Best of the Week
Most Popular
1.UK General Election Exit Polls Forecast Accuracy - Nadeem_Walayat
2.What's Next for the Gold Price? - Axel_Merk
3.UK House Prices Correctly Forecast / Predicted Conservative Election Win 2015 - Nadeem_Walayat
4.15 Hours to Save England from SNP Scottish Nationalist Dictatorship - Election 2015 - Nadeem_Walayat
5.Exit Poll Forecasts Conservative UK Election 2015 Win - Nadeem_Walayat
6.Gold And Silver China’s Pivotal Role: More Questions Than Answers. Not So For Charts - Michael_Noonan
7.Conservative Win 2015 UK General Election, BBC Forecast of 329 Seats - Nadeem_Walayat
8.Investing and the Lollapalooza Effect - Niels C. Jensen
9.Gold Price Target - Rambus_Chartology
10.Gold Price Nearing An Important Pivot Point - GoldSilverWorlds
Last 5 days
Robots That Can Beat the Market by 100% - 23rd May 15
Why Shake Shack Stock Is a Bad Investment - 23rd May 15
Gold Price Primary Driver Bullish - 23rd May 15
Time To Get Real About China - 22nd May 15
Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - 22nd May 15
One Investment Could Save Two Generations' Retirements - 22nd May 15
Investing is About Identifying Gifted and Talented Camps - 22nd May 15
One of Europe's Latest Debt Nightmares - 22nd May 15
UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - 22nd May 15
America Superpower 2016 - 21st May 15
Stock Market Secular Versus Cyclical Investing - 21st May 15
Banking Stocks Break Out with Higher Bond Yields - 21st May 15
The Tech Portfolio Built to Beat the Market - 21st May 15
Gold “Less Sexy” Than Bitcoin … For Now - GoldCore on CNBC - 21st May 15
The Russia-West Rivalry in the Balkans - 21st May 15
The US Dollar and the Precious Metals Complex - 21st May 15
Gold GLD ETF Drawdown Continues Unabated - 21st May 15
Who’s Killing the Stock Market? - 21st May 15
Your Best Way to Profit from the Narrowest Market in 20 Years - 21st May 15
Government Regulation and Economic Stagnation - 20th May 15
It’s Time to Hold More Cash and Buy Gold - 20th May 15
Choppy Asian Stock Markets - 20th May 15
Countdown to Global Financial Collapse - 20th May 15
Will Interest Rates Ever Rise? - 20th May 15
How to Cash in on Amazon Stock’s Amazing Cloud Success - 20th May 15
Three Hidden Forces Pushing Crude Oil Price Back Up - 20th May 15
U.S. Housing Market Strong Numbers in Perspective - 20th May 15
Greece Debt Crisis - Obama Has A Big Fat Greek Finger - 20th May 15
Now Is the Time to Own the Oil & Gas Leaders - 20th May 15
UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt - 20th May 15
Trading Gold and Silver along with the Pros - 19th May 15
Gold Ticks Higher as London Housing Market Crash Looms? - 19th May 15
Global Stock Market, Commodities Group Analysis - 19th May 15
How Stock Investors Could Profit from the Dark Net Pattern That Few Others See - 19th May 15
The Patriot Act is now USA Freedom Act - 19th May 15
Investing in Europe? 5 Critical Insights to Boost Your Portfolio Now - 19th May 15
Gold Price Trend Forecast - 19th May 15
Stock Market Continues Defying Gravity, Dow New All Time High - 19th May 15
Are Gold and Interest Rates About To Take Off Higher? - 18th May 15
Nikkei Japanese Stock Index Set To Get Smashed - 18th May 15
Silver Price Projections For 2020 - 18th May 15
The IMF Leaks Greece, Institutions Forcing a Debt Default - 18th May 15
Europe's Stocks Bull Market Continues After Correction - 18th May 15
European Banks Vulnerable Today As 2008 Financial Crisis - 18th May 15
Payments, Currencies, and Broken Money - 18th May 15
Learning to Trade Markets - Dealing with Losing Trades - 18th May 15
Stock Market Sell in May and Go Away - Last Hurrah - Take2 - 18th May 15
The No. 1 Reason Stocks Will Climb Higher - 17th May 15
Gold, Silver Distorted Markets, Financial Sophistry, and Moral Hazard - 17th May 15
Stock Market CAC40 Trend Forecast - 17th May 15
Stock Market Diagonal Pattern Nearly Complete - 16th May 15
Gold And Silver - Elite's Game Of Jenga In Place. Your Move - 16th May 15
You’ll Never See a Better Moment to Invest in China - 16th May 15
Are Gold and Silver Stocks Breaking Out? - 16th May 15
War On Cash - Why the IRS Seized All the Money from a Country Store - 16th May 15
Is China Economy a Fire-Breathing Dragon or a Dragon on Fire? - 16th May 15
Silver Buying Only Starting - 16th May 15
Why Opinion Pollsters Got UK Election 2015 Badly Wrong - 15th May 15
Double Black Diamond - What a Bond Bear Market Looks Like - 15th May 15
This “Bubble” Is Set to Kick Off New Energy Profits - 15th May 15
German Gold Demand "Spikes"- Investment Demand Surges 63% - 15th May 15
How GDP Metrics Distort Our View of the Economy - 15th May 15
McDonald's Future Is Hard to Digest (NYSE: MCD) - 15th May 15
Dry Bulk Shipping Index Chart Analysis Update 2015 - 15th May 15
Economic Expansion Ahead? World Stock Markets Analysis - 15th May 15
Why Not Tell Greece How To Run A Democracy? - 15th May 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Biggest Debt Bomb in History

The Real Reason Gold Price Fell

Commodities / Gold and Silver 2013 May 08, 2013 - 06:26 PM GMT

By: The_Gold_Report

Commodities

Things are upside down in the gold market. Valuations are irrationally low, while global consumerism fuels demand and supply comes up short. Lawrence Roulston, editor and publisher of Resource Opportunities, advises people to trust their guts as well as the numbers when weeding through prospective investments. In this interview with The Gold Report, he skirts around conspiracy theories regarding the recent gold sell-off and keeps his advice simple: lower expectations, get rid of poorly performing investments and load up on the companies going cheap. If you push against the trend, you might come out with your feet on the ground.


The Gold Report: In a recent edition of Resource Opportunities, you wrote, "This time is different from every previous bust." How so?

 

Lawrence Roulston: Some people described the late 1990s as a nuclear winter of the mining industry. Demand for metals was low, and a lot of new production had come onstream. Copper was trading at the lowest price ever in real terms. Today, we don't have that surplus. We have serious constraints on supply at a time when demand for metals is increasing. Half the planet's population is undergoing a process of modernization and industrialization. Billions of people are becoming consumers, buying cellphones and looking at refrigerators, cars and every other consumer product.

 

TGR: Does that include gold? It doesn't have an industrial purpose per se, and we saw a massive sell-off in gold mid-April.

 

LR: Yes. The selling came largely from the exchange-traded funds (ETFs) and was triggered by the short signals from a couple of the big New York brokerage firms. The ETFs were being sold on a panic level, but buyers around the world were literally lining up to buy physical gold. The price has already stabilized.

 

TGR: Are you saying you don't expect further weakness in the gold price between now and fall 2013?

 

LR: There will be a lot of short-term volatility. But people's desire to own gold on the physical level is not going away, whether people are buying gold jewelry in China or India or Europe or buying bars and coins—gold will act as a safe haven, as a currency hedge.

 

There will probably be further events such as what recently happened. I don't want to get into the whole conspiracy theory, but it seems clear that the brokerage firms involved in this had a phenomenal short position before making the calls to short gold. It was extremely profitable for them. If they've done it once, they're likely to do it again.

 

TGR: Anybody who's still in this space has lost money. Investors in the junior mining space want to know what the path is to making money again.

 

LR: The shortest path is to own a company just before it announces a big new discovery. We saw that with GoldQuest Mining Corp. (GQC:TSX.V), which went from $0.05/share to $1.50/share in a couple of months. We saw it again recently when Colorado Resources Ltd. (CXO:TSX.V) announced a drill hole on a copper intersection in British Columbia that took the share price from $0.15 to $0.50 overnight.

 

My approach is to look at companies that have a real asset and are advancing it toward production. They'll either take it into production or will be taken over by a company that will. Maybe you won't get 10, 20 or 30 times returns, but there is a much higher probability of achieving a double, a triple or even a tenfold return than if you bet on an exploration discovery. I admit my approach hasn't worked so well over the past year, but I'm still totally committed to it.

 

TGR: Should investors lower their expectations?

 

LR: You always have to ask: Is it just a greater fool theory? Who's going to buy these off you at two or three times? You can seek out a 30 to 50 times return, and if you're successful, it's pretty exciting. But lots of opportunities exist in this market if you're OK with two, three, four or ten times return over two, three or four years. There's a huge level of interest from the sophisticated money managers. Sovereign wealth funds, mining companies in every part of the world and private equity are all looking at the prices in the market right now and salivating.

 

TGR: Many people reading this might think, "Lawrence Roulston has been in this space for a long time and knows it better than most people do. Jeepers, if he's losing money, then there's no point." What would you say to them?

 

LR: Let me put the current valuations into perspective: I've never seen anything like this in the over 30 years I've been in the business. The valuations are irrational. Companies are trading at discounts to cash, some at one-third of the value of cash in the bank. There are companies with multimillion ounce gold deposits trading at just slightly over the value of cash in the bank and, in some cases, even less than the value of cash in the bank. You could buy cash at a discount and get a gold deposit or a copper deposit thrown in for free. The profit potential is enormous for anybody who has cash and is coming into the market now.

 

TGR: How can investors figure out which companies have high investment potential and which are more likely to fail?

 

LR: One simple test is whether the company has any cash. If it doesn't, the company is forced to raise cash in this market to survive. Many companies with no cash and mediocre projects effectively have no value, in my opinion. For some, fundraising will be so dilutive, it's hard to imagine a path back.

 

TGR: Cash is a vague term. What does it mean to you?

 

LR: A number of companies have a few hundred thousand dollars in the bank and are conserving cash—paying rent and salaries and not doing much else. But if that's all they're doing, they're going to burn through that money. If a company is going to add shareholder value, it needs to do something on the ground, physical work that will build value. It's hard to imagine a meaningful exploration program unless it has more than $1 million in the bank.

 

I think investors who want to get involved in exploration should look at companies like Riverside Resources Inc. (RRI:TSX). Riverside has cash but is using other people's money, primarily major mining companies' money, and just announced another strategic alliance.

 

TGR: Do you think the prospect generator model is even more valuable now than it has traditionally been?

 

LR: Absolutely. Virginia Mines Inc. (VGQ:TSX) is an excellent prospect generator. It's not cheap but is backed by the royalty interests it holds and its cash. The same is true of Altius Minerals Corp. (ALS:TSX.V)Millrock Resources Inc. (MRO:TSX.V) is much less expensive, and companies are spending a lot of money on its projects.

 

TGR: In early April, Kinross Gold Corp. (K:TSX; KGC:NYSE) took a position in Revolution Resources Corp. (RV:TSX; RVRCF:OTCQX) to own almost 12% on a fully diluted basis. In the past few weeks, Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) has purchased significant stakes in Sulliden Gold Corp. (SUE:TSX; SDDDF:OTCQX; SUE:BVL), Kootenay Silver Inc. (KTN:TSX.V) and ATAC Resources Ltd. (ATC:TSX.V). Press releases followed all of these moves, but these types of transactions used to be done more quietly. What are the majors trying to achieve with this strategy?

 

LR: It's great that the majors are bringing attention to these alliances. More and more, the majors are relying on the juniors as their exploration departments. When the juniors convince the majors to put in hard cash like that, they pass a number of due diligence steps to display competence to spend the money wisely.

 

TGR: Have the majors done the due diligence for the average investor by investing in these companies? Would investors be wise to follow?

 

LR: It implies that the major believes that the exploration team in the junior will spend its money wisely, but it's not to say that it is more likely to come up with success.

 

TGR: In a recent edition of Resource Opportunities, you wrote, "The good companies have been sold off along with the lesser quality companies, creating unprecedented opportunities for investors who can differentiate the worthwhile companies from the rest of the pack." What sets these companies apart in this market environment?

 

LR: The most important differentiator is the management team. A lot of people focus on management or exploration teams that have been successful in the past, and that's valid. But I focus on finding the young people who are just coming up and who will be seen next year as the great success stories.

 

TGR: That's tougher, isn't it? That's similar to betting on the junior companies without any information.

 

LR: In my position, I'm living and breathing this stuff. I spend a lot of time interacting with many of these management groups, and I can get a sense of which are likely to be the next successful ones.

 

TGR: Any up-and-comers?

 

LR: Revolution has strong geological talent and has had some successes in the past.

 

TGR: On an entry point, is it best to invest just before a resource estimate, a preliminary economic assessment, a prefeasibility study or a feasibility study comes out? Which one offers the most potential?

 

LR: In a normal market, all of them would have an impact. Over the past year and perhaps going forward, I'm not sure any would have a big effect. It depends on when the report comes out and if it exceeds or falls short of the expectations. Over the past few years, they have generally fallen short on the size of resource and capital expenditures have been far higher than expectations.

 

TGR: Which analysts covering this sector do you follow?

 

LR: The Haywood Securities team is really good. Many analysts tend to be numbers focused, and their work largely involves computer modeling and pricing projections. Few get really involved in the more subjective side of the evaluations. That's an area where I'm different from a lot of the analysts. The early stages of my career were doing detailed financial modeling, and I've since developed a more subjective approach.

 

TGR: You need objective numbers but also some room to factor in subjective criteria, like management and jurisdiction, right?

 

LR: That's exactly the path to success. You want a number set as a starting point that you can layer on. A lot of analysts miss out in that they're not willing to stick out their necks on more subjective appraisals.

 

TGR: About 70% of the junior mining space is gold mining, but which commodities do you remain bullish on?

 

LR: I'm almost agnostic with respect to the commodity. When I do analysis, I don't factor in higher prices on anything. It has to make sense at or below the current levels with a rise representing a windfall gain. Investor sentiment is important. A lot of times I look at a project, like a tin project, and see something interesting from a technical perspective. Then I think, who the hell is ever going to pay attention to a tin project?

 

Another example is zinc. Looking out two to four years into the future, the fundamentals for the zinc market are very strong, yet investors won't touch zinc with a 10-foot pole. Many of the silver deposits are really zinc deposits with a silver byproduct. Bear Creek Mining Corp. (BCM:TSX.V) has billions of pounds of zinc that most investors are not giving value to; they're just looking at the silver component.

 

TGR: What will be your fundamental message to people at the upcoming conferences where you're speaking?

 

LR: My fundamental message will be that there are some extraordinary bargains to be had in this market when share prices have been beaten up as badly as they have been, but it's more important than ever before to be selective. A large number of companies are still grossly overvalued, but other companies are trading at irrationally low levels. So take the time; do the due diligence. Find the companies that are trading at very low prices relative to the asset values and load up on them.

 

TGR: Why else should investors stay positive?

 

LR: Some companies are going to double, triple or more in value over the next 12 months. If you can go counter to the popular thinking and come into the market at the bottom and ride it up, then your potential gains are enormous.

 

TGR: But what should people do if they have a portfolio of underperformers?

 

LR: They need to bite the bullet and sell many of the companies they hold. They need to take a good, hard look at everything they own and make a decision on whether that company has near-term growth potential. I know it's painful to sell something at a loss. But if the price is down, you have lost money. You need to get whatever cash back you can and deploy it into things that have better, near-term growth prospects.

 

The Cambridge House World Resource Investment Conference 2013 will be held in Vancouver May 26-27.

 

Lawrence Roulston is an expert in the identification and evaluation of exploration and development companies in the mining industry. A geologist with engineering and business training, he has more than 20 years of experience in the resource industry. He has generated an impressive track record forResource Opportunities, a subscriber-supported investment newsletter. Roulston has launched an investment fund, the Metallica Development Fund, to take advantage of severely over-sold positions in high-quality resource companies. The focus of the fund is on companies with production and/or advanced-stage exploration and development projects—companies with potential for near-term recovery in value that also have potential for longer-term growth.

 

Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

 

DISCLOSURE: 
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Sulliden Gold Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Lawrence Roulston: I or my family own shares of the following companies mentioned in this interview: Revolution Resources Corp., Millrock Resources Inc., Altius Virginia Mines Inc., Riverside Resources Inc., GoldQuest Mining Corp. and Colorado Resources 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 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) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent. 
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

 

Streetwise - The Gold Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

 

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

 

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

 

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

 

101 Second St., Suite 110
Petaluma, CA 94952

 

Tel.: (707) 981-8999
Fax: (707) 981-8998

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History