Gold Production Levels Should Provide Solid Price Support Ahead
January 31st, 2010 | Posted by goldWith the bullion price (temporarily?) under pressure – and it really is anybody’s guess how the short term will unfold – a long-term metric such as gold production provides an interesting perspective.
Research by Cormark Securities (via US Global Investors – Weekly Investor Alert), shows that global gold production peaked in 2001 at 2,600 metric tons. World output has been steadily declining from that point because of lower grades and higher capital costs that are making it uneconomic for producers to bring new gold onto the market.
I expect the production trend to keep heading south and thereby provide solid support to the yellow metal in the medium term.
Source: US Global Investors – Weekly Investor Alert, January 29, 2010.
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Wild Weekly Wrap Up: Gradually Getting Longer
January 31st, 2010 | Posted by gold // // // <![CDATA[
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// ]]>Another week another 100 points lower.
Yep, that’s all it was, we lost all of 100 points more than last week, when we fell from 10,725 to 10,172 (553 points) and this week we dropped from Friday’s Dow close of 10,172 all the way down to 10,067. Yet you would think the world had come to an end to hear the media and the traders freaking out. I’m not going to try to explain it, I can’t. Maybe it’s because going into last week we were very bearish but, starting on the 22nd, we let ourselves finally get a little more bullish AND THE MARKET BETRAYED US!
How could the market not zoom right back up? It always zooms right back up, doesn’t it? As I said a week ago Friday:
Boy, when sentiment shifts – it REALLY shifts!
My closing comment on Friday the 22nd was
Back to cash but leaving disaster hedges, which are looking great now as this is shaping up to be some disaster
And our weekend “Global Chart Review” showed us to be at some very key inflection points, letting us go well prepared into this week.
Manic Monday Market MovementMy Jets lost on Sunday so I was not in the best of moods on Monday. My outlook that morning was:
We still have our disaster hedges in case things get worse but, on the whole, we’re expecting a 1% bounce in the very least off our 5% lines (anything less will be a bad sign).
We were pretty much at the 5% rule on Friday’s close so we focused on the bounce we wanted to achieve in order to get more bullish.
I noted that the levels we were looking for were not exactly 1% retraces (see post for reasons) and our target retraces were: Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625. What were the highs for the week on those indexes? Dow 10,310 (+10), S&P 1,103 (-2), Nasdaq 2,227 (+2), NYSE 7,098 (-2) and Russell 621 (-4). So that’s a net of +4 points out of 21,355 points worth of predictions on the retrace, accuracy to within .019% – not a bad showing for our patented 5% rule.
Anyway, back to Monday. I warned that things could get ugly and we could see a correction all the way down to 10%, but we weren’t really expecting anything further than that (Dow 9,650 is our downside target). That meant it was a good time to consider some bottom fishing using our patented techniques described in “How to Buy Stocks for a 15-20% Discount.” My comment was:
The simple logic for our bargain hunting is this – if you regretted not buying stocks when the Dow was at 8,200 in July and we can scale into positions that break even on a 20% drop that protects us down to 8,200 – then why not take a chance on what may be the 2nd opportunity of a lifetime in 12 months? We also have over 300 earnings reports so non-stop fun but, for today, we will be seeing what happens and hoping we didn’t get too far ahead of ourselves in our early bottom fishing expedition last week.
I reminded Members that we expected an “amazing” GDP report on Friday and that led me to think we had a stick save coming by the week’s end in the very least. In fact, I actually said at the time that we had a ton of economic data
all leading up to a highly inflated Q4 GDP Report (at least 5% now expected) as bullish inventory builds and rising commodity prices gave our economy quite the apparent boost. If it comes in well and the market flies – we’ll probably sell into it and flip bearish but let’s not get ahead of ourselves.
Not a bad call 5 days in advance… Monday’s trade ideas went as follows (adjustments, if any, in brackets):
It is very important to note that we are entering initial positions here and PLANNING to buy a second round when they are down 20% or more. It’s very difficult to time the market perfectly so we scale into positions when we think we MIGHT be hitting a bottom. But we generally stick with stocks we REALLY like A LOT and don’t mind owning for YEARS in case we get a major downturn. As I said last week (and will keep saying) scaling into positions is ESSENTIAL in this kind of market (see “Stupid Option Tricks – The Salvage Play“). I set targets for Members on Monday evening, saying:
All I see here is a normal market correction (long overdue) as people finally catch up and realize the same stuff I’ve been talking about since November when we clearly moved into over-priced area (to the fundamentals). I’m not going to abandon them now and the fundies tell me that 9,650 is a fair bottom for the markets and we ran up from about 7,500 (I don’t count the spike down) to 10,700 (42%) and the 5% rule says a 10% correction or 12% since we overshot the top. 88% of 10,700 is 9,416 so that’s my bottom call even if we break down here and if we find any support higher than that, then I would consider it more bullish.
So we are buying here, using our classic “How to Buy Stocks for a 15-20% Discount Strategy” knowing full well they may fall another 10% or so. Why do we do this? Well, if we do recover quickly from here, we won’t be missing a good buying opportunity. If we do drop, then taking a 20% (read the articles!) position on AAPL at net $185 and doubling to 40% if they drop 20% further to $150 for an average of $168 and then doubling down again if they drop another 20% to $135 puts us in an 80% full position of AAPL at an average of $152. If you don’t REALLY want to own a full position of AAPL at $152 then DON’T buy it at $185. If you do REALLY want to own AAPL at $152 – the only way you’re going to get your price is if it goes down. The trick is learning to enjoy the ride…
Tightening Tuesday – Global EditionFinally China began taking some real steps to rein in the madness. As you can now see, it WAS fake Chinese demand driving commodities. Now look how fast that bubble has burst. (But don’t worry, I heard the speculators got right on the phone to Rent-A-Rebel and we can expect attacks in Nigeria this weekend to keep oil over $72.50.) Europe was looking to cut back and even Obama gave us a preview of his SOTU proposal saying:
“We are going to have to be serious about the deficit in ways that we haven’t been before,” Obama said yesterday in an interview with ABC News. “We need a smarter government, not a bigger government, not a smaller government, we need a smarter government. And we don’t have one right now.”
Not even my most Republican friends can disagree with that one. No sir, we do not have a smart government right now and the last thing we need is a bigger, dumber government! Speaking of dumb governments, the S&P threatened to cut Japan’s credit rating – and their population actually SAVES money! The Nikkei dropped 300 points from Tuesday’s open for the week. I think I gave a clear enough warning in Tuesday’s post when I said:
Fool me once, shame on you. Fool me twice and I’m a commodities speculator.
But I also backed it up with a boatload of statistics and got flamed all over the web by the usual oil apologists who make it their mission to immediately stomp out any unfriendly mention of the giant scam that is the oil trade. Commodities led the rally lower this week and THAT’s my favorite kind of market sell-off!
At 1:36 in Member Chat, I also made the very timely call to get out of AAPL positions, scaling out using trailing stops. Just because we love AAPL (or any stock), doesn’t mean we mindlessly ride out the moves down! Check out AAPL’s chart.
That was a busy day! We had been talking about how Keynesian stimulus policies had created false commodity bubbles that were driving an unhealthy misallocation of resources. While I had been channeling my inner Hayek in the morning post, I thought it appropriate to further the discussion that evening in “Hayek vs. Keynes – An Economic Smackdown.” The video is really good if you haven’t had a chance to view it yet (at least to an economics geek like me!). As the markets dragged us lower during the week, I was looking at it as a sensible rotational move out of bubble stocks as the Global governments eased off on the stimulus pedal. But be careful not to mention politics when discussing the markets, as it makes people upset – better to ignore it so we don’t ruffle and feathers, right?
See, there’s an odd sort of flow to these thoughts from one post to the next, isn’t there? As we expected to be testing the 5% line that day, we had to wonder what was next. But the nature of the sell-off, driven by the commodity sectors (and SMH was one of our big hedges, of course). It was just what we wanted to see in order to have a proper rally driven by companies that might actually HELP the economy instead of bleeding the consumers dry by overcharging them for gooey black liquids and shiny bits of metal. I made my case for loving a little consolidation for the week but the bulls were having none of it by Friday as they were getting very impatient for the rally that “always” comes. In fact I said at the open of Wednesday’s post:
People have gotten so used to immediate rescues off any drop that holding a floor for two days brings out the doomsayers.
I pointed out that very rapid rise in ETFs has contributed to the bubbles we’re seeing and that those same ETFs can easily be triggered into a frenzy of mindless, panic-selling. This is why I am thrilled with simply not going down as that, in itself, is a victory. Things could be much, much worse. You can read my diatribe on ETFs that morning, where I also warned about the uptick in CDS’s, which rose 14.2% on 54 governments since Ocober 9th. The 14.2% more wagers on government defaults in 3 months – that IS something to be concerned about! Adding fuel to the bearish fire was our pal Nouriel Roubini and, daring to mention politics, I said that I thought Obama’s spending freeze was a good sign, especially after looking at this (Click to enlarge):
But they couldn’t get the freeze past the Senate, nor could they get the 60 votes needed to empower a balanced budget commission because, as I said on Wednesday:
Like Lot in Sodom and Gomorrah, we can’t find 60 righteous senators who want to get an honest assessment of this situation – perhaps because we all know what the answer is (cut spending, raise taxes) and no one has the guts to actually say it out loud.
We were short from Tuesday’s close but expected a big move at 2:15 – kind of like the one pictured HERE.
The IPad came out at 1:30 and the Fed came out at 2:15 and for no particular good reason the markets flew up into the close. We had a nice, strong-volume day where we didn’t go down for a change and I liked that but, sadly, it didn’t last. Pharmboy posted a great write-up that evening called “Orphan Drugs Are Good! BioMarin & Illumina” highlighting those picks.
Our momentum off of Obama’s SOTU Address lasted all of 5 minutes into Thursday’s open before we went right off a cliff, quickly breaking our 5% levels. PIMCO was in charge of killing the market rally with Bill Gross releasing his very negative outlook that morning. Gross put the U.S., U.K., Japan, Italy, Greece, France, Spain and Ireland in a “Ring of Fire” where unsustainable debt to GDP ratios will spell DOOM as we attempt to unwind. As we recovered on Friday morning, Gross’ co-PIMP, Mohamed El-Erian said it might be a little soon to talk about “post-crisis” times, expecting instead a slow reset this year:
Too many markets, too many institutions have assumed this would happen quickly.
Financial firms need to realize public policy risks and stay ready for a shaky regulatory environment, El-Erian told an FDIC conference. See how brilliant they are – Gross sets it up on Thursday and El-Erian drives it home on Friday and PIMCO’s bonds gain Billions over the weekend – all in all, a good 2 day’s work by Da Boyz.
We had a nice chart outlining the effect that the removal of stimulus might have on the global economy. George Soros joined me in calling gold a bubble and we were getting all kinds of mixed signals from Davos. I warned that if gold and the GDP both fell below 1,088 that it was a bearish signal that should not be ignored along with copper $3.20. ALL of them failed on Thursday. By 9:38, I had already soured on the market, sending out an Alert to members saying:
Stopped out of DIA $103 calls already at $1.49 (10,200 was the stop line), maybe reload later but expect a sell-off from EU investors as well as quick bull profit taking (which we should be doing too!).
At 12:52 I went “VERY LONG,” killing the disaster hedges and other unhedged bearish positions. As I said at the time:
May be a mistake but you have to gamble once in a while.
As I said at 1:09 to Members:
Just the indexes QQQQs and DIA as directional bids (unhedged). I’m pretty determined to see it through to the GDP in the morning but if we don’t get a move up from Bernanke’s confirmation I’m going to probably give up as that would be one leg of my premise shot right there…
What a ride it has been since then already! As I warned at 2:59 into the close:
Yes, I like the Qs ($45s at .38 are good at the moment), this is the same “coiled spring” action we had last time they forced down the big Nas names and of course, Microsoft (MSFT) and AMZN earnings tonight. It is still very risky – I’m playing a scenario that has nothing to do with fundies and everything to do with manipulation and sentiment so there’s nothing to fall back on if it fails – keep that in mind!
The problem with Friday’s move up is the VIX dropped like a rock and we did not get good prices on our long index plays. With 3 weeks to go to expiration I elected to hang onto my longs and that still may be a mistake – we’ll find out next week! It would have been far less stressful to follow through with the plan we had all week, which I reiterated in my comment to Members into Thursday’s close at 3:53, saying:
Still a little bit bullish for some fun ahead of GDP (but probably selling into that excitement, if any).
Thank GDP it’s Friday!I definitely got too excited in the morning as things were going our way. Had I stuck to the original plan and gone short into the run-up on the over-hyped GDP numbers, we could have done much better. We had gained a nice 150 points from where we flipped bullish on Thursday and I was GREEDY for 10,300 which, of course, never came. I was expecting a much bigger move up than we got but there was a huge volume of selling that came in wave after wave all day. This was very disappointing as we were driven back to cash without really getting a benefit of that very nice run off the bottom.
As I had said in the morning post:
We’re not going to be too cynical but we will be getting back to cash (no unhedged positions) over the weekend because who knows what the pundit patrol will have to say over the weekend.
As a junior member of that pundit patrol – I still haven’t decided what I want to say and I’ll be reading everyone else and attempting to form an opinion in time for it to be useful on Monday. Sadly on Friday, by 11:15 I had to warn Members:
Things are not looking too strong. Time to get out of the short-term plays unless you are willing to ride them out (I’m going to). Certainly if S&P blows 1,088 we need to give up until they get back over.
Having stop levels set and taking them seriously does A LOT to keep you out of trouble.
I must have said “cash” about a dozen times during Friday’s Member Chat. To the point where it’s now the joke we used to use for gold where I just say
Have I mentioned I like cash lately?
We hate to be in cash, we LIKE to trade but if we don’t know what’s going to happen next (or at least think we know) then cash keeps us flexible until we gain some clarity.
Meanwhile, what are we doing? Take a look back over the week’s trading and you’ll see we’re selling puts at lower strikes into a higher VIX and hedging spreads that give us 10-20% downside cushions. Not on speculative stocks, but on top-shelf listings like XOM, AAPL, GOOG, T, BRK.B, GS, CME, INTC, ABX… When the market is throwing a sale we don’t go to the junk shelf, do we? If the market is crashing, then buy the stocks you expect to survive a nuclear war – that’s a simple trading premise.
Trading for the long haul doesn’t mean a month or even a year. When you can get in cheap on a stock like XOM, it doesn’t matter if it drops from $65 to $55. That’s because we will own it for many years and make about $1.50 a month selling premium for a 15% annual return on our $65 no matter what the face value of the stock is. While we go for much higher returns with our quick trades and spreads, where our long-term retirement portfolios are concerned – 15% a year is good money!
Also, when you are new to options trading it’s very difficult to get over the sticker shock you get selling short puts and calls as they move against you. As you can see we sold a lot of AAPL puts. That’s because we are THRILLED to own AAPL at $180 or less after seeing earnings and calculating what we feel the growth will be. We sold, for example, March $185 puts for $4.75 because we WANT to buy AAPL for a net price of $180.25. That was when AAPL was at $202 and AAPL is now at $192 and the March $185 puts are now $7.30 and those puts are down 54%. That sounds awful but the $7.30 is not only 100% premium but it’s still $7 out of the money so AAPL has to drop almost 10% more just to get the guy who we sold the puts to even.
Meanwhile, we have “sticker shock” in our portfolio with a 54% loss on that position but we didn’t sell the puts because we were sure AAPL was going up (we would have bought calls!). Selling the puts gave us a healthy buffer and an entry to AAPL that was 11% cheaper than $202. If we are buying a first round at $180.25 and then we plan to double down 20% lower at $145 (probably by selling June $150 puts for $5 or more as AAPL falls). Then we’d be scaled into round 2 of our AAPL purchases at an average of $162.50 with AAPL at $145 (down 10%) not really that bad considering we decided to buy AAPL at $202 is it?
Had we bought the stock at $202 we’d be down $10 while the short puts are only down $2.55 so we’re 75% better off already using the options for an entry. So don’t focus on the 54% paper loss on the puts – concentrate on the plan. Plan the trade, trade the plan and don’t let fear and greed drive your trading. It happens to the best of us from time to time and, hopefully, we learn from our mistakes and do a little bit better the next time.
Also, keep in mind that, for a balanced portfolio, we needed to pick up long positions as we cashed out our disaster hedges. We are now bullish without the downside protection, risking the wrath of the market over the weekend but there was plenty of cash to be put to work from our Disaster Plays, last updated with reiterated buys in the weekend post of Jan 10th. (See, these things can be worth reading!) and we’ll have a new batch ready for Members on Monday Morning, just in case. The old ones finished the week as follows (and we are out):
So this is the week we took off that round of disaster hedges on the possibility we find support and this is the week we take that money (over 20% cash to work with, if you hedged just 10% of the portfolio originally) and add some long positions. Since we cashed out at the top, they weren’t protecting much anyway and now we put that money back to work . We will certainly be adding bear plays next week if things head south. Hopefully though, we got some good entries into some market consolidation and the economy isn’t going to fall off a cliff. That would be nice – I’ll let you know if I still believe it after I get some reading done.
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Big number due out on Friday morning. The 4th Q GDP is coming and it most likely will move the markets. The consensus read is for a big up number. Last I heard the Street estimate was for up 4.7%, more than double the annual rate of growth for the 3rd Q.
My own read of the numbers is for a slightly smaller number. Something a tad over 4% is my guess. But this number is not so easy to get right. Even worse, it will be revised a few times before we really know what happened. I look at this number and try to anticipate how the market will react if we get a surprise versus the consensus.
This number has potential to cause a stir if it comes in south of 4% or north of 5%. The numbers in the middle are ‘baked in the cake’.
If the number comes in at 3.5% (or less) I would expect:
If the number comes in at 5% (or higher) I think the following happens:
I think a graph of the actual GDP numbers is helpful in trying to understand these big numbers. Note: The 4th Q number is a forecast based on the consensus estimate.
While I will be happy to see a big number later today, you have to look at where we have come and where we are. Looking at this, you see that the growth in the economy is about where we were two years ago. What did we pay to get back to 07? About $2 trillion in additional debt, the socialization of the financial system and the expectation for trillion dollar deficits as far as the eye can see.
A hypothetical question to ask might be, “What would we look like today if we had not had a train wreck in 08”. Another graph:
Of course we did have a wreck in 08, so it is sort of useless to play the game of “if coulda shoulda “. However there are hundreds of programs, retirement plans and dreams that are off track as a result. We will not catch up to where we might have been. We need to adjust to where we are, I can’t imagine how that can happen.
Some on the Street are putting 4Q GDP north of 5%. If we see a number with a five handle, take note of it. It will be the last time we see one that big for a long time.
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Inflation Scorecard: Fed Holds Course
January 29th, 2010 | Posted by goldReal-time Monetary Inflation (last 12 months): 2.2%
This week’s dip in commodity prices gave the Fed yet maneuvering room to keep interest rates unchanged.
Key inflation markers for the week ending Thursday:
Real Return On Three-Month T-Bill
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Why Soros Is Probably Buying Gold Now
January 29th, 2010 | Posted by goldGiven the moves by rival hedge fund managers like John Paulson into the yellow metal, it would be surprising if that living trading legend George Soros is not buying gold at the moment.
Indeed, you should always buy when this man hints he might be selling. His comments at the World Economic Forum in Davos this week seem classic trader double-speak. What does Soros mean when he says gold is the ‘ultimate bubble’ asset class?
False prophetsNewspapers like the normally sensible Daily Telegraph fell for his ruse, immediately jumping the gun to a prediction about a massive tumble for the yellow metal. Yet Soros said no such thing.
He merely pointed out what even the most ardent gold bug would concede, namely, that if you study the history of financial crises, then the credit-induced asset price inflation causes them moves from one asset class to another until it reaches gold as the ‘ultimate bubble’ or the last of the bubbles.
Soros did not say that we are nearing that position with gold around $1,080, having last month touched $1,226 an ounce. What he did create was a buying opportunity, presumably for funds controlled by himself.
For why should gold be running out of steam at this point? Even if credit growth slows, the gold market is still so small that only the tiniest fraction of this money is required to send the price much higher.
Trader talkSoros knows that. He also knows that gold prices show no sign of the parabolic spike that we saw in oil prices in July 2008. Surely the next most obvious spike will be in bond prices – when the current stock market sell-off really gets moving.
Only after the bond bubble has blown up will gold become a candidate for the next bubble, and given the relative sizes of the bond market and the gold market that could be one humdinger of an ‘ultimate bubble’.
Soros is playing his own book in Davos. Gold investors should not be alarmed but take some delight in what he is saying.
Disclosure: long gold and silver
//
Analysts Bullish on Precious Metals; Asia Favors Gold as Inflation Hedge
January 28th, 2010 | Posted by goldGold: Gold slipped some 1% to $1,085.40/oz in US trading but then recovered to range trade from $1,085/oz to $1,091/oz in Asian trading. Gold is currently trading at $1,089.00/oz and in euro and GBP terms, gold is trading at €779/oz and £672/oz respectively.
Obama’s Populist Rhetoric Soothes Markets but Uncertainty Growing: Risk appetite has returned after Obama’s populist State of the Union address which has seen equity markets and gold rise tentatively in unison. Gold is up some 1% since Obama’s speech but this may be due to gold bouncing from a somewhat oversold position rather than Obama’s soothing words about the economy. The dollar also strengthened on Obama’s speech and these gains have been maintained and appear to be capping gold below the $1,100/oz level.
The FOMC left rates unchanged but their statement was interpreted as being slightly more upbeat than before, despite the emergence of Kansas City Fed President Thomas Hoenig as a dissenting voice, concerned about developing inflation. Another note of caution ignored by many was that a housing improvement was no longer seen by the FOMC. Concerns about further declines in property markets, particularly the vulnerable commercial property market, should see continuing safe haven demand for gold.
Record low interest rates set to remain near 0% for the foreseeable future remain bullish for gold. There is still no opportunity cost in owning the non yielding yellow metal versus the dollar and other currencies that have interest rates remaining near 0%.
A risk that may not have been fully factored into markets is growing uncertainty regarding the position of Treasury Secretary Geithner who yesterday was subject to a bipartisan attack over the secretive AIG deal. The populist mood sweeping America clearly affecting politicians (Geithner was accused of incompetence and negligence) is leading to increasing uncertainty – regulatory, political, economic and monetary: gold benefits from such uncertainty.
Silver: Silver dipped as low as $16.47/oz overnight but we have seen support and recovery this morning. Silver is currently trading at $16.69/oz, €11.88/oz and £10.26/oz.
Platinum Group Metals: Platinum is trading at $1,520/oz and palladium is currently trading at $419/oz. Rhodium is at $2,450/oz.
News:
Disclosure: No disclosure
//
What’s Gold’s True Correlation to the Equity Markets?
January 28th, 2010 | Posted by goldWith the increasing investment demand for gold ETFs such as SPDR Gold Trust ETF (GLD), one of the most frequently cited reasons for investing in gold besides as an inflation hedge, or as a hedge against a depreciating US dollar, is that gold has a low (or negative) correlation with the stock market.
But is this always true? A closer analysis shows that this common view may not be true at all times. In fact, at times, this may be patently incorrect.
The simple answer is, it depends on one critical factor: time. Said another way, it depends on one’s investment time horizon.
First, it is useful to look at the historical performance of gold.
The following chart, which is based on Bloomberg data and is extracted from the Amended & Restated Preliminary Prospectus for the Sprott Physical Gold Trust dated January 25, 2010 and filed with the US Securities and Exchange Commission (SEC), shows the historical return of gold since August 1971, when the U.S. abandoned the gold standard.
What is evident from the chart is that over the past decade, and particularly since March 2001, gold has been an excellent investment rising from a low of approximately US$ 250 per ounce to US$ 1,128 on January 15, 2010.
What is more interesting is gold’s total return performance relative to other asset classes, namely the S&P 500 and the MSCI EAFE Index, which is a proxy for international equities.
As is shown in the following table, over the past 3, 5 and 10-year periods, gold has significantly outperformed both the S&P 500 and the MSCI EAFE Index.
As can be seen from the table above, over the past 10 years, gold has returned 14.8% annually, while the return on the S&P is negative at (0.7%), and the return on the MSCI EAFE is a paltry 2.1% per annum.
When evaluating gold’s correlation to the equity markets, one must consider the critical factor of time. In other words, depending on one’s investment time horizon, gold may have a differing correlation with equity markets, as is shown in the following table.
To summarize gold’s correlation with other asset classes, as shown in the table above:
What does this analysis tell investors about the correlation of gold to equity markets?
Simply, time is a critical element when evaluating gold’s correlation to equity markets. Over any short period of time, gold can be either positively correlated or negatively correlated with the equity markets.
However, over longer periods of time, gold tends to be less correlated with equity markets.
Disclosure: Author holds a position in GLD.
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Forget Gold, It’s Time to Think Platinum
January 28th, 2010 | Posted by goldWhen it comes to investing in precious metals, most investors tend to focus on gold and silver. With gold in the midst of a multi-year bull market, the yellow metal gets most of the media attention. Headlines like ‘Gold to Hit $2000 an Ounce’ and ‘Invest in Gold to Cash in on US Dollar Demise’ have appeared almost relentlessly over the past couple of years.
While gold has been the media darling, it’s actually one of the worst performing metals over the last year. Rising gold prices have been less about economic fundamentals, such as rising demand, and more about speculation. For most non-day trading investors, the last thing that you want to do is invest in a market driven by speculators. Before you know it, the speculators have moved on to some other asset, sending the value of your investment plunging, all while you are left holding the proverbial bag, without even knowing what happened.
There is no question that for investors looking for a hedge for inflation or US dollar exposure, gold is a reasonable investment. But is there a better alternative?
Best of Both Worlds
Wouldn’t it be great if you could invest in a metal that provides the same benefits of gold, like hedging inflation and currency exposure, but has an increasing industrial demand as well?
There may be an effective solution for investors looking to get the best of both worlds. Platinum is considered a ‘precious metal’ and also has recently seen surging industrial demand. “Both platinum and palladium offer investors a unique combination of leverage to the global economic recovery through the rebound in global auto output, as well as the supportive attributes of a precious metal,” analysts at Deutsche Bank wrote in a 2010 commodities outlook report.
With a struggling global economy the logical question is where this increased demand for platinum is coming from? The answer: the auto industry. While platinum has a number of industrial uses- it’s found in everything from jewelry to lab equipment to thermometers to electrodes – its primary use is in catalytic converters for the automotive industry. Catalytic converters allow complete combustion of unburned hydrocarbons from exhaust into carbon dioxide and water vapor, making it a critical component of any automobile. While it may seem foolish to base an investment decision on an industry where the well-known players appear to be on life support, one look at the numbers will make you rethink your apprehension. Regarding an uptick in the auto industry, the Deutsche Bank report said, “The outlook for the supply-and-demand equation over the next two years looks “increasingly favorable, with a sharp rebound in global vehicle production, auto-maker restocking and continued investment demand driving demand” for the two metals.
In fact, Chinese vehicle sales were up a staggering 49% in 2009. Even if that number were to drop in 2010, the increase in sales will still be a healthy jump from ’09 levels. It’s also important to note that just because some well-known auto manufacturers are in serious trouble doesn’t mean that the whole industry is going bankrupt. There are plenty of well-run automakers, and there is evidence that after 4 years of decline, new auto sales in the US have not only started to stabilize, but to slowly increase.
Michael Johnson of the ETF Database says: “Platinum is one of the world’s rarest metals, with annual global supplies totaling only about 6 million ounces, meaning that prices can be very volatile at times. Nearly half of the global platinum supply is used by auto manufacturers each year, establishing a strong relationship between metal prices and the health of the auto industry.” It is a basic question of supply and demand. With a limited global platinum supply and an apparent increase in demand, the potential exists for platinum to continue to surge.
Precious metal investing is not for everyone and can be very volatile. Speak with your financial professional to see whether an investment in platinum would be appropriate for your portfolio.
Disclosure: none
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Investing: Finding the Next iPod
January 28th, 2010 | Posted by stock1-28-2010 The new iPad tablet device from Apple Inc. (AAPL), introduced by the company’s CEO Steve Jobs on Jan. 27, has Wall Street speculating what the new offering means for the company’s bottom line and how competitors will respond.
Investors are right to pay attention: Nothing moves a stock like the excitement surrounding a new product. (Apple’s shares, which advanced 134% since Mar. 9, 2009, closed 1.4% higher on Jan. 27—the day the iPad was unveiled—but fell 4.1% on Jan. 28.)
But this can be a dangerous game for investors. The stock market’s enthusiasm rarely lasts long. Stocks fueled by wildly popular products can rocket higher, then collapse suddenly when anything goes wrong.
Apple has held on to stock gains since its iPod was first introduced in 2001, but other companies haven’t sustained Wall Street’s enthusiasm. Popular products like Motorola’s (MOT) RAZR phone and Nintendo’s (7974:JP) Wii video game console pushed stocks higher initially, but both companies now trade below their prices when the products were unveiled.
Sometimes the market moves are especially wild. Crocs (CROX) saw its stock rise 423% in the 20 months after its 2006 initial public offering, but then the footwear company lost 90% of its value in the next nine months as the popularity of its Crocs shoes waned.
Investors have to ask: Will a new product be a Cabbage Patch Kid—the must-have doll that briefly made Coleco a Wall Street darling back in the 1980s, before a foray into computers helped send the stock into oblivion—or a long-term franchise like 3M Corp.’s (MMM) Post-it Notes?
The first task, investing experts say, is predicting which new products will be successful.
“Get out and talk to people who are using the product and see what they like about it,” advises Richard Parower, manager of Seligman Investments’ Global Technology Fund (SHGTX). For products aimed at businesses, you’ll need more technical expertise, he says: The opinion of the man on the street won’t matter for enterprise software, for example.
Wall Street has a long history of regrets about companies and products that looked promising but flopped, warns Brett D’Arcy, chief investment officer at CBIZ Wealth Management (CBZ). In advance, “it’s very difficult to tell,” he says.
Investors need to put themselves in the shoes of the customers of the future. If everyone already agrees a product is groundbreaking and innovative, it’s too late for investors, says Paul Sutherland, president and chief investment officer of Financial & Investment Management Group. “You don’t want to own what looks good now,” he says. You want to own what will be hot “five years from now.”
Even the most innovative product doesn’t guarantee profits for investors, especially because creative, visionary executives are rarely equipped to handle the problems that rapid growth can cause. Coming up with a hit product is one thing. Profitably manufacturing, marketing, and distributing it is another.
“Young and inexperienced management teams might not see the brick wall coming toward them,” Parower says.
One obstacle companies must maneuver around is the competition. And, if your product is catching on, it will almost certainly attract rivals. “Competition goes where there is profit to be made,” Sutherland says.
Netscape’s Navigator browser reigned supreme for the early years of the World Wide Web, but later lost ground to Microsoft’s (MSFT) Internet Explorer and other browsers. Research In Motion (RIMM) must continually introduce new versions of its BlackBerry to fight off rival smartphones.
Some companies, like pharmaceutical manufacturers, can rely on patents to protect profits. But, in the fast-moving world of product innovation, such examples are rare. “It’s very difficult to have a moat in place to keep that innovation only to yourself,” says Michael Yoshikami, president and chief investment strategist at YCMNET Advisors.
Pfizer (PFE) shares rose 38% in the year after Viagra, its erectile dysfunction drug, won approval in 1998. But those gains fizzled by 2004, as competing drugs were developed for the same condition and Pfizer failed to come up with other blockbuster compounds to replace those facing the loss of patent protection.
The only option for most companies is to keep innovating, trying to stay one step ahead of competitors. Companies that can achieve that goal, like Apple, are rare, analysts note.
“It’s very difficult to sustain innovation,” says Wyatt Crumpler, who oversees portfolio managers at American Beacon Advisors. “Most companies will flame out over time.”
Yoshikami advises investors to look for innovative companies with strong finances—or that are backed by investors with deep pockets. “That gives you the staying power and helps you continue to innovate,” he says. One example, he says, is BYD Co., a Chinese battery maker partly owned by Berkshire Hathaway (BRK/A), which is led by billionaire investor Warren Buffett.
Big companies are often much better at making many small improvements than coming up with one big blockbuster innovation, Crumpler notes, citing the philosophy of kaizen, or “continuous improvement,” pioneered by many Japanese companies.
In theory, stock prices reflect a company’s long-term prospects. And when innovation is happening rapidly, the future is often very difficult to predict.
It’s important to keep a close eye on a company’s product pipeline, Crumpler says. If a company shows any signs of slowing down its pace of innovation, it’s a good idea to sell. “You really need to stay on top of it [and] get out before it’s too late,” he says.
Many find new products far too risky and uncertain to justify betting on specific companies. One alternate strategy pursued by CBIZ’s D’Arcy is to invest in a broad array of stocks that are benefiting from innovation. Though it’s hard to predict which tech company will win or lose out in the end, he says, “I don’t think the technology revolution is over.” So, he invests in the iShares S&P North American Technology Sector Index Fund (IGM).
Still, it’s hard for investors to ignore innovation when picking stocks. Every company—even in relatively stable, boring industries—won’t survive without coming up with new products and services. “Or they’re going to lose market share,” Sutherland says. “Nobody in business can relax.”
Steverman is a reporter for Bloomberg BusinessWeek’s Finance channel.
Saskatchewan’s Resources Will Enrich the World – Tom MacNeill
January 27th, 2010 | Posted by gold
As if the fairy godmother flicked her magic wand, once drab and droopy Saskatchewan has blossomed into the belle of the ball—and the healthiest economy in Canada. According to Tom MacNeill, undeniably one of the province’s most ardent fans, the transformed province will keep heads turning for the next century. Chairman and CEO of 49 North Resources Inc. [TSX-V:FNR], Tom is reaching out to line up suitors and fill out dance cards to finance a lot of early-stage opportunities in the now-flourishing resources sector that’s leading the economic revolution. It wasn’t magic, though, that sparked the revolution and morphed Saskatchewan from laggard to leader. In this exclusive Gold Report interview, Tom tells us how what once proved Saskatchewan’s economic undoing is now ironically proving a boon. There’s one reason. The socialist sentiment that reigned for generations kept capital out and kept Saskatchewan’s rich resources pretty much buried in the ground. Previous regimes discouraged development to the point of expropriating businesses and driving prospective producers away. They’ve changed their tune, and Tom couldn’t be more gung-ho about it. He’s thrilled to be facilitating the inflow of investment capital to further dynamic junior resource projects in everything from base metals to gold.
The Gold Report: Your website’s homepage points out that Saskatchewan has everything the developing world needs except for the capital markets to support projects. You created 49 North specifically to fill that gap. Can you update us on 49 North, progress you’ve made in the last three years and challenges you’re facing over the next couple of years?
Tom MacNeill: Actually I think the greatest challenge is behind us—the state of world capital markets. They are now less volatile. It’s true that Saskatchewan has everything the developing world needs. We’re geologically blessed with the best of both worlds. Half of Saskatchewan lies in the Western Canadian Sedimentary Basin, with all the hydrocarbons and sedimentary resources you could imagine. The northern half of the province is underlain by the Precambrian Shield, so we also have just about every hard rock mineral asset known to man that can be exploited economically.
The only downside is that we never had a capital market that caused a great deal of development in those resources. As some people know, we are the birthplace of socialism in North America. In the 1940s we elected the first socialist government ever in any North American jurisdiction. We made some extraordinary choices—to some degree along the path that Barack Obama is taking the U.S. these days—in that we had tremendous government oversight of all facets of life, including resource exploration and development.
Government hooks in business spook away a regular capital market. Much like Hugo Chavez expropriating assets in Venezuela today, it tells the rest of the world “stay out” because there’s too much sovereign risk. We did that to ourselves. We went through a whole period where we ruined our economic activity because we thought socialism was the neat thing. We came out of it, but we’re still living the hangover.
That means that we have an opportunity suite unparalleled in the world because we simply didn’t develop it even though we knew it was there. The inroads that 49 North has been making are to develop a capital market. Several hundred companies are exploring for various resources in Saskatchewan now, and while I’m developing local interest and awareness, there’s a tremendous investment opportunity for people external to the province.
TGR: Do you see the direction in which Obama is taking the U.S. as additional opportunity for capital markets in Saskatchewan? Or might Saskatchewan catch socialist fever again from south of the border?
TM: No, we won’t. Been there, done that. We know what happens when you have government oversight in resource development. With resources the backbone of our economy; we’re not going to screw up a second time. We watched Alberta develop from a base of 800,000 people to a population of 3 million people while we stayed stagnant at one million people over the last 50 years. It’s not going to happen again. Saskatchewan is immune now because of our previous experience, so to some degree that will make us very attractive to capital worldwide.
Canada has always been mining- and resource-friendly. The U.S. is becoming more and more restrictive. Put a green stamp on something and everybody loves it; put a mining stamp on it and everybody hates it. That’s becoming a very challenging environment, so we see a tidal wave of money flowing into Saskatchewan to take advantage of opportunities we have kept in the ground.
TGR: You’re in the catbird seat of having all these untapped resources.
TM: And we couldn’t be happier about that. I’m a second-generation resource developer. I watched the struggles my father had in this province from the 1950s onward, and I watched the transition. We are in the best place of any jurisdiction in the world. We have virtually zero sovereign risk because of our previous experience, tremendous undeveloped resources, more roads per capita than any jurisdiction in the world because we have all the infrastructure that socialists like to build. Power lines and gas lines run everywhere. Even our left-wing friends in previous administrations started developing good policy and resource royalties. We’ve set the playing field such that we’ll be the belle of the ball for the next 100 years.
We’ve got it all and we’re happy to be a part of early-stage development. That’s what 49 North is about, pointing fingers at good projects. We invest in third-party projects through equities or other instruments, but we also develop our own. We’re absolutely tickled about the opportunities ahead.
TGR: You develop your own projects?
TM: Yes. Because we have a corporate structure, we can actually develop our own projects, which we do. We don’t just develop things in Saskatchewan, either. We have a strong focus on Saskatchewan, but we look anywhere in the world.
TGR: Given such abundant natural resources, how does 49 North prioritize which resources?
TM: Everything tends to move in tandem. But we do get specific. A couple of years back we kicked out most of the uranium exposure in our portfolio and haven’t really gone back into it heavily because I don’t think it’s quite time. Probably late 2010 or early 2011 will be time to do that. I guess what I’m saying is that we look at the commodity, where it is in the cycle, the macroeconomics around it and what the projects are.
We use a lot of macroeconomic factors to figure out what we want to do. After that we answer other important questions. What do we think about the short term and short-term pricing? What’s the capital market going to say about this? Can we finance the project moving forward? Is it the right time in the cycle? It’s usually not the right time to bring a copper project on stream if copper is at $8 because you’re near the end of that cycle. Just about everything I can imagine has seen what I’d consider the short-term bottom in its commodity price, so now is a good time to be putting things back on the books. Right now we’re focusing on light oil in Saskatchewan—we’ve been doing that for the last six months—and base metals projects. It’s time for that.
TGR: We’re at the bottom of their cycles so you’re starting to invest in them?
TM: I think we’re near the bottom. But having said that, I don’t try to pick a perfect bottom. Any time from a year ago to two years from now is a good time to put together a project for most commodities. I’m usually spending money when everybody else is shunning a particular commodity or project or area. In some ways what we do at 49 North is either countercyclical or ahead of the cycle. As an early-stage junior resource guy, the place I live in is the 10-cent equity that we take to $3 to $5; not the $15 stock that goes to $50 because all of a sudden there are 100 years of production ahead.
TGR: In terms of being countercyclical and focused on junior resources, what are some interesting junior resources plays that investors should look at?
TM: Definitely pay attention to potash. It’s absolutely a necessary nutrient for growing crops. You can’t do without it. There’s no way to artificially manufacture it. Saskatchewan’s salt beds contain 50% of the world’s mineable supply, so Canpotex (Canadian Potash Exporters) has become the largest supplier in the world. Pay attention to excellent local developers like Athabasca Potash (ABHPF.PK) and Potash One Inc. (KCLOF.PK).
TGR: Is Saskatchewan’s dominance threatened by Amazon Mining Holding Plc (AMHPF.PK), which is drilling on a big potash play at their Cerrado Verde project in Brazil?
TM: Not at all. More power to them. Demand growth will continue. We’re just realizing shortages in potash in the market now, so we’ll see supplies tighten up even further. In my lifetime the population of this planet has doubled, growing from 3 billion to more than 6 billion. A lot of these people are moving up the economic ladder, which means more protein in their diets, which is creating an exponential increase in potash demand. So more potash production is a good thing. You get much better crop yields if you apply the recommended amount of potash to the soil. The more that is mined, the more that is put on fields, the better the harvests are, and the better we can feed the growing population.
TGR: What other opportunities do you see for investors in those masses moving into the middle class?
TM: Any advancement in civilization is great for commodities. China overtook the U.S. as the world’s largest consumer of automobiles in 2009. They are building more cars for all these people. To build cars, you need everything from rubber, lead, zinc and tin to hydrocarbons for the plastics. You need base metals. Hybrids or electric cars need rare earth elements. They need roads, so they need asphalt. Roads need bridges when they come to a river, so they need concrete. That means limestone and kaolin and iron and thermal coal. And coking coal to make the steel to build the bridge.
So infrastructure development in Asia and elsewhere, in the BRIC countries—Brazil, Russia, India and China—will drive the commodity cycle going forward. That’s an unstoppable force. That is tremendous for virtually all commodities. It’s even better for Canada because we’re a commodities country and it’s the best for Saskatchewan because we’ve got just about everything. We’re ready to supply it to the world.
TGR: Earlier you said you’re focusing on base metals. Could you talk a bit about opportunities you’re seeing for companies in base metals in Saskatchewan?
TM: We really have had hardly any base metals production in Saskatchewan ever. In eastern Saskatchewan, most of the mining’s been at the border or on the Manitoba side and policy never promoted Saskatchewan base metals. 49 North’s focus on base metals is due to the fact that we have such extraordinary resources here that have never been developed. We’re looking no further than our backyard to find some of the best copper showings in the world.
We have incredible projects that are 43-101 quality that have never moved forward. We’re doing it simply because nobody else is. There’s another old adage that if you can’t make money at $2 copper, you shouldn’t be in the copper business. Well, we have nearly $4 copper right now, right? So there’s a lot of demand for base metal resources and we’ve never exploited any properly in Saskatchewan. It’s about time we did. We have a wide open field here. It’s like going to a contest and finding out you’re the only entrant. Might as well do it; you’re going to win.
TGR: Can you share with us some of the interesting base metal plays that you’re involved in?
TM: We’re talking about such absolute early-stage projects that we don’t even have a name for the various property packages. They’re not in a corporate structure yet.
TGR: Is gold also prominent among Saskatchewan’s resources?
TM: Absolutely. Saskatchewan has one producing gold mine. In fact, it was founded by my father. It’s the longest-running gold mine in Saskatchewan history. I think they’ve poured about 800,000 ounces. It’ll likely go for the next 25 years, if not longer, because they have two other deposits they’re bringing on stream. There’s an entire gold belt in Saskatchewan that, again, has never been seriously developed because of the lack of a capital market.
TGR: What mine did your father found?
TM: It’s Seabee Gold Mine, under the Claude Resources Inc. (CGR) banner, and Claude has two other deposits within trucking distance that they’re bringing on stream. Claude also has the Madsen deposit in Red Lake, Ontario, which by my estimation is an analog to the Goldcorp (GG) mine there. The deeper they go, the richer it gets. Some deep drilling suggests that’s the case at Madsen as well.
To put a positive spin on going without a local capital market, one of the neat things is that resources stayed in the ground so opportunities are not hard to find. They say that the best place to find a gold mine is to look from the head frame of an existing mine, and that’s true. If you look at Goldcorp’s Red Lake gold camp in Ontario or any significant gold camp in the world, there’s always multiple mines around an initial one.
As I said, Saskatchewan has one long-running gold mine, and I believe seven other producers over the history of the province. Two are coming on stream. Golden Band Resources Inc. is bringing a series of deposits into production shortly and Linear Gold Corp.) (LGCFF.PK) has the Box deposit in northern Saskatchewan that will be coming on stream.
So it’s like base metals. It’s all there. We’ve always had the potential in Saskatchewan; we’ve just never had enough money spent on it to properly develop the gold industry. The more holes you poke in the ground, the more you find, the more capital it attracts, and the more likely you’re going to have another mine and another and another.
TGR: Any others that you have your eye on?
TM: Otis Gold Corp. in Idaho. Otis has several very interesting projects, but the current one—where historical drilling shows 11 grams over 9.5 meters—really gets me interested. That’s why we’ve been putting Otis in our portfolio and will continue to do so. I want to see how they do with their Kilgore Gold Project because the market’s ready for resources with big tonnage that also come with zones of pretty hot running ore. That means you can define a high-grade resource and treat it almost like an independent underground mine, but also block out a bunch of stuff in the 1- to 5-gram range that really makes it a big tonnage operation. We’re excited about that one and curious to see how they do over the next year in the drill program they have underway.
TGR: One of your top 10 holdings, Pinetree Capital Ltd. (PNPFF.PK), is interesting in that it’s almost like 49 North.
TM: The work that Sheldon Inwentash (Chairman and CEO) and his crew do is similar in a lot of ways. We did a stock swap with Pinetree, so they hold 49 North paper as well. That promotes deal flow through the two enterprises. We offer early-stage opportunities for Pinetree in western Canada and especially Saskatchewan, and part of what we gain from holding Pinetree is tremendous exposure to a bunch of junior and intermediate uranium explorers, as well as a great portfolio of other opportunities.
TGR: But you also have uranium in Saskatchewan.
TM: A lot of Pinetree’s holdings are companies exploring for uranium in Saskatchewan, which holds the largest uranium resource in the world. In fact, we supply 20% of the world’s reactor-grade uranium. The Athabasca sandstone basin is one of our blessings. It has the highest-grade uranium in the world. A couple of the mines regularly bring out ore that is 25% uranium. Hathor Exploration Limited (HTHXF.PK) —which in my estimation has one of the best near-term potential productive resources in the world—has had intersections as high as 80% uranium over multiple feet.
TGR: So you have gold, base metals, oil, uranium, potash. What have we missed?
TM: We haven’t talked much about infrastructure materials. Saskatchewan has a host of those, too. A world that demands commodities, which I see going forward extraordinarily over the next 25 years, needs limestone and kaolin for cement. We have limestone. Whitemud Resources Inc. has a tremendous kaolin resource and is at very early days of developing it. Saskatchewan has probably the largest contained helium resource in the world. Up in the Precambrian, we’ve got just about everything you can imagine. Great Western Minerals Group has one of the world’s largest rare earth deposits. That’s what’s so beautiful about Saskatchewan. We’re incredibly underdeveloped. We have only a million people in a geographical area larger than the U.K. So we’re frontier country. You name it, we have it. We’ve just never had a capital market to take advantage of it.
TGR: And you have the enthusiasm.
TM: Hey, I’ve been in this business my entire life and I’ve stuck to the junior resource end. It’s fun. It’s populated with very interesting characters. It’s also very lucrative. I like riding a story from initiation, whether from a nickel or dime to a few dollars or even $10. Occasionally you’ll catch a ride that takes 10 cents to $20. That’s a thrilling world to be in, but you have to be a lifer. You have to know what you’re doing. That’s usually management first, resource second. Unfortunately, people usually bet on the commodity without realizing that management may not know anything about it.
TGR: Because socialist leanings kept Saskatchewan resources tremendously underdeveloped, where is good management coming from?
TM: Most of the exploration actually is done by companies headquartered elsewhere—typically Vancouver or maybe Toronto. Suppose one of them drills a hole in the ground, hits a few meters of something and needs $10 million to develop the resource. If they can’t raise the money around here, they raise it elsewhere, drill the holes, and take their 10-cent stock to $1. They thus create $90 million worth of wealth, but that wealth doesn’t reside in Saskatchewan. It goes back to Vancouver or Toronto or wherever the money was raised and stays there.
So one of the reasons 49 North was created was to get locals involved and say, “Let’s raise the money here. Then we will have that $90 million for the next project that needs it, and then the next and the next.” That’s been the missing ingredient in the cake that is Saskatchewan—the local capital market. So my agenda in creating that here, by definition, creates a tremendous opportunity for external investors outside the province to piggyback on what we’re doing inside. Almost all of the capital in the hard equity raise we did in June came from outside of the province.
TGR: When we started, you said your greatest challenge was behind you. Is your next challenge just finding the time and the people to get all these projects done?
TM: It’s the people. Here’s an example to help me illustrate that point. Rallyemont Energy, a private company sponsored by 49 North, formed last year, will likely go public very soon. They’ve garnered a tremendous heavy oil land position in Saskatchewan. From historical drilling, they know they have oil. The project probably needs about $20 million. Then they’ll need $200 million to develop it. We can’t raise that kind of capital locally, but we have the institutional connections to get the job done.
In Rallyemont’s case, they have a tremendous management team, so we can do that, but with other companies, this is where we run into problems. The local company needs local expertise. We’ve been shipping people out of Saskatchewan. We educate them here and they move away, so it’s hard to find good management. We need to bring some people back to Saskatchewan and that’s beginning to happen already.
Even so, finding five more Rallyemont-caliber management teams here would be a stretch, so one of the biggest challenges is populating the companies to develop these resources with capable people. With 49 North acting as a sponsor, we have the capital market and there’s no shortage of good projects. Now we need the people to go with them.
TGR: Before 49 North came along, a local capital market was the missing ingredient in your “cake that is Saskatchewan.” Now, the missing ingredient is abundant management talent.
TM: Absolutely. We have no problem finding world-class resources.
TGR: Any last words for our readers today?
TM: A high-level advisor to the Chinese Sovereign Wealth Fund and I had a discussion not long ago, and my observation to her was that we have incredible projects, but they need billions of dollars worth of financing to move forward and we don’t have that kind of money. Her response was that China’s problem is the exact opposite—trillions of dollars and not enough projects to supply the country’s demand for resources.
To make a long story short, the developing world, especially China, knows what Saskatchewan has to offer. Over the next 25 years—or any other time period going forward—we’re going to see our resources developed. One of the reasons I’m so excited about the opportunities here is that we have first-mover status. 49 North gets to be in the very early-stage seed capital that can be so lucrative. We have driven our net asset value from $1.25 to approximately $4.50 over the past year and the market has not yet caught on. At the current level of discount our shares trade at, we view our own stock as one of the best value plays around.
TGR: You have a wonderful story and we appreciate you taking the time to share it with us.
Like many others in commodity country, Tom MacNeill of Saskatoon is a resources guy. Four years ago, based on a sentiment shift suggesting that Saskatchewan was open for business, he established 49 North Resources Inc. basically an incubator fund to raise capital for early-stage projects to develop resources throughout the province. Officially, he serves as President, CEO and Director of 49 North; unofficially he also can arguably lay claim to the Saskatchewan Head Cheerleader title too. A graduate of the University of Saskatchewan (economics with a geology minor) and a Certified General Accountant (CGA), Tom also completed the Canadian Securities Course (with honors) in 1987 and is a Chartered Financial Analyst (CFA). With 25-plus years of experience in resource investment and corporate finance, his work history includes positions as an investment advisor with a major Canadian brokerage firm, management accountant within the mining industry, Chief Financial Officer of a Canadian trust corporation, and extensive resource portfolio management. Since the early 1990s, his focus has been exclusively toward Canadian junior exploration, development and mining opportunities with particular emphasis on Saskatchewan’s increasingly important resource sector.
DISCLOSURE:
1) Karen Roche of The Gold Report conducted this interview. She personally and/or her family own none of the companies mentioned in this interview.
2) The following companies mentioned in the interview are sponsors of The Gold Report or The Energy Report: Goldcorp, Otis Gold Corp., Amazon Mining
3) Tom MacNeill—I personally and/or my family own shares of the following companies mentioned in this interview: Athabasca, Claude Resources, Hathor, Great Western Minerals, 49 North. I personally and/or my family am paid by the following companies mentioned in this interview: None
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