PvE Interview NotesThere were not any questions on Lara Exploration yesterday evening. Here are my notes from the Wednesday August 16th interview with Paul van Eeden on MarketCall Tonight with Michael Hainsworth:
Paul still thinks that we are near the top in the metals cycle; he doesn't buy into the commodity super- cycle hypothesis. There has been phenomenal economic growth in North America that has spread to Europe and Globally. During this period, there has been a displacement of manufacturing capacity from Europe and North America to Asia. Commodity demand in Asia is largely displacement demand with the manufactured products going back to North America and Europe. In spite of the fact that China is growing phenomenally and that they have 4 times as many people, their economy is much smaller, concomitantly their own net demand for commodities is much lower. The economic expansion may have already rolled over so there will be less demand for metals. Paul said that he has sold all his base metal stocks and isn't looking to buy anything in base metals at this time.
He also mentioned the fact that the annual mine supply shortfall is irrelevant to the gold price; what is a 500 ton annual shortfall in comparison to between 5,000 and 6,000 tons of physical gold traded on a daily basis? Also, only about 2,000 tons is used a year in jewelry fabrication, so that too is a small componet of total gold demand. Dentists and jewelers are not buying that 5,000 tons a day, investors are. The demand to hold gold as an asset is the prime mover of the gold price.
Question from Michael on CVRD and Inco; Paul thought that CVRD's cash offer would carry it.
Northern Dynasty Minerals NDM : Has a very, very large copper/gold deposit in Alaska. If he is incorrect and commodities and copper stays where they are, this will be a phenomenal deposit. But if the copper price drops, then investors will be having a hard look at capital costs, capital pay back with concern about how far copper prices drop. It can only work if copper prices stay high.
Strathmore Minerals STM : Has done phenomenally well with uranium prices rallying up. Much like copper, Paul thinks that uranium oxide prices are ahead of themself and are possibly heading for a crash. He said he sold most of his uranium stocks when prices hit $30. Uranium is almost exclusively used to make rods for nuclear reactor fuel. To manufacture fuel rods the uranium needs to be enriched into fissionable isotopes (U235) and that is a costly process. Tail enrichment curves are calculated every two years; they were 0.33 at $15 U and 0.27 at $25 U. At a tail enrichment ratio of 0.23 or 0.22 there is no shortage of uranium at current prices for U sub 3 O sub 8.
StreetTracks Gold E.T.F. GLD on the NYSE : A very convenient way to get exposure to the gold price without physically taking possession. If one has a cash component structured into a portfolio gold could act as a cash equivalent -- Harry Browne Permanent Portfolio or Doug Casey Hedged Portfolio. Paul said that he doesn't use GLD in this way because he doesn't short term trade the gold market.
Etruscan Resources EET : Have a Mali project and recently announced a discovery that looks to be very good. It has the potential to be a very large discovery, but with a $400 million market cap that needs to be filled.
Skygold Ventures SKV : Made a very good discovery in Spanish Mountain B.C. He said that it maybe one of the most undervalued gold discovery's in Canada. It is low grade but looks to be a large deposit with the potential to be much larger.
Past picks :
Altius Minerals ALS : (A Top Pick Aug 26th 2005. Up 113%.) Gold, copper, nickel and uranium in Newfoundland. He said that he has bought more of ALS recently because of the Newfoundland Labrador Refinery Project - acquired land surrounding an existing refinery and are looking to build a new, advanced refinery that can handle heavy/sour crude.
Quest Capital QC : (A Top Pick Aug 26th 2005. Up 34.3%.) More on QC later.
Miranda Gold MAD : (A Top Pick Aug 26th 2005. Up 50%%.) No longer cheap but it's a superbly run company. "You won't find a better exploration team in Nevada." He said that this is one of his core explorers, and he can't find many better companies out there. He's holding it for a discovery, but if it runs up too much without a discovery he would sell some. Also, if the prospect generator business model is changed.
Queenstake Resources QRL : Operates Jerritt Canyon in Nevada and if there is a decline in the US$, this company will give you high leverage because it's operating costs are US$ denominated. The big negative is that they have battling to stay ahead of the hungry mill. Costs continue to run away from them. It has tremendous leverage but leverage cuts both ways.
Strateco Resources : Likes their uranium project in the Otish mountains, which is an exciting deposit that is currently being drilled. Sold all his uranium stocks except for this one, and he isn't interested in their gold assets.
A question on possible gold sales by the Worldbank to buyback and forgive Third world debt: Paul said it is unclear how much gold it actually controls. If it got gold and sold it that would be wonderful because then the gold would move to private hands. And it would be an opportunity to buy gold at firesale prices.
"Never get angry or unhappy when somebody in the market has an opinion that is different than yours. It is always an opportunity; it is an opportunity to buy or an opportunity to sell."
Crosshair Exploration CXX : In the Central Mineral Belt and had some reasonable exploration results in Labrador. The problem is that the CMB is very remote, there is a lot of uranium in that area but it doesn't look like they have an elephant by the tail or a big deposit. If one held his hand to the fire and made him buy something there it would be Aurora Energy AXU.
Cornerstone Capital Group CGP : Very interesting land position in Ecuador next to Iamgold's find, but is very early stage, very grassroots, very conceptual which means very high risk. They have JVed with Coastport Capital CPP to limit downside risk. It's a show me situation with early stage gold projects.
Canplats Resources CPQ : He doesn't know when any results will be out. He invested in this company because of management, which they share with Silver Standard. They have two first- class geologists in Mexico that can identify projects and then find joint-venture partners to fund the more expensive work.
He said: "Buy early if you want to get in cheap." Also that he is patient enough to stick with the company as long as management sticks with the prospect generator business plan. He buys as much as he can and then waits for management to deliver.
Rimfire Minerals RFM : One of his favourite exploration companies with highly competent management. My notes on Canplats and Rimfire are commingled because they went from one right into the other and Paul backed up and talked about CPQ again while answering the RFM question.
Endeavour Silver EDR : Silver is a very strange commodity being both a base metal and a precious metal. He expects that silver will lag gold in an economic downturn, but if there is enough investment demand due to monetary unease, then it can spike higher than gold in percentage terms. Paul likes EDR because they consolidated a large area that has great exploration potential and it is well managed.
Radius Gold RDU : Their drill results with JV partner Meridian Gold from the Navividad project will be very important. If they are good things could really move but it can go either way. If the results are bad the stock could drop considerably but if that happened he would be a buyer because he has high regard for management.
Top picks:
Quest Capital QC : We're in a dangerous stage in the markets and it's good to look at stocks that give safety. This is a company that can deliver 15% to 20% returns on invested earnings per year. "If I can invest my money at that rate of return I am very happy." QC would be positively effected by a metal equity market downturn because it can make more fully collateralized short term bridge loans if equity capital flows dry up. A counter cyclical stock to help offset risk in one's portfolio.
Miranda Gold MAD : When investing in these types of stocks you should look at your portfolio very much as a portfolio of people. The people are the most important thing to look at in this business. Miranda has two of the sharpest geological minds in Nevada. He is going on a site visit with them next week, that site visits put everything that one reads in press releases into context.
TransAtlantic Petroleum TNP.U : They bought the South Gillock property last year from Amoco. This was an oil reservoir that had NG pumped into it to maintain pressure and the hypothesis is that it has a very large gas cap still present. If the gas is there and if it flows the stock is a winner. If it doesn't work out the management team is good and can generate other projects. This year they should be able to drill a well and test the hypothesis. They currently have other interesting projects in Morroco, Turkey, Romania and the UK North Sea.
Sources:
MarketCall Tonight with Michael Hainsworth, Aug 16 2006 robtv.com.
stockchase.com/alertscomp.php
And a ratty old notebook.