Lower Gold Prices Will Be Catastrophic For Gold Miners [Goldcorp Inc. (USA), Barrick Gold Corporation (USA), Newmont Mining Corp]

CL: I believe so because it will be a relatively small, underground mine in a brownfields location. It was permitted before, and getting a new permit should be relatively easy. The court decision you mentioned was terrible news for a lot of miners. But the lake close to Brucejack has no fish, so the mine will have a small impact on the environment.

TGR: Pretium has been called an “elephant find.” Could we see a takeover bid?

CL: Very possibly.

TGR: Pretium has a market cap of about $650M, which would make a takeover about twice as large as recent examples.

CL: Yes, but, again, this is a very low-cost operation. The recent takeovers were producers at about $1,000/oz, as opposed to Pretium’s $400/oz. I believe any takeover would be at a significant premium to the current stock price.

TGR: The silver price has been falling. Isn’t silver supposed to be insulated somewhat because of its use in industrial applications?

CL: About 50% of silver is used in industrial applications. At the current price, most of the silver miners are not making money. That blows my mind. But silver dropped to a few dollars in late 2008–2009, so I can see that silver could now potentially drop further. Silver will continue to be produced because it is mined mostly as a byproduct of base metals operations. If silver drops to single digits again, it’s the buying opportunity of our lifetime.

TGR: Do you like any silver companies?

CL: I own a few pure silver companies, but they’re mostly not in very good shape. Gold Resource actually has a lot of silver, so that’s probably a better silver bet.

TGR: Pretium has a lot of silver as well.

CL: Yes, but only about 10% of Brucejack’s deposit. Gold Resource is almost 50% silver.

TGR: Tell me why you’re so keen on platinum group metals (PGMs).

CL: It’s a very interesting situation. There is very strong physical demand. China has a huge pollution problem. In China, only Beijing has strict car emission standards comparable with those of the U.S. and the European Union. The surrounding provinces don’t. So if China is really serious about reducing pollution, which I believe it is, all Chinese provinces will have to upgrade their emission standards. When and if that happens, I’m not sure we have enough PGMs to upgrade the cars.

TGR: You’re talking about catalytic converters here, right?

CL: Right. That’s where most of the palladium and much of the platinum goes. And the demand will come not just from China. According to the World Health Organization, the world’s most polluted city is in India. There is a supply/demand problem looming. Right now, both platinum and palladium are trading at a deficit. With the strike in South Africa, investment will go down. With the troubles in the Russian economy, investment will go down. Production will not keep up with demand for the foreseeable future.

Another source of PGMs is from recycling. Stillwater Mining Co.’s (SWC:NYSE) last conference call reported that recycling has been reduced significantly because of the PGM price decline. The current low prices do not warrant recycling from catalytic converters. Even with 100% recycling, PGM supply couldn’t keep up with demand.

PGM prices have been hit very hard, just like gold. But this is due mostly to fund or ETF selloffs. Some 50% of COMEX’s platinum position was sold in September. That tells you a lot of funds are really in trouble. Along with energy going down, I believe a lot of funds cannot survive 2014. Even those that do will see a lot of redemption. It won’t be a question of investors wanting to get out; they’ll be forced out. I see lots of opportunity ahead. Just as with gold, the end of 2014 and the beginning of 2015 could see a bottom in PGMs.

TGR: You recently got into Stillwater, correct?

CL: Yes. This is a very interesting company. It has a very strong balance sheet. It is generating strong cash flow quarterly, about $20–30M per quarter. So it’s a very strong company that I like in this market.

Another PGM junior I like is Wellgreen Platinum Ltd. (WG:TSX.V; WGPLF:OTCPK;). I’ve been there twice. Its Wellgreen property is in southwest Yukon, with good access to infrastructure and transportation. This is a monster project: 5.5 Moz PGM and gold M&I and 13.8 Moz Inferred, 1.9 billion pounds (1.9 Blb) nickel M&I and 4.4 Blb Inferred, and 1 Blb copper M&I and 2.6 Blb Inferred. Today, nobody cares, but if PGMs take off, everybody will care. This company is a sleeper. If the paper metals market breaks, PGMs will break it first because the physical demand is so strong.

TGR: The bear market in gold stocks started in April 2011, 31 months ago. Since then, we’ve heard many times that the bottom is in, but it never is. With the end of year upon us, could we see one last flurry of panic selling?

CL: I think there’s a possibility of final selloff to flush out all the weak hands and all the leveraged positions. But it’s hard to say. Sometimes bottoms form that way. Sometimes bottoms form without people paying notice. Sometimes we get round bottoms and sometimes V-shaped bottoms. One thing for certain, as I mentioned earlier, I’m spending a lot more time visiting mines and meeting with mining company executives to be ready when the bottom comes.

TGR: When that finally occurs, how much of a buying opportunity will it present?

CL: It will present a huge buying opportunity. In 2008 it was a V-shaped bottom. I remember I was buying NOVAGOLD (NG:TSX; NG:NYSE.MKT) in December 2008. It then tripled in three or four days. That was a pleasant experience.

TGR: Chen, thank you for your time and your insights.

Chen Lin writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling?, published and distributed by Taylor Hard Money Advisors Inc. While a doctoral candidate in aeronautical engineering at Princeton, Lin found his investment strategies were so profitable that he put his Ph.D. on the back burner. He employs a value-oriented approach and often demonstrates excellent market timing due to his exceptional technical analysis.

DISCLOSURE:
1) Kevin Michael Grace 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 independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
2) Chen Lin: I own, or my family owns, shares of the following companies mentioned in this interview: Alacer Gold Corp., Gold Resource Corp., OceanaGold Corp., Orvana Minerals Corp., Pretium Resources Inc., Stillwater Mining Co. and Wellgreen Platinum Ltd. 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. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. 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.
3) The following companies mentioned in the interview are sponsors of Streetwise Reports: Virginia Mines Inc., Pretium Resources Inc. and NOVAGOLD. Goldcorp Inc. is not associated with Streetwise Reports. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

Pages: 1 2 3

Leave a Reply

Your email address will not be published. Required fields are marked *