Found this interesting...I found this in my email this afternoon:
June 23, 2004
RE: China (our picks)
Gold reached a 15-year peak in the last quarter, retesting the early high this year before retreating to a six month low. The collapse has been so severe that many gold stocks broke their 200-day moving averages prompting technicians and pundits to declare gold's bull market over. Wrong.
Not only, has America's debt load crushed the US economy, but the attendant stimulus is finally showing up in higher rates of inflation. The pick up in inflation has been based on too little supply and too much demand exacerbated by geopolitical events. And China's need to build infrastructure has required much more natural resources.
Against this background, gold will rebound underpinned by dehedging, growing concern that inflation will accelerate, higher oil prices and yes, a lower US dollar. The US dollar has enjoyed a "dead cat" bounce within a clearly defined downtrend. Chronic American twin deficits will keep the dollar relatively weak against other currencies (and gold) while fundamentals such as dehedging, investor demand and $40 a barrel oil prices will underpin gold prices. The ramifications of a China-centric world together with the seachange in the low interest landscape will further underpin gold prices.
Gold is an effective hedge and investors would be wise to rebuild positions before the next gold rush to $510 an ounce.
If China is to encourage the development of gold mining, what about some of the Canadian mines that are already in China? Unfortunately there have been few successes in China. Title we believe will a problem for many. Other than in three provinces, China has also been reluctant to provide access to its producers. As such, foreign companies were left with "crumbs" like refractory deposits or had to look for gold in the frontier areas. Moreover, from a geological point of view, much has been made of the similarity with Carlin-type gold deposits, which is misleading since Carlin we believe is unique only to Nevada. We have yet to see a Carlin-type deposit in China. There is no question that China holds exciting mineralogical potential borne out by the copious amount of geological and geo-chem surveys conducted by the various provinces. We believe that China will receive increased investor attention particularly as it allows access to the producers rather than just exploration "moose pasture" and only then will those elusive multimillion-ounce deposits be found.
Southwestern Resources Corp. has been a huge success on hopes that the Boka gold project in beautiful Yunnan province would develop into a big gold mine. Although we do not question the existence of gold, we do not subscribe to the view that this is a viable multimillion-ounce bulk deposit. Hunan province is reportedly where the high grade glitter can be found and one small Canadian company, TVI Pacific, has the upper hand. They are the only foreign company to own a Chineese company which gives them first crack at properties. Not only has Southwestern not established any proven reserves but there has been a lack of sufficient drilling information to support the stock. In our opinion, the omission of sections, sufficient drilling, metallurgy, and even structure make Southwestern a dangerous bet at these levels.
What about Ivanhoe Mines Ltd, with its big Oyu Togoi copper/gold project in southern Mongolia? Unlike Southwestern there has been extensive drilling and a prefeasibilty study has given us much information. However the huge capital costs together with the fact that much of the economic grade lies deeper and will not be sourced until later makes the economics questionable - even for Barrick.
Meanwhile, despite the lack of exploration successes elsewhere, we believe that the strong gold prices will spur renewed exploration efforts. We believe that not only will China be a beneficiary, but that on a global scale, we note that there is an increased emphasis on exploration. We believe that this year will prove to be the Year of Exploration.
The exploration and development sector has been badly beaten up, having failed to exceed last November's peaks when gold retested $427 an ounce. Earnings in the latest quarter were somewhat disappointing in that costs remain a problem. The merger of IAMGOLD Corp and Wheaten River Minerals Ltd. reflects the need for mining companies to create synergies since both were saddled with modest growth prospects. Look for IAMGOLD to also JV or merge with TVI Pacific should the TVI Pacific results prove significant. The intermediate producers led by Goldcorp have corrected in large part due to the fact that this group was widely held and investors sought easy profits. The dilemma for the industry is how to replace declining reserves. A higher gold price will help boost uneconomic reserves, but the industry needs to find new gold deposits. We continue to recommend an overweighted position in gold equities, particularly during this pullback. Stocks are extremely oversold and poised for rebound. And yes, we still target $510 per ounce this summer.
Our top picks continue to be Kinross, Agnico-Eagle, and Goldcorp. And among the junior developers, we continue to recommend Campbell Resources, Crystallex International, Northgate Exploration, TVI Pacific.