Philip Ker, an analyst with Union SecuritiesJunior Miners Still Giving the Street Something to Talk About: Philip Ker
Source: Brian Sylvester of The Gold Report (7/30/12)
Which junior miners are giving the Street something to talk about? Some shining examples of promising companies with good balance sheets do exist despite what seems like a market dominated by bad news. In this exclusive interview with The Gold Report, Philip Ker, an analyst with Vancouver-based Union Securities, shares the good news his latest site visits have revealed about projects in Nevada and Mexico.
The Gold Report: Kitco reports that gold-specific exchange-traded products (ETPs) attracted $570 million (M) in net new funds, and holdings of gold ETPs hit an all-time high of around 77 million ounces (Moz) during the second quarter. There were also inflows into silver ETPs of $269M. Will this impact mining equities?
Philip Ker: We're in a period of extremely tight liquidity within capital markets. Any capital that's not being deployed into equities and transformed into ETPs will definitely impact equity valuations going forward. Keep in mind that exchange-traded funds do offer variable perks, such as diversification and lower management fees versus other managed investment options, which is why a lot of investors are beginning to favor them.
TGR: On a macro level, the problems of the euro continue to plague the U.S. dollar-denominated gold price. The International Monetary Fund recently said that there was "a sizeable risk" of deflation in the Eurozone. What is Union Securities' view of what's happening in Europe and the possible effect on the gold price?
PK: We believe that this is just a temporary shift out of the Eurozone, which is ultimately strengthening the U.S. dollar while consequently weakening the gold price. In the longer term, we see the gold price going much, much higher. The substantial leverage created by the U.S.' escalating debt will cause investors to shift away from these temporary investment vehicles and back into the safety of gold.
TGR: When we talked to you in February you were predicting an average 2012 gold price of $1,725/ounce (oz) and $34.50/oz for silver. Have those numbers been revised since?
PK: We're maintaining those targets until some macroeconomic things evolve and answers begin to be known, particularly concerning the skepticism within the market about the Eurozone and U.S. debt issues. There are also several significant elections globally, including the U.S. presidential election in November.
TGR: You must think that gold's going to have a strong finish this year then?
PK: That's correct. We are pretty optimistic for a strong run later this year and view the current lull in precious metals and relative equities as only a temporary phase of market sentiment.
TGR: Small-cap resource equities are down an average of roughly 40% since September 2011. Why should investors continue to hold these companies?
PK: The overall perspective of the investment community is that we are in a fairly bearish cycle. Fortunately for investors, markets are never static and there's always an upside. I prefer the view to buy and accumulate when no one else believes there is money to be made. Buying at opportune times such as now positions one ahead of the herd and can churn much more profitable investments. If investors are well positioned and ready to take advantage of the market, they can be very prosperous in the long run.
…TGR: Are there other companies under coverage that you'd like to tell us about today?
PK: I toured Kootenay Silver Inc.'s (KTN:TSX.V) Promontorio deposit in Sonora, Mexico, earlier this year. I came away quite impressed with the core and the layout of the land there. Management is extremely knowledgeable in hydrothermal-type deposits. I am currently anticipating a resource estimate to come out sometime in August and am targeting approximately 100 Moz silver equivalent, which is five times its historical resource. Management now thinks a substantial gold credit may be worked into the resource and would add additional value to the project valuation.
The stock has performed quite well during this market turmoil. I believe a lot of investors are keeping a close eye on it and it will be a good growth story moving forward.
TGR: You had a $2.50 target price on Kootenay around Christmas 2011. What's your target now?
PK: It's $1.75. It was cut based on lower comparable in-situ valuations for other silver explorers and developers.
TGR: The Promontorio deposit is quite promising and reasonably high grade. What about its mineability? Is the geological structure set in a way that's going to make this easy to mine?
PK: The deposit is a hydrothermal breccia and the structure could be easily mined with a combination of open-pit and underground mining to target the various zonations and concentrations of higher-grade mineralization. The deposit has only undergone one good round of drilling and management is planning additional exploration within the center of the zone in order to further prove continuity between the northeast and the southwest zones where the historic pit is located.
TGR: Then we don't really know yet if there's no pit wall drilling. Can you tell us about some recent results that keep you optimistic about Kootenay?
PK: It's definitely had some bonanza-grade intercepts, especially up in the northeast zone. It's had exceptional numbers of about 18m of 873 grams/ton (g/t) silver equivalent within an intercept of 71m of 297 g/t silver equivalent. The strong metal credits from lead and zinc (and now possibly gold) lead to a good indication of metal credits should the project become a mine one day.
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"The substantial leverage created by the U.S.' escalating debt will cause investors to shift away from these temporary investment vehicles and back into the safety of gold."