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AN INTERVIEW WITH NICHOLAS CAMPBELL
MINING ANALYST
CANACCORD WEALTH MANAGEMENT
(As of August 22, 2012)
What next for the battered up precious metals sector...that
simply hasn’t been that precious over much of the last six to
eight months. Now we seem to be putting in a base of some
sort and some of the gold stocks have bounced back a bit.
The problem still remains financings, for hundreds if not
thousands of the junior stories out there.
Time to get caught up with Canaccord’s Nicholas Campbell,
and one of his favorites in the precious metals sector is
SilverCrest Mines and has been bouncing back nicely in the
last while.
David Pescod: Nicholas, what is your scenario right now for
the precious metals sector? Is there a future?
Nicholas Campbell: Oh absolutely there is a future. I think
one of the things that we saw happen over the summer is
that we saw the sellers get exhausted, so we saw the selling
of stocks dry up and with a bit of positive momentum in the
precious metals prices we have started to see a move up in
the junior valuations. You start to see some incremental
buying and with a lack of selling, we have started to see
some big moves in certain companies. The companies that
have definitely been outperforming have been the ones that
have been in a stronger financial position. So companies
with cash flow, companies with good balance sheets and
higher quality assets.
DP: There is still the problem that raising money these days
is a concern. We could still see hundred or thousands of
companies disappear?
NC: Yes I think we will see companies disappear, especially
companies with lower quality or very early stage assets. I
don’t think you are going to see the same number of exploration
companies out there, but I think it’s a great opportunity
for the royalty companies (which generally have great
balance sheets and generate strong free cash flow). They
have become one of the alternative financing options
for those companies that can’t find traditional funding.
So I do think you are going to see more non-traditional
funding. I think there will be a lot of companies that simply
won’t be able to finance their projects, particularly if
you have large capex associated with lower grade projects.
I think it’s going to be a challenge.
DP: Now part of your scenario for possibly better precious
metal prices is what next for Europe and the United
States?
NC: Everybody has their own opinion on what is going to
happen there. I think it is going to be interesting times in
the States as we lead into the election. I don’t really know
what exactly is going to happen there, but economically
speaking it hasn’t been great in the States. There has
been a lot of focus on Europe and if the European governments
can find a way to try and kick the can down the
road for the next year or year after and do their own form
of easing to try and alleviate the problem. I think you will
see some of the focus shift back to the U.S. And that will
probably be dollar-negative which would generally be
positive for commodities and quite positive for gold and
silver prices which obviously in that circumstance we
would expect to see the juniors do quite well.
DP: Now we have certainly seen one of your favorite stories,
SilverCrest Mines bounce back smartly in the last few
weeks. What next for that company?
NC: The next thing we are going to see from SilverCrest
is that they are going to put out another set of drill results
from their La Joya project. We are expecting this next set
to be focused in the southern extension of the main mineralized
trend. And that is an area that the company believes
is potentially higher grade with wider zones of mineralization.
Now you can’t assume that there are going to
be better results than we’ve seen in the past – we will
have to see what the results are when they come out. But
certainly the results that company has put out to date has
suggested that this is going to become a much larger,
relatively low grade project in Mexico.
So after we get these results we are also going to see an
updated resource estimate for the La Joya project that will
be out over the next couple of months. We are expecting
to see the resource possibly to double to around 200 million
ounces in silver equivalent. We are also going to see
a mine plan for the Santa Elena mine which will include
the expansion and we will probably see some announcements
on the progress at the mine as the company executes
on that expansion.
Also, the stock is going to list on the NYSE MKT on August 27 under the ticker SVLC and we could see some new buying
in the name from US investors.
DP: We are certainly learning that Mexico seems to be a safe place to be rather than big parts of Africa and South
America. But there is suggestion that royalty rates are going to be increased shortly...
NC: There are no royalties in Mexico currently. The only royalties that are in place are associated with private transactions,
so I would be surprised if they didn’t put a royalty in place. The tax rate in Mexico is around 30% right now,
so I wouldn’t even be surprised to see that bumped up a little bit. It doesn’t really change the economics of the situation
there. Even if you put a 3% royalty and bump taxes up to 35%, it would still be a very solid fiscal regime to be a
part of, it would be still be a great place to be investing in mining and it has been one of the better jurisdictions for
getting projects permitted if you do the appropriate work. I think the bigger question in Mexico is whether or not they
can improve the social situation there because although it has been a great place to invest, there have obviously been
some big social issues associated with the drug cartels down there.
If you look at the other jurisdictions, particularly with regards to investment in silver, Mexico stands out as being the
big winner over the last decade compared to jurisdictions like Peru, Argentina, or Bolivia – all of which are significant
silver producers, but obviously they come with a much higher political or social risk component to them.
Peru has had a bad rep and there has obviously been some significant social issues in Peru, but I am actually quite
impressed with Humala – he isn’t nearly as left-wing as we feared and he has actually been far more progressive with
the people he has put in place there. He is actually been a vocal supporter of the Conga project that Newmont has....I
think Peru is going to be a fine place to be, but again Mexico has been and continues to be the best jurisdiction for
money investment in the Americas and possibly the world.
DP: There is another junior that you like these days...Fortuna Silver. Can you give us brief comments on this one?
NC: On Fortuna Silver, this is a company that I have liked for years. They have an incredible group of underground
operators. They have had some issues in terms to cost escalation, particularly in terms of treatment and refining
charges associated with the concentrates that it produces. They are addressing that at their San Jose project in Mexico
by developing an offset leaching project which will significantly reduce their costs associated with the San Jose
mine. They are also looking at some expansion plans. They have been able to expand the San Jose mine faster than
they had previously expected and the grades are much better than the originally budget. So, really it is a company
that’s executed very well. It has been under pressure and has come off quite a bit from its high, but I am a big fan of
the management group and I think if you want to invest in sort of a larger mid-cap silver producer, I think Fortuna is a
great place to be.
DP: If you had to bet where the price of gold and silver would be a year from today, what would be your guess?
NC: I will go with $1900 for gold and $36.00 for silver.
DP: Thank you very much Nicholas!