers and the exploration companies showed gains of more than 1,000% on average.

TGR: What markets do you think are good right now? What commodities do you like?

WM: We still have 60% of our equity investments in gold-related equities, 20% in silver-related and the last 20% in base metals and specialty metals. The only change in the last two years has been that we decreased our investment in exploration companies and increased our investment in royalty companies and senior producers.

TGR: Why was that?

WM: Because of the low valuation in the correction since the middle of 2011. The valuation for gold producers became almost laughable. Of course, a producer, which is creating cash flow and is still profitable at these prices, has only upside in the current market. It was a defensive move. The current bidding war concerning Osisko shows it was a smart move to add to our position during the down turn.

Terence van der Hout: Technically, an exploration company that has no assets can just go to zero—there are a number that are doing that—whereas producers will always be worth something, even at fire sales.

That’s another consideration that we’ve been looking at on the downside. Very recently, we’ve been subtly shifting from producers and near-producers to advanced developers. We see a turn in the markets. Those companies are well leveraged to the gold price and have a fairly extreme undervaluation to catch up with. Normally, they will be revalued to something relating to the amount of resource they produce.

One of the companies that we’ve been invested in for a while is OceanaGold Corp. (OGC:TSX; OGC:ASX). It has been producing gold in New Zealand at a steep cost, but it has a gold-copper deposit it brought to production in the Philippines that is performing very well. It’s a classic story of a startup producer that is beginning to be valued at its full potential.

TGR: Do you think it’s beginning to be recognized by the market because of the diversification of the company or because of the new resource and reserve that it came out with?

TvdH: It was a function of OceanaGold’s performance in production rather than the resource update. The added resources were mainly from its newly acquired El Salvador project, which is miles away from production. OceanaGold is finally being rewarded in a market that’s turning.

TGR: What other companies fit that model?

TvdH: Lake Shore Gold Corp. (LSG:TSX) is similar in the sense that it’s showing a turnaround. It was run as an exploration company while it was producing. Lake Shore has a wonderful land package, but it should have been focused fully on production. It made a number of changes about a year ago and became cash-flow positive in the last two quarters.

WM: And profitable even with the current gold price.

TvdH: It’s a good turnaround story.

TGR: Does Lake Shore have any catalysts coming up that will help the market see what a turnaround it has made?

WM: Given the current uptrend for gold prices, companies like Lake Shore Gold, which are already profitable at these low numbers, are becoming very profitable when the gold price regains some of its value toward $1,400/oz. We expect the gold price to move up toward $1,500/oz, and then these kinds of smaller producers that have turned the corner will react strongly in this better pricing environment.

TvdH: The same goes for Detour Gold Corp. (DGC:TSX), which is similar to the Osisko Mining Corp. (OSK:TSX) project that’s now in the throes of being taken over by a major. It has the same style of deposit. It’s open pit, low grade and bulk mineable. It’s been cheap to extract.

Detour was expecting a quicker ramp-up with fewer problems getting to full production. Now it’s focused on getting the right mine sequence. It has also made a few management changes. Detour isn’t cash-flow positive yet, but it’s on the right track.

Much like Osisko, it’s a no-brainer that Detour could be taken over sometime in the future. It will be revalued, particularly at the takeover stage.

WM: Since our start in July 2008, we have had 25 takeover situations in our portfolio. The ongoing bidding war between Goldcorp Inc. (G:TSX; GG:NYSE) and Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE)for the Osisko projects is the 25th.

Detour is the largest Canadian gold mine, and it just started producing. Looking at the market cap, we get all the gold resources thrown in for free. The current market cap is a little shy of the total capital expenses to build the mine. There’s great value still to be seen in the market.

Investors should be taking advantage of the current situation. There’s more deal flow in the market. Almost every week, we see the start of a new mining or private-equity fund focused on mining. There was a new fund started by some JPMorgan bankers. The Carlyle Group just started a new commodity fund. Billions and billions are fleeing into the market. This gives us confidence that the bottom has been set.

TvdH: Another company that stands out for me is Midas Gold Corp. (MAX:TSX), which is developing a gold-antimony project in Idaho. There is currently no antimony production in the U.S. It has been designated as a critical mineral, but it is largely sourced from China, which has put some export restrictions on antimony during the last several years. Furthermore, Midas’ project is large. It will be relatively cheap to build. Because of the antimony kicker, which is about $10/kilogram, we expect the mine will be cheap to operate. Idaho is also a derisked jurisdiction. A couple of mines already operate in Idaho, and the Midas gold project is designated as a brownfield site, which should make the permitting quicker.

TGR: Midas just did a $10 million ($10M) private placement. Do you know how it plans to use those funds to add value?

TvdH: We were lucky to have a small share of that private placement. It is putting at least part of that money into advancing toward the prefeasibility stage and deciding what kind of processing it will employ—bio-oxidation (BiOx) or normal solvent extraction. A prefeasibility study and the subsequent environmental impact statement would come along later this year.

WM: We still have a very big focus on new discoveries. Our research department is very active and is always on the hunt for new discoveries. We love the discoveries by Probe Mines Limited (PRB:TSX.V),Fission Uranium Corp. (FCU:TSX.V) and Reservoir Minerals Inc. (RMC:TSX.V).

TvdH: Probe was looking at classic, low-grade, large, open-pit bulk mining in Canada until it discovered a high-grade zone at depth and along strike. That was the signal for Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) to take a 9.9% stake in the company. That started its performance on the stock market as well.

Probe is becoming a bit of a different beast. It has shown that the high-grade area is consistent; it’s now a matter of finding how long it is because it does need a certain volume. It would require an underground operation. Probe is drilling that area; if that shows upwards of 1 million ounces (1 Moz), it might make it to an underground mine as a standalone, apart from the open pit that Probe was looking to develop previously. It becomes a completely different kind of project from then on.

TGR: When might those results be in?

TvdH: Probe has been drilling since February. A few results have come in, but not quite the stepouts that we’d expected. I’m assuming that results will be coming in over the next couple of months.

WM: It is an important discovery for Ontario because it changes the whole geological understanding of this part of Canada. It’s important for investors to study this one.

The discovery by Fission in the Athabasca Basin is too important to ignore, too. We’ve been big investors from the start of Fission. We were investors in Hathor Exploration, which was taken over two years ago. We were investors in the previous Fission company, which made the discovery along with Hathor. It’s one of those world-class discoveries that can create billions in value. It still has a 100% hit rate—and if the deposit keeps growing, I wouldn’t be surprised to see more than 100 million pounds of uranium in this discovery.

TGR: And Fission has had a nice effect on all of the other companies in the Athabasca as well.

WM: Yes, because it convinces us that the only good place to hunt for new uranium discoveries is this Athabasca Basin.

TvdH: Interestingly, next-door neighbor NexGen Energy Ltd. (NXE:TSX.V) has made a discovery on a separate conductor to the one that Fission is drilling on, which implies that any of the conductors—Fission has loads of conductors on the rest of its property—could hold a similar amount of mineralization. That’s what gets the excitement going.

WM: A lot of blue sky still. I expect a bidding war on this Fission discovery within the next 12 to 18 months. It’s too big and it’s too important for the major producers worldwide to ignore. There will be lots of Asian interest for this one as well.

TGR: Is there another discovery near Vancouver?

TvdH: Falco Pacific Resource Group (FPC:TSX.V) is a fascinating story. The company purchased a drill database, which was not digitized, from Noranda Inc. It purchased the property for $5M and 7M in shares. Without one drill hole, it now has a deposit of 2.2 Moz, grading about 3.4 grams per ton (3.4 g/t) underground. On the face of it, you’d say the grade would be a bit dodgy, but Noranda had built the mine almost to the stage of opening it. It put in all the underground workings. It put in the mill. Then it realized it was gold, it wasn’t a base metal, which was the focus of the company at the time. Then it had a merger with Falconbridge Ltd. Falconbridge was taken over by Xstrata plc (XTA:LSE) and this project was completely forgotten until Falco Pacific picked it up not too long ago.

Falco’s project is smack in the middle of the old Noranda gold district. It has a good management team led by Chairman Darin Wagner, who was involved in West Timmins Mining Inc., which sold to Lake Shore Gold. Howard Poulsen, a well-known geologist, is on its technical advisory board. Mike Byron, the vice president of exploration and a director, has more than 25 years in the field. If it can show a few more ounces, then this could be a nice mine at a cutoff of 3 g/t.

TGR: A number of the companies in your fund are in Africa. How do you assess risk for a given region in Africa?

TvdH: There are various types of risks in Africa. There is a cost risk in West Africa because power is expensive and infrastructure is lacking. South Africa has energy issues and social and labor unrest. We have 70% of our portfolio invested in less risky areas, like North America. We used to avoid South Africa entirely, but something has changed in the way that we look at platinum.

Platinum Group Metals Ltd. (PTM:TSX; PLG:NYSE.MKT) is developing a classic platinum mine in South Africa—a thin reef mine, which will be labor intensive. But it has also come up with a new discovery at Waterberg. It’s not a 30-centimeter thick layer of platinum-enriched rock—it’s anywhere between 5–20 meters and wider. It’s amenable to underground bulk mining methods, which makes mechanization possible. That keeps the project largely aloof from the labor unrest issues.

Waterberg also has enormous size potential. The current size of the deposit is already world class. Platinum Group Metals made a stepout of about 5 kilometers (5km) recently, and it hit the same mineralization at a certain depth. Just a few weeks ago, it announced a 16km stepout had hit another mineralized structure. It owns about 23km of strike length. There is still huge blue sky on that project.

We very much like the future for platinum group metals (PGMs) given that the Chinese automobile market is exploding and will need all the PGMs that the world can provide.

The Waterberg project and Ivanhoe Mines Ltd. (IVN:TSX) Platreef project are the future of platinum mining in South Africa.

WM: Platinum and palladium are very interesting for investors right now. The current supply and demand prognosis for palladium and platinum indicates shortages. These shortages will be structural. The palladium market will soon demand 9 Moz/year. The production will only be around 6 Moz—there’s a huge deficit. Platinum and palladium are especially important to Asia, where they are used in the exhaust systems of cars, to combat the smoke and air pollution.

TGR: Interesting. Where else are you focusing in Africa?

TvdH: We’ve been watching Asanko Gold Inc. (AKG:TSX; AKG:NYSE.MKT) in Western Africa for a long time. It used to be called Keegan Resources. It was doing very well on the exploration front and then there was a management and name change. Along came Peter Breese. He has a huge track record. He has developed seven mines, which he sold to Norilsk for $6B. He developed, built and sold off a uranium company for $1B. If this gentleman steps into a project, he’s not there just to pick up a paycheck. He’s there to build mines.

Breese, who is president and CEO of Asanko, brought about the merger with PMI Gold Corp. in February. He now has a huge cash position. He’s fully financed to bring a decent-grade project to production in Ghana by 2016.

TGR: You seem to like these turnaround stories.

WM: A strong, proven, successful mine manager or entrepreneur can build companies time and again. The longer we are in this business—we’re investors for more than 10 years now—the more we try to follow the good management teams.

TvdH: That’s a derisking aspect of the business: management. Management is one of the prime parameters for us.

WM: However, we’re quite fed up with the high salaries being paid to executives running companies that don’t perform. The industry has to understand that investors are taking these compensation packages into consideration when they decide if they should invest or not.

TGR: Do you predict an impact from the conflict in Russia as it is a supplier of PGMs?

WM: Only if more sanctions are applied. Russian President Vladimir Putin understands how vulnerable the U.S. and the U.S. dollar have become. If strong sanctions were applied against Russia, it would be very easy for the Russians to stop selling oil in dollars and start selling it in yuan, rubles or even in gold. The U.S. knows it should be careful not to make Putin too mad because the dollar is too vulnerable. This is why no strong sanctions have been implemented until recently.

TvdH: Last week, Russia-based Norilsk Nickel (GMKN:RTS; NILSY:NASDAQ; MNOD:LSE) made a deal with Chinese and Japanese buyers of palladium, which could tie up large quantities for the next five years. These are interesting deals because in the past Norilsk was just selling palladium at the spot price, whereas now the Chinese and the Japanese are seeing the strategic aspect of palladium and are willing to tie it up for longer periods to ensure their supply chain.

TGR: Any final advice for our readers as we’re going into this shifting world?

WM: I would like to talk a little about silver. We talked a lot about gold, and gold is very important. It’s my opinion that gold will come back in the monetary system. I don’t expect a full gold standard, but gold will become more important. But silver is poor man’s gold. When the gold price goes up too much, more people start to buy silver instead. However, there are no large, above-the-ground stockpiles available anymore. Silver was still used to produce coins until the 1980s. These above-the-ground silver stockpiles are almost completely gone. We’re very interested in great silver companies with lots of ounces in the ground.

TGR: Thank you both for your time.

Willem Middelkoop is a successful entrepreneur and publicist from The Netherlands. He is a former market commentator for Dutch National TV, founder of Amsterdamgold.com, a web shop for gold and silver bullion that was sold in 2011, and founder of the Commodity Discovery Fund, where he is currently the principal. Middelkoop is a member of the Advisory Board of the London-based Official Monetary and Financial Institutions Forum (OMFIF). He is author of several books covering financial markets and the economy. His most recent book, “The Big Reset,” his first book in English, was published at the end of 2013 and will be published in Chinese later this year.

Terence van der Hout is a senior researcher at the Netherlands-based Commodity Discovery Fund. The fund focuses on investing in world-class natural resources discoveries in precious metals, base metals and specialty metals, as well as undervalued start-up producers. Van der Hout also distributes Strategic Metals Bulletin, a free, monthly commentary on developments in the world of critical metals. To subscribe, please send an e-mail to: terence@cdfund.com. Van der Hout has a background in finance and holds a master’s degree in administration in political science from the University of Leiden.

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DISCLOSURE: 
1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Probe Mines Limited and Fission Uranium Corp. Goldcorp Inc. is not associated with Streetwise Reports. Streetwise Reports does not accept stock in exchange for its services.
3) Terence van der Hout: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. The Commodity Discovery Fund owns shares in Asanko Gold Inc., Detour Gold Corp., Midas Gold Corp., Fission Uranium Corp., Osisko Mining Corp., OceanaGold Corp., Lake Shore Gold Corp., Goldcorp Inc., Yamana Gold Inc., Probe Mines Limited, Reservoir Minerals Inc., NexGen Energy Ltd., Falco Pacific Resource Group and Platinum Group Mining Ltd. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
4) Willem Middelkoop: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. The Commodity Discovery Fund owns shares in Asanko Gold Inc., Detour Gold Corp., Midas Gold Corp., Fission Uranium Corp., Osisko Mining Corp., OceanaGold Corp., Lake Shore Gold Corp., Goldcorp Inc., Yamana Gold Inc., Probe Mines Limited, Reservoir Minerals Inc., NexGen Energy Ltd., Falco Pacific Resource Group and Platinum Group Mining Ltd. 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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