Stocks & Equities

Junior Miners That Are Set To Soar

Posted by Jeff Desjardins & James Fraser via The Mining Report

on Wednesday, 17 September 2014 13:49

moneyfrommine580A Look at Junior Miners in a Way that May Surprise You

It’s never too late to find a new way to evaluate mining companies, and Jeff Desjardins and James Fraser of Tickerscores.com have developed one based on over 20 different criteria. Add in some near-term catalysts and the wheat separates from the chaff. In this interview with The Mining Report,Desjardins and Fraser share the names of companies with some ofTickerscores.com’s highest junior mining scores.

The Mining Report: A recent article on Tickerscores.com, “The Great Divide: Inequality in Gold Juniors Means Opportunity,” said: “It’s clear we’ve reached a new level of separation between the wheat and the chaff.” What does that mean for investors?

Jeff Desjardins: As the bear market has progressed, many companies have struggled to raise the necessary funds to advance their projects. Even for those that have been more fortunate, it has often come in the form of dilutive financings.

“Cayden Resources Inc. was just taken out by Agnico Eagle Mines for $205M at a premium of 42.5%.“

On the other hand, quality management teams have found ways to continue to move projects forward. We’re starting to see a big separation in metrics such as cash, general and administrative expenses (G&A), news flow and, ultimately, the creation of shareholder value. For example, we cover 22 exploration companies working in Ontario and 82% of those had less than $400,000 in cash in Q1/14, up from 65% in Q3/13. Our top three exploration companies in Ontario hold an average cash position of $2.2 million ($2.2M) each. The other 19 average only a mere $150,000 per company. Furthermore, the G&A expense ratio for the bottom 19 companies is a hefty 76%, which means that $0.76 of every dollar is not going into the ground.

We are looking at a great divide between the rich and the poor. The funny thing is that even though the rich companies have great management teams and cash to continue to develop their projects—key things that you want in a junior name—they are still trading at great valuations.

TMR: In which mining subsector—producer, developer, explorer—is an investor likely to get the most bang for the buck?

JD: All those types of companies have their advantages. It depends on an investor’s portfolio, strategy and risk tolerance. Right now, we’re focusing on developers. We published a report in early September that lists some promising companies in this stage. We believe developers with high-quality assets will be subject to merger and acquisition (M&A) activity once they are sufficiently derisked because larger companies want to buy proven resources at rock-bottom prices.

“Clifton Star Resources Inc.ranks in the top third of our Quebec development companies.“

Investors should look for developers with a resource of at least 3 million ounces (3 Moz) with high grade and in a safe jurisdiction. A takeover offer is rarely made before a company publishes a preliminary economic assessment (PEA) so investors should look for a PEA or feasibility study with a high net present value (NPV), low capital costs (sub-$700M) and a high internal rate of return (IRR).

TMR: What jurisdictions should investors be taking a closer look at right now?

James Fraser: Certainly anything in North America—Mexico, Nevada, British Columbia and Ontario.

TMR: Are companies in those jurisdictions trading at a premium to the companies that aren’t?

JF: Yes. Assets in certain countries in Africa and other places like Russia trade at a significant discount to a similarly sized asset in a safe jurisdiction.

TMR: Tickerscores.com maintains a database of 450 companies that is constantly updated based on financials, management, stock performance and mining projects. What are the weightings for each of those elements and do those weightings change over time?

JD: They definitely change over time because the weightings are based on macro market conditions. In November 2013, the weightings of those factors were: financials, 54%; management, 20%; stock performance, 4%; and the project, 22%. Right now exploration companies are 43% for financials, 17% for management, 4% for stock performance and 36% for the project.

TMR: What accounts for the greater weighting in projects?

“Columbus Gold Corp. is partnered with a major producer, Nordgold, on the Paul Isnard project in French Guiana.“

JD: The biggest reason for the jump in the project weighting is based on an improvement we have made over the last year, which is adding in a drill score economic analysis. We’re looking at the economics of all drill holes for each exploration company, and comparing them against other companies in the same jurisdiction. We didn’t do that before.

TMR: How do you go about analyzing drill results?

JF: In the drill hole analysis, we always compare companies in similar regions to each other. In British Columbia, for example, we would be comparing companies that are typically exploring for gold and copper together. We look at how many holes a company has drilled on the property and then take a company’s best drill results to date and calculate a “gram meter” score. If an interval is 200 meters (200m) of 1 gram per ton (1 g/t), that’s a score of 200. Or if it’s 100 g/t over 2m, that’s also 200. Once we have the results for a region, we will then rank them.

TMR: So as much as possible you are trying to compare apples to apples?

JD: By keeping as many variables as possible the same, it makes it easier to understand the key differences between two companies. We also provide “Power Rankings” to help investors sift through companies. If something jumps out to us, we make note of it there.

TMR: What are the top three or four catalysts that move the score for explorers, developers and producers?

“Marlin Gold Mining Ltd. was featured in our most recent Top 10 report.“

JF: It’s still a tough climate for exploration companies. The first thing we look at is cash position. A company needs money to do work. A significant financing or a well-funded joint venture partner would dramatically move a Tickerscore right now. As Jeff said, the higher quality names are outperforming while the majority of other companies are running very low on working capital. We don’t expect the latter ones to survive the next 6 to 12 months. After cash, solid exploration drill results will certainly move a stock’s Tickerscore.

We see the most change in developers as they advance to the next stage, such as moving from an NI 43-101 to a PEA, or when a resource gets significantly bigger. If a company receives an important environmental certificate or mining permit, that will really move a Tickerscore.

For producers it all comes down to making money. Were they profitable at the end of the quarter? Are their all-in cash costs increasing or decreasing? How do these metrics compare to previous quarters?

TMR: Traditional mining equity analysts use discounted cash flow (DCF) models or other proven metrics like NAV or enterprise value to determine how companies ought to be valued. How do you think your methodology stacks up?

JF: The higher-scoring companies in our database—the companies scoring over 60—are consistently outperforming the Toronto Stock Exchange and the Market Vectors Junior Gold Miners ETF (GDXJ:NYSEArca).

It’s also worth mentioning that in the Tickerscores Top 10 list we published in January, our top picks for the year are up 34% year-to-date.

“Mart Resources Inc. has too much potential to ignore.“

Discounted cash flow models are generally used for producers and have limitations. The DCF model is static and does not account well for changing metal prices, increasing or declining production, or grade variability. We update our producers at least once each quarter based on their latest quarterly reports. We determine if the mine is high-grading (a process by which higher-grade ore is mined first); we also look at all-in cash costs and other variables. We use 20 different metrics to determine a Tickerscore for each company.

TMR: Could you give our readers some names that have done well from the last Tickerscores Top 10 list?

JF: Two companies from the April Top 10 report, both of which are up over 50%, areSeabridge Gold Inc. (SEA:TSX; SA:NYSE.MKT) and Garibaldi Resources Corp. (GGI:TSX.V).

TMR: When Seabridge had its Kerr-Sulphurates-Mitchell (KSM) project approved by the British Columbia government, how did that influence the Tickerscore?

JF: That made a huge difference. Without that permit, the company would have to revisit the permitting process. KSM still requires approval from the federal government and that decision could come in the fall.

TMR: Are there near-term catalysts that will continue to move Garibaldi shares higher?

JF: Yes. Garibaldi hit an intercept of high-grade silver at surface in Mexico, which moved the share price considerably higher. Now, the company is conducting follow-up drilling. Investors should look to see if the next holes return similar or better grades than the initial high-grade silver drill hole. Garibaldi is going to start work on its British Columbia projects in the next couple of weeks and, hopefully, drill a couple of holes before the snow falls.

TMR: Please tell us about some companies in the most recent report that was published at the beginning of September.

“One thing we really like aboutRye Patch Gold Corp. is that it has cash flow coming from a quarterly royalty.“

JD: In our Autumn 2014 report we have a mixture of exploration, development and producing companies. The companies that made this edition are some of the highest-scoring firms in our database. Each company has top-notch management, a solid balance sheet, and a promising project or mine. We also provide some near-term catalysts that investors need to watch closely.

Interestingly, the first company that we highlighted in our report was Cayden Resources Inc. (CYD:TSX.V; CDKNF:OTCQX), which was just taken out by Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) for $205M at a premium of 42.5%.

Our latest report went out a week before that happened, so any subscribers that were able to act quickly have already gotten a great return. Another company that we featured in our most recent Top 10 report is Marlin Gold Mining Ltd. (MLN:TSX.V).

Marlin operates La Trinidad, a small heap-leach gold mine in Mexico that went into production in late February. The mine is still ramping up and, after several hiccups, is producing roughly 50 ounces (50 oz) per day. Marlin management is top-notch, led by CEO John Brownlie, who brought the El Chanate gold mine in Mexico into production. That mine was later sold to AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE) and is still operating.

Another thing we really like about Marlin is it created a subsidiary company called Sailfish Royalty, which will be spun out to shareholders at some point. This is an early-stage chance for investors to get in on a royalty company, which we’re big fans of. Marlin shares are tightly held with Wexford Capital owning 80% of the outstanding float. The next catalyst is commercial production, which should happen in the next several weeks.

TMR: Did Marlin’s acquisition of the San Albino gold stream change its score?

JF: No. Our focus is on La Trinidad but we do mention San Albino in our Power Rankings section to our subscribers.

TMR: Cayden’s key projects are also in Mexico. Tell us about that name.

JD: In our Tickerscores database, we independently cover 29 exploration companies that have their primary projects located in Mexico. In August, we had Cayden with the top score of 80 overall, which is actually the best exploration score in our entire database. Cayden has everything we look for in an exploration company.

For us, the key is its management team, which has a proven track record. President and CEO Ivan Bebek found a multimillion-ounce gold deposit in Ghana as a cofounder of Keegan Resources. With the agreement to sell the company to Agnico Eagle at a 42.5% premium, he has done it again for Cayden shareholders.

The company also has a solid balance sheet and exciting exploration results. Cayden’s El Barqueño gold project in Mexico looks as if it has potential to be 3–5 Moz. Cayden is one of the best-performing stocks year-to-date on the TSX Venture Exchange and now with the recent deal, we believe shareholders will be very satisfied.

TMR: What are some other companies with exceptional Tickerscores?

JF: Some other names with high scores in our database include Pretium Resources Inc. (PVG:TSX; PVG:NYSE), Lake Shore Gold Corp. (LSG:TSX), Balmoral Resources Ltd. (BAR:TSX; BAMLF:OTCQX), Rio Alto Mining Ltd. (RIO:TSX.V; RIO:BVL) and Kirkland Lake Gold Inc. (KGI:TSX).

TMR: What are some examples of companies that have underperformed to date but could be poised for a turnaround?

JF: A couple of development companies are Rye Patch Gold Corp. (RPM:TSX.V; RPMGF:OTCQX) and Clifton Star Resources Inc. (CFO:TSX.V; C3T:FSE).

Rye Patch Gold’s stock price hasn’t done much lately, but it scores 62 in our Nevada development section. Rye Patch has several properties in Nevada, one of the best mining jurisdictions in the world. One thing we really like about the company is that it has cash flow coming from a quarterly royalty so it won’t have to go back to the market anytime soon. As of our last update, Rye Patch had $7M in cash, which was second out of 11 development companies we cover in Nevada. Insiders own roughly 5% of the stock so they are well aligned with shareholders.

TMR: What are your thoughts on Rye Patch’s Lincoln Hill gold-silver project PEA?

JF: Lincoln Hill is a smaller project, but it has robust economics. The IRR comes in at 53%, which is the highest of any Nevada developer we cover. The share price hasn’t done much, but all around Rye Patch is a solid company.

TMR: And Clifton Star?

JF: Clifton Star scores just over 50, which is in the top third of our Quebec development companies. Clifton is a very high-risk/high-reward stock. In April, Clifton Star published a prefeasibility study on its Duparquet gold project in northwestern Quebec. At $1,300/oz gold, the after-tax NPV is $135M and the IRR is 12.1% (at a 5% discount rate). For the Duparquet mine to be built, gold will need to be at least $1,500/oz. That means that Clifton Star is one of the most leveraged stocks in our database to the price of gold. Its market cap is only $7M with a deposit that’s over 4 Moz, which makes it very cheap. Clifton has $50.2M in payments between December 2014 and December 2017 to own 100% of Duparquet.

TMR: How does the Tickerscore typically react when a junior brings in a big joint venture partner?

JF: When a junior company brings in a major partner, it generally reflects well on the Tickerscore because that partner will likely cover the majority of costs. One example isColumbus Gold Corp. (CGT:TSX.V; CBGDF:OTCQX). It is partnered with a major producer, Nordgold N.V. (NORD:LSE), on the Paul Isnard project in French Guiana. The project currently hosts an NI-43-101-compliant resource of 4.3 Moz and three drill rigs are currently trying to outline more ounces.

Nordgold is earning 50% of the project, but it is covering all the development costs—that frees up Columbus to do other things with its money. Columbus also has the Eastside project in Nevada that it hopes to drill in the fall. Nordgold can advance the Paul Isnard project much more quickly than Columbus could on its own. Mining is a capital-intensive business so any help smaller companies get from larger companies is extremely beneficial.

TMR: Perhaps one more name to share with our readers before we let you go.

JF: One name that was featured in our April Top 10 report is an energy stock. We usually don’t cover energy stocks but we believe Mart Resources Inc. (MMT:TSX.V) has too much potential to ignore. It’s a small oil producer in Nigeria that pays a dividend and has several catalysts in the next six months. The big catalyst for Mart is the new Umugini pipeline. Mart could double its cash flow once the pipeline is complete.

The CEO owns just over 8M shares and it is rumored that Mart could make an acquisition during the next couple of months. If Mart can deliver on its catalysts, we should see a significant re-rating of the stock price. The stock has gone from $0.10/share all the way up to $2. Now it’s at $1.25/share as investors wait for that pipeline to come on-line. Investors should be cautious, though, because its main assets are in Nigeria.

TMR: What should mining investors expect in the final quarter of 2014?

JD: As we move into the fall, we expect to see more separation between the better companies and the weaker ones, or what we call “The Great Divide.” It’s all about the capacity to create shareholder value. The companies with no cash have severely limited capabilities to do this—and the quality names with world-class assets are going to be sought out by majors that need to replenish gold reserves.

TMR: Thank you for talking with us today, Jeff and James.

Jeff Desjardins founded Tickerscores.com, a universal, independent and comprehensive stock scoring system that gives investors access to investment research on mining stocks. Tickerscores has coverage of over 450 precious metals companies on the TSX and TSX.V and compares them head-to-head to make due diligence easier for investors. Each quarter, Tickerscores also puts out an in-depth Top 10 report of the highest scoring stocks in the system and other analyst picks.

James Fraser, mining analyst at Tickerscores.com, is passionate about the mining sector and mining stocks. His passion led to co-authoring the book “Mining Stocks Investor Guide: a guide to investing in mining companies.” He has a finance background and has completed his Canadian Securities Course (CSC) and Conduct and Practices Handbook (CPH). When Fraser is not “digging” up the latest mining stock, he can be found enjoying a wide variety of sports or travelling the world.

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DISCLOSURE: 
1) Brian Sylvester 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) Jeff Desjardins: I own, or my family owns, shares of the following companies mentioned in this interview: None. 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 what 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) James Fraser: I own, or my family owns, shares of the following companies mentioned in this interview: Marlin Gold Mining Ltd. and Mart Resources Inc. 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 what 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. 
4) The following companies mentioned in the interview are sponsors of Streetwise Reports: Balmoral Resources Ltd., Cayden Resources Inc., Clifton Star Resources Inc., Columbus Gold Corp., Marlin Gold Mining Ltd., Mart Resources Inc., Pretium Resources Inc. and Rye Patch Gold Corp. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert can speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
5) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
6) 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.
7) 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.

 

A Much Better Alternative to Trading

Posted by Bill Bonner & Chris Hunter - Diary of a Rogue Economist

on Tuesday, 16 September 2014 21:08

Bill-BonnerThe Dow rose back above 17,000 yesterday. All clear. US stock market investors: Your money will probably not die today. Maybe tomorrow. 

But does it really make sense to be in the US stock market now? 

There may be apples higher up in this tree, but it is dangerous to reach for them. 

We came up with our Simplified Trading System (STS) a long time ago as a way to tell us when it was time to put away the ladder. We weren’t completely serious about it then… and still aren’t now. 

Still, it’s a great system… but only for people with the life expectancy of Methuselah and boundless patience. 

The original idea was that there was a time to be in stocks and a time to be out. When you were out… you just stayed in cash. And because we’re talking about long periods of being in cash, you should be in the “cash” that holds up over time: gold. 

P/E < 10 = Buy stocks. 

P/E > 20 = Sell stocks. 

Otherwise = Gold.

Simple? 

Well, yes and no. You have to decide how you’re going to calculate the P/E ratio, for example. And therein hangs a long and complicated tale…

Artificial Earnings

Forward earnings estimates? Last year’s “as reported” earnings? Earnings averaged over the 10 years and adjusted for inflation? Normalized earnings? 

To put this in perspective, we are suspicious of “as reported” earnings. The Fed and other central banks are artificially pushing down interest rates. This artificially pushes up earnings. 

That’s because ultra low rates push down corporations’ interest expenses on their debt. Meanwhile, earnings per share – even more important to shareholders than earnings – rise due to debt-fueled share buybacks. 

We’d rather base our strategy on something more real. And right now, we guess that earnings, adjusted to normalized interest rates, should put the P/E ratio way over 20 – long past our “sell by” date. 

Sure, our STS can be improved. But had you followed the system since 1980, you would have bought the S&P 500 in the early 1980s and enjoyed at least 10 years of that bull market. (The index had started trading above 20 times earnings by 1992.) 

You would have made about three times your money by the time you got around to selling out. (At that point, the better move would have been to put a trailing stop-loss on your position. But who knew?) 

This would also have put you into gold near its bottom. Let’s say you bought at around $400 an ounce. Stocks have not fallen to a P/E, on last year’s earnings, of less than 10 since. So, you’d still have your gold – now worth about three times what you paid for it. 

If you’d started in 1980 with $10,000, now you’d have about $90,000 – with almost no fees or trading costs along the way… and only one tax event (at capital gains rates). 

If you’d started with $1 million, you’d now have about $9 million. 

Better Than the STS?

Great? 

No. But not bad for making a total of two moves… neither of which was very risky. 

But of course, you would have missed all the fun of trading in and out… talking to your broker… watching Jim Cramer on CNBC… and reading our newsletters. 

And today, you’d be sitting on a pile of gold, cursing us for having kept you out of one of the biggest bull markets in history. 

But can you really expect to do better? 

Maybe! We developed the STS because we don’t have the temperament to do serious stock research. We enjoy economics… and trying to put the pieces of the big puzzle together. We don’t have a head for the painstaking, detailed work required of a stock analyst. 

But we’ve seen that a careful investor who is willing to do his homework can outperform the markets over long periods. 

We saw evidence in the track records of our own colleagues Porter Stansberry and Chris Mayer, for example – who have more than doubled the market averages over the last 10 years. Thousands of other investors have done likewise. 

You can see the current marketing campaigns for Porter’s service here and Chris’s servicehere. Our feelings won’t be hurt if you decide to subscribe to their services rather than our own. 

Still, you might be better off reading my new letter too. 

Besides, the Diary is free. You can’t beat that. 

The cost in time… well, we try to make it worth your while. 

Regards, 

Bill

Further Reading: If you don’t have the stomach for betting on the direction of stock markets, there’s a relatively unknown three-step process you can use to collect hundreds of dollars from an entirely different type of market altogether. According to Barron’s, this is “a simple strategy that can boost your returns without increasing your risk level.” To find out full details, follow this link.

Market Insight:
Three Flavors of Risk 

From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners

Our recommendation to buy beaten down Russian stocks continues to stir controversy amongDiary readers. (If you have thoughts on this, please join in the conversation. Just hit “reply” to this email to write to us directly.) 

Reader Darin A. takes us to task for our assertion that the high risk in Russia right now (perceived or otherwise) means high future expected returns. 

Darin believes it’s the other way around: 

Value investing gets you low risk (due to your deliberate choice of a high margin of safety) and high potential reward. You get the best of both worlds.

It all depends on your definition of risk… 

Perhaps the simplest definition of risk is that more things can happen than will happen. 

But Wall Street likes to measure risk as volatility. The more assets move up and down in price, the “riskier” they are. 

By this definition, Russian stocks are certainly risky right now. Since Russia annexed Crimea in March, Russian stocks have been the most volatile since 2009. 

As of the end of May, for example, volatility for the Russian benchmark Micex Index was almost three times the level of the MSCI Emerging Markets Index. 

It’s easy to poke fun at the Wall Street’s definition of risk as volatility. But keep in mind that during the Great Depression US stocks lost 80% of their value. And in the 1973-74 bear market, stocks lost half their after-inflation value. 

Add to that the 1987 crash… the dot-com crash… and the 2008 crash… and it’s not hard to see why investors demand higher compensation for holding stocks over, say, bonds or cash. 

And if you were a pension fund manager… and making decisions about retirees’ nest eggs… this kind of volatility really is risk. 

For someone who needs to access their funds in the next couple of years, an investment in Russian stocks now could mean those funds aren’t available when they’re needed. The poor retiree could find himself trying to cash out while the Russian market is in a trough. 

So, investors demand higher returns on Russian stocks than, say, US or Canadian stocks in exchange for putting up with higher volatility. 

But Darin is not wrong, either… 

If you define risk a third way – as the potential for a permanent loss of invested capital – low prices can have the effect of damping risk. 

That’s because buying low and selling high gets you positive returns. And buying high and selling low gets you negative returns. The lower you buy, the more chance there is of fetching a higher selling price. 

The point is that the rewards low prices bring come with a catch: You have to shoulder high levels of perceived risk about a stock or a country – as is the case in Russia today. 

Darin’s right: Low prices aren’t risky. But you don’t get low prices without lots of fear… and often the whiff of cordite in the air. 

P.S. If investing in Russian stocks is the kind of thing that would give you sleepless nights, you may be interested in a different approach to “investing” altogether. Instead of betting on the direction of stocks, there is a way to pick up extra income by allowing other investors shoulder this kind of risk. You can read all about it in our special investor report.

 

The Silver Sentiment Cycle

Posted by Gary Christenson - The Deviant Investor

on Tuesday, 16 September 2014 14:22

The following chart shows:

Silver-72-79

 

Ed Note: Strongly recommend you go HERE to view full size charts & article 

 

Why China’s Insatiable Appetite For Coal Has Likely Peaked

Posted by OilPrice.com

on Tuesday, 16 September 2014 14:15

imagesA recent report from Greenpeace found that China’s coal consumption declined in the first half of this year and new Chinese government data suggests that the country’s coal imports have dropped. Estimates indicate that by the end of the year, China’s coal imports could be 8 percent below 2013 levels.

China imported 18.86 million tonnes of coal in August, the lowest level since September 2012.

Part of the reduced demand is due to a slowing Chinese economy. After years of double-digit growth rates, China’s GDP expanded by just 7.7 percent in 2013, and it could struggle to hit its 7.5 percent target this year. Some analysts are predicting an average growth rate of only 6 percent in the next few years.

But a lower GDP growth rate is only part of the reason. As the Sierra Club’s Justin Guay points out, China may be beginning to “decouple” its growth from coal consumption. In other words, China’s economy could continue to expand even while its coal consumption drops – something unthinkable not long ago.

That’s due in large part to China’s declared “war on pollution,” announced earlier this year.

Years of increasingly choking smog have sparked public anger and even led to protests. In 2013, a government survey of 74 Chinese cities found that all had pollution levels that exceeded levels the World Health Organization deems safe.

“We will resolutely declare war against pollution as we declared war against poverty,” Premier Li Keqiang said in March. The plan calls for the closure of old and dirty steel, cement, and coal plants: An estimated 1,725 small-scale dirty coal plants are expected to be shuttered. The government also declared it would spend $275 billion in the next three years to reduce pollution.

China has also set up environmental courts, instituted fines for offenders of environmental standards, granted non-governmental organizations the right to sue polluters, and now requires the nation’s largest factories to disclose pollution data to the public.

The efforts are starting to pay dividends, as evidenced by declining coal import levels. This is a major reason that international coal prices have reached their lowest levels in six years. And the low prices are not succeeding in stoking a resurgence in demand.

And more declines could be coming, thanks to a series of proposed new laws. The central government released a draft version of a law on Sept. 10 that amounts to an outright ban on coal with a high sulfur and ash content. This could significantly hurt coal exporters, like Australia and South Africa.

The government is also seeking to cut coal production by 10 percent because low demand is causing economic losses for 70 percent of China’s coal companies.

Moreover, China is considering a permanent limit on the overall consumption of coal. The current five-year plan aims for consumption of 4.1 billion tonnes of coal in 2015, up from 3.7 billion tonnes in 2013. But in the next five-year plan, which will run from 2015-2020, China could cap its coal consumption at the same 4.1 billion tonnes-per-year level, and even ratchet it downwards.

And in 2016, efforts to slash coal demand will likely only accelerate, considering China’sannouncement that it will introduce a nationwide cap-and-trade program. Details are murky, but if successfully implemented, major producers will be incentivized to improve efficiency and switch to cleaner sources of energy.

As the world’s largest consumer of coal, as well as the world’s largest emitter of greenhouse gases, the significance of China’s policies on coal use cannot be overstated. Thanks to a concerted effort by the government to improve air quality, the era of insatiable Chinese demand for coal could be over.

By Nick Cunningham of Oilprice.com

“Don’t Miss This Buying Opportunity”

Posted by Brien Lundin - Jefferson Financial

on Tuesday, 16 September 2014 14:00

The “buying opportunity” for a few gold and precious metals equities “to last for two, maybe three weeks”

Brien Lundin, founder of Jefferson Financial, producer of the New Orleans Investment Conference and Gold Newsletter, believes at least a small amount of the massive liquidity produced by loose monetary policy in Western economies will find its way into mining equities following a summer pullback in equity prices—but don’t wait long. Lundin expects the “buying opportunity” to last for two, maybe three weeks before seasonal gold demand pushes prices higher. In this exclusive interview with The Gold Report, Lundin discusses a select group of gold and precious metals equities that he expects to perform well as near-term news reaches the market.

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The Gold Report: On July 30, you sent out a Gold Newsletter alert that forecast a pullback in the midsummer bull market. The next day the Dow dropped 317 points, while the NASDAQ fell about 93 points. Since then the Dow has climbed back above 17,000, the NASDAQ above 4,600. Should investors dismiss that drop or do you believe it was akin to a tremor preceding an earthquake?

Brien Lundin: That particular call made me look like a genius at the time, but right after that drop the stock market took off and reached new highs. The stock sell-off in late July was a sign that investors were nervous because we haven’t had a meaningful correction during this bull market. However, there are potential pitfalls ahead for the economy—we still have to navigate the U.S. Federal Reserve’s ending of quantitative easing and its first interest rate hikes. There’s nothing directly ahead that indicates a major correction will occur, yet these things happen when you’re least expecting them.

“Almaden Minerals Ltd.’s Ixtaca is already a multimillion-ounce deposit that justifies development.“

TGR: You’ve been warning investors inGold Newsletter about the erosion of the foundation of the U.S. equity market. Please give our readers a few points to underpin your thesis.

BL: When I put forth that thesis, Q1/14 gross domestic product (GDP) had missed consensus estimates by 3.3%. The consensus going into that report was for 1.2% growth but it turned out to be just 0.1%—only to be subsequently revised further down to -2.1%. The miss for the consensus estimate was remarkable.

I posited that these reports had possibly captured some underlying weakness in the economy. I expected a rebound in Q2/14 because a lot of economic activity was put off due to the unusually cold winter weather. But Q2/14 GDP was over 4%. I certainly wasn’t expecting anything like that, and neither was anyone else.

So, the idea of a major stock market decline stemming from a weakening U.S. economy has become more remote, at least for the time being.

TGR: What are you seeing now?

“We have followed Asanko Gold Inc. from its inception and still recommend it.“

BL: The massive amount of money created in developed economies since the 2008 credit crisis really has not resulted in significant retail price inflation. If anything, there has been disinflation in major economies, such as in Europe where the European Central Bank is now turning to quantitative easing. The real result of quantitative easing in the U.S. and loose money policy throughout the Western economies is a virtual flood of liquidity looking for places to land. It’s why we have U.S. Treasuries being bid down to their lowest rates ever, while the U.S. stock market is hitting record highs. Those two asset classes should be at opposite sides of the seesaw, but there’s so much money looking for a home that both are soaring simultaneously.

TGR: The Market Vectors Junior Gold Miners ETF (GDXJ:NYSEArca) has been trading lower since mid-July. In fact, the Dow Jones Industrial Average has outperformed that ETF over the last month or so. Is that a buying opportunity?

BL: I think so. The timing is critical, though. While I don’t see a near-term, fundamental driver to push the market higher in the very near future, there are some factors that I think will push the junior resource stocks and the metals higher this fall. So your real buying opportunity is probably over the next couple of weeks.

“Anyone looking at Cayden Resources Inc.’s El Barqueño could see how the geological model was fitting together and the clear potential for a multimillion-ounce deposit.“

All of the liquidity that I referred to earlier has to go somewhere. There’s a broad consensus that gold is going lower and a lot of money is shorting gold. At some point over the next month or so—at the first sign that gold is not going lower—we’re going to see some short positions get covered, and that ocean of money is going to start sloshing into gold and silver. At that point we should also see stronger seasonal demand for gold and that also will help power the gold equities market forward.

TGR: One company that you follow in Gold Newsletter, Cayden Resources Inc. (CYD:TSX.V; CDKNF:OTCQX), recently received a takeover bid from Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). The cash and share deal values Cayden at about CA$209 million, a 45% premium to Cayden’s share price on the day the bid was made. What stands out in that transaction?

BL: A lot of people were surprised by that transaction because Cayden does not yet have a resource estimate for El Barqueño, nor even all the necessary permits to drill the targets it had found through surface sampling. It’s a very early-stage takeout bid, but as we’ve been reporting in Gold Newsletter, anyone looking at El Barqueño could see how the geological model was fitting together and the clear potential for a multimillion-ounce deposit.

“Columbus Gold Corp.’s Paul Isnard project has a clear path toward production at this point, and it’s all paid for.“

Cayden also has a great land position with the Morelos Sur project, which is next to Goldcorp Inc.’s (G:TSX; GG:NYSE) Los Filos mine. That gives Cayden a lot of leverage, and thus the bid by Agnico Eagle could be just the first volley in a bidding war. It’s quite possible that Goldcorp will make a counterbid to acquire the important land next to Los Filos.

TGR: Keegan Resources. Cayden Resources. Both juniors received takeover bids. Should investors follow Ivan Bebek and his team to the next company?

BL: Absolutely. Bebek and his team had Keegan, which became Asanko Gold Inc. (AKG:TSX; AKG:NYSE.MKT). We have followed Asanko in Gold Newsletter from its inception and still recommend it. That team now has another winner with Cayden and already has other things in the works. I’m not certain what that venture would be but it would really behoove investors to jump on board once this team gets moving on it.

TGR: What are some other junior gold names you’re following in Gold Newsletter?

BL: I like Almaden Minerals Ltd. (AMM:TSX; AAU:NYSE). The company recently published a revised preliminary economic assessment (PEA) on its Tuligtic project in Mexico that improves its net present value and rate of return, while lowering capital costs—which are still about $400 million ($400M), but that’s much better than before. Almaden is now focusing on drilling some targets outside the resource zone. It’s an intriguing exploration area around the current resource. The project has a long way to go up the value curve as it works more on the economics and toward feasibility.

“Fission Uranium Corp. is really a bet on higher uranium prices.“

TGR: Almaden just raised more money to drill other targets on Tuligtic but it spent a lot of money trying to find the high-grade core of the Ixtaca deposit, which really hasn’t been found yet. Now it’s going to focus on other targets. How should investors read that?

BL: The other targets where Almaden is drilling are areas where it has already done some exploration drilling. Almaden is attempting to expand its resource, but Ixtaca is already a multimillion-ounce deposit that justifies development. What the company doesn’t have right now is a market where these kinds of achievements are rewarded. When the market turns around, the major producers will cherry pick the best of these deposits at reasonable prices. There aren’t many at the top of the list but I think Almaden is going to be there. Companies that control these projects will be taken out at significant premiums to their current levels. Cayden may just be the first shoe to drop as these larger companies become more aggressive before the market takes off again.

TGR: What are some others?

BL: I also like Columbus Gold Corp. (CGT:TSX.V; CBGDF:OTCQX). It is about to get a third drill turning on its Montagne d’Or deposit, part of the Paul Isnard project in French Guiana. Joint-venture partner Nordgold N.V. (NORD:LSE) is funding all of the exploration up to $30M or a bankable feasibility study to earn 50.1% of the project. The drill results have been great. One recent hole hit 33.5 meters of 3.15 g/t Au. Essentially, the company is expanding the resource even as they’re infill drilling.

Columbus also raised some money that will help it advance a great suite of exploration projects in Nevada. It’s a company that is going to keep turning out news for the foreseeable future and is a great buy for a long-term investor looking for real value.

TGR: In May, Columbus announced that its PEA on the Paul Isnard project in French Guiana overstated the grade and ounces contained in the deposit. Nonetheless, a few days later, Nordgold made its scheduled $4.2M payment to Columbus to continue its earn-in. The share price is now about $0.40. What’s next?

“I don’t really see any big roadblocks as Lion One Metals Ltd. advances Tuvatu toward production.“

BL: It’s obvious that Nordgold didn’t see that hiccup with the resource estimate as an issue. Some of the grades were “smeared” across areas where there wasn’t enough drilling density to support those grades. As the companies continue infill drilling at much tighter drill spacing, they are bringing Inferred ounces into the Indicated category. The deposit is growing because a lot of those ounces were never included in any previous resource estimate. The resource will probably end up significantly larger than it was before that little hiccup. It has a clear path toward production at this point, and it’s all paid for.

One other company I like in the gold space is Precipitate Gold Corp. (PRG:TSX.V). The company is drilling its project in the Dominican Republic that’s adjacent to GoldQuest Mining Corp.’s (GQC:TSX.V) Romero discovery. Precipitate has found some great surface gold anomalies from trenching and is drilling below these trenches. We expect some results fairly soon. That’s an exploration play that has a lot of potential in the very near term.

TGR: In your newsletter you call Precipitate a “buy” yet the 12-month price charts for Precipitate and GoldQuest look quite similar. Why a “buy” for one and not the other?

BL: The charts may look similar, but the market values certainly aren’t. Precipitate is a buy right now precisely because GoldQuest had made a discovery, and Precipitate has yet to. Thus, the upside potential is very large for Precipitate at this point.

TGR: It’s a good sign that you’re once again adding companies to Gold Newsletter and placing some of them on your buy list. Please tell us about some recent additions.

“The upside potential is very large for Precipitate Gold Corp. at this point.“

BL: One is Lion One Metals Ltd. (LIO:TSX.V; LOMLF:OTCQX; LY1:FSE). We had previously recommended the company, but it went relatively dormant as the market went into its multi-year malaise. Lion One is headed by noted mining financier Wally Berukoff and it was rejuvenated when it became apparent that Berukoff was going to move the company’s Tuvatu gold project forward. Berukoff is a proven entrepreneur in the resource industry and his decision to once again advance the company caused me to put it back on our recommended list. Lion One has a clear path to production. The capital cost to build a mine is going to be $40M or less and I don’t think raising that amount will pose a problem for that group, even in this market. That’s a company looking to take advantage of the next up cycle.

TGR: Is $40M all Lion One needs to build a mine in Fiji?

BL: That’s all it needs in capital. It will obviously need some permits but a good bit of that work was done while the company had supposedly gone quiet. Fiji is generally pro-mining and many locals are looking for work, so I don’t really see any big roadblocks as Lion One advances Tuvatu toward production.

TGR: What are some others that you’ve added?

BL: An interesting company I recommended recently is Inca One Resources Corp. (IO:TSX.V). Illegal mining In Peru has created an environmental catastrophe, so the government is clamping down on illegal miners and forcing them to process their ore at approved facilities. Inca One is taking advantage of the new laws by building milling facilities, buying ore from the miners and making a markup on that ore. The business model is eminently scalable.

“Roughrider Exploration Ltd. is an interesting new uranium exploration play that I think could make some waves soon.“

When the company reaches a production rate of about 100 tonnes per day, which it should shortly, it expects to deliver free cash flow of about $9M per year. This concept can be applied throughout Peru. It’s a huge market so, although there are competitors, there’s more than enough artisanal gold production in Peru to accommodate them all. Inca One has great management, a great business model and it should remain ahead of the pack. It’s not the type of company that will be leveraged to the price of gold because its margins will remain fairly constant.

TGR: How does it actually work?

BL: The miner delivers the ore, the ore gets tested and the miner is paid once the test result is in. The miner can take it or leave it at that point but if he takes it, he gets a cash payment and doesn’t feel that he’s been misled or cheated if the recovery rate is lower than expected. I think that transparency will help Inca One get more business from local miners than other companies in the same business.

TGR: We have talked a lot about gold companies. What are some other junior resource companies that you’re following?

BL: I like Wellgreen Platinum Ltd. (WG:TSX.V; WGPLF:OTCPK;). The Wellgreen deposit in the Yukon is absolutely enormous. The challenge is how to develop it at a reasonable capital expense. The plan is to attack the higher-grade zones first to achieve a quicker payback on capital as development ramps up. The deposit is so large that it is essentially a strategic deposit that some larger company will own at some point. A smaller company like Wellgreen can only keep advancing it toward production. The next PEA will go a long way toward convincing the market that this is a viable, highly economic deposit.

TGR: Perhaps a few more companies?

BL: Fission Uranium Corp. (FCU:TSX.V) continues to plough ahead with drilling on one of the world’s richest uranium deposits. The company has been boring the market with one stellar drill result after another so the price has actually slid some over the summer. This is a great buying opportunity.

“Source Exploration Corp. has been getting very impressive grades from its Las Minas gold project.“

TGR: New drill results have expanded the high-grade R780E zone on its Patterson Lake South property in Saskatchewan. In fact, all of the drill holes so far have hit uranium mineralization. Is this still a standalone company if spot uranium was at $50/lb?

BL: Absolutely not. Fission is really a bet on higher uranium prices. The uranium story is inevitable, just not necessarily imminent. We keep waiting for these supply-demand factors to impact the uranium price and they will eventually. Once that happens Fission is going to be one of the first companies taken out. As it stands now, it’s just a great value play. We talk about all of these separate mineralized zones, but all these zones are going to connect in one very large deposit. It’s worth every bit and more of what the company is selling for right now. People should just buy it, hold it and wait for a takeout scenario.

TGR: Do you want to discuss another uranium explorer?

BL: There’s an interesting new uranium exploration play—Roughrider Exploration Ltd. (REL:TSX.V)—that I think could make some waves soon. As you’ll remember, Hathor was a huge success with its Roughrider uranium discovery in the Athabasca Basin. The name isn’t a coincidence. Roughrider Exploration is being advanced with the help of Dale Wallster, the geologist who discovered the original Roughrider property and vended it into Hathor. Now this new venture is exploring its extensive land position on trend from the original Hathor discovery. It’s a new recommendation of mine, and I’m excited about the upside if the company can find even a sniff of a new discovery.

TGR: One last company?

BL: I’ll give you two that I’m looking closely at, but have yet to recommend in Gold Newsletter.

One, Aftermath Silver Ltd. (AAG:TSX.V), has a very interesting, high-grade silver deposit that could be brought into production very quickly. The company still has to raise the necessary funds, which is tough to do in the current market. But once silver begins to rebound, that won’t be hard at all, and this will be an extremely leveraged play on silver

Another is Source Exploration Corp. (SOP:TSX.V). The company has been getting very impressive grades from its Las Minas gold project in Mexico, and the mineralization is looking like it’s holding together very well. As I say, I haven’t recommended the company yet, but I’m watching it closely. The drill results have been quite remarkable.

TGR: Every year your company, Jefferson Financial, puts on the New Orleans Investment Conference. This year the show celebrates its 40th anniversary from October 22–25. The headline event is a panel discussion with former Fed Chairman Alan Greenspan, legendary investor Porter Stansberry and Marc Faber, publisher of the Gloom, Boom & Doomnewsletter. What can investors learn from this?

BL: On the Greenspan panel we’re going to pointedly ask him about the Fed and the Treasury’s role in manipulating the gold price and how that occurs, if it occurs. He no longer has any reason to obscure the truth. There will also be a moderated Q&A with Greenspan where he’ll take questions from the audience. Those two panels with Greenspan are going to make headlines, if not history. He has a fascinating story. Greenspan was one of the most ardent and eloquent goldbugs in the 1960s. He was a close follower of Ayn Rand and some of his writings on gold still stand today as among the best ever produced on the role of gold in protecting citizens from currency depreciation.

The rest of our lineup includes Dr. Charles Krauthammer, Peter Schiff, Rick Rule and Doug Casey. People come back year after year because they get to meet these experts and talk with them. They get stock recommendations and strategies that they’ll never get anywhere else. It’s always a dynamic event.

TGR: Thank you for talking with us, Brien.

With a career spanning three decades in the investment markets, Brien Lundin serves as president and CEO of Jefferson Financial, a highly regarded publisher of market analyses and producer of investment-oriented events. Under the Jefferson Financial umbrella, Lundin publishes and edits Gold Newsletter, a cornerstone of precious metals advisories since 1971. He also hosts the New Orleans Investment Conference, the oldest and most respected investment event of its kind.

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DISCLOSURE: 
1) Brian Sylvester 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) Brien Lundin: I own, or my family owns, shares of the following companies mentioned in this interview: Cayden Resources Inc., Askano Gold Inc., Precipitate Gold Corp., Lion One Metals Ltd., Wellgreen Platinum Ltd., Fission Uranium Corp., Aftermath Silver Ltd. and Roughrider Exploration 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 what 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: Almaden Minerals Ltd., Asanko Gold Inc., Cayden Resources Inc., Columbus Gold Corp., Fission Uranium Corp., Lion One Metals Ltd., Precipitate Gold Corp., Roughrider Exploration Ltd. and Source Exploration Corp. 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 can speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
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