With gold at $1191/oz and silver at $18.82/oz showing no signs of abating, I turned to Andrew Hoffman, Vice President, Investor Relations for Geovic Mining (TSX: T.GMC, Stock Forum) for insight into the world of precious metals investing.
Andy is a Chartered Financial Analyst (CFA) and has a diverse history in the financial markets, specializing for the past decade in the energy and precious metals sectors. From 1996 to 1998, he worked as a buy-side analyst, specializing in small-cap companies across a variety of business sectors. From 1998 through 2005, he was a sell-side analyst covering oilfield service equities at Salomon Smith Barney. Since 2005, he has managed an extensive portfolio of small to micro-cap mining equities, and performed investor relations consulting for junior mining companies. In 2007 through early 2008, he held the title of Vice President, Corporate Development, for EXMIN Resources, a Precious Metal mining company. He is currently Vice President, Investor Relations for Geovic Mining, a publicly listed cobalt mining company.
Q : Mr. Hoffman, in the face of the recent volatility in the stock market and gold hitting new highs – what would be your view/forecast of gold moving forward (is this the end of the bull run or does gold have a ways to go)? Is it of concern to you that everyone seems to on the same side of a long gold short dollar trade?
A: I believe the gold bull market is still in its very early stages, even after ten years of annual increases. The factors that drove me toward precious metals in 2002; rising deficits, easy monetary policy, a bankrupted industrial base, growing housing and consumer spending bubbles, and rising global anger toward the U.S. - have increased by several orders of magnitude in recent years.
Moreover, the global financial system, particularly in the U.S., is showing its true colors as the Ponzi scheme of paper money and paper securities that is it to investors, institutions, and governments world wide.
When you combine these factors with extraordinary supply/demand fundamentals for both gold and silver, increasing distrust of Central Banks such as the Federal Reserve, Bank of England, and Bank of Japan, as well as the nearing end of the manipulative gold and silver cartels, you can see why the bullish move in precious metals has the potential to be the most explosive of all time. And, unlike past manias like the internet, it will be based on a combination of greed and fear.
As far as the "short dollar trade being too crowded," I'd dismiss it as nothing more than Nazi-style propaganda with no basis at all, only an underlying motive of trying to scare people out of their gold and silver positions so that the "bad guys" can take it from them.
Q: Why do you think the larger cap gold stocks are underperforming gold?
Despite the broad rise in most stock market sectors this year, investors have been far more defensive due to the currently weak economic conditions and memories of last year's stock market collapse, particularly in the junior mining sector where the average stock fell roughly 80%, and for some far more. The TSX Venture Exchange remains 60% below its spring 2007 high, and a lack of capital amidst the juniors remains a sticking point for investors worried about further economic/market calamities and, potentially, further share price dilution.
Given the limited knowledge of the PM sector in the United States, my sense is that, that far, most of the new capital has flowed into the largest of names, as well as the big precious metals ETFs such as Market Vectors Gold Miners (NYSE:GDX, Stock Forum), SPDR Gold Trust (NYSE: GLD, Stock Forum), iShares Silver Trust (NYSE: SLV, Stock Forum), and now Market Vectors Junior Gold Miners (NYSE: GDXJ, Stock Forum). But as the "Street" becomes more comfortable that the gold and silver bulls are here to say, my guess is that money will pour into the more speculative names.
In mid-2007, the average PM junior traded for roughly $4.00-$7.00/ Ag equivalent ounce, regardless of the nature of those resources/reserves, and that number fell as low as $0.20-$0.25/oz last winter before mildly recovering to roughly $0.50-$0.75/oz today. I expect the former valuations to be achieved again in the not-so-distant future, and potentially be exceeded dramatically when gold and silver commence on parabolic upward moves.
Q: On a related note, what is your fundamental outlook/forecast on silver?
Funny you should ask, as I am more bullish on silver than gold. Silver has a long, storied history as money in dozens of cultures over hundreds of years. There is a reason why dozens of countries (such as Argentina) and currencies (such as the French "l'argent") mean silver, and that relationship will remain intact long after the dollar and Euro are gone. "Poor man's gold" is far more affordable (for now), and far more useful for bartering if required, yet has the same monetary properties and history as gold.
However, unlike gold, silver is consumed by industry as well, and it is estimated by silver experts such as Ted Butler that no more than one billion ounces of "investable" silver still remains, worth roughly $20 measly billion paper dollars in today's hyperinflationary global monetary environment.
Throw in the fact that roughly 70% of all silver production is by-product, primarily from base metal mines, and you have a precious metal with relatively little supply elasticity during a raging bull market. Moreover, putting it mildly, silver cartel activity is far more blatant, and more vulnerable, than even the gold cartel. And trust me, their end on this orb is nigh.
Q: Given that you, Sir, are the investor relations representative for Geovic Mining – can you please elaborate on Geovic’s cobalt, nickel and manganese project in Cameroon and a few reasons why investors should be paying attention to the company? Also, what are some of the fundamentals behind cobalt?
Geovic owns 60.5% of Geovic Cameroon ("GeoCam"), with the remaining 39.5% controlled, and to date fully funded, by the Cameroonian government. GeoCam owns the largest primary cobalt deposit in the world, which is important because roughly 95% of all cobalt is mined as by-product, mostly from extremely expensive nickel and copper mines. Additionally, it is located in Cameroon, Africa, which is quite politically stable, particularly compared to the DRC (Democratic Republic of Congo), where the majority of cobalt reserves (via copper deposits) are located.
GeoCam had planned to construct and finance its Nkamouna (ka-moon-ah) cobalt project a year ago, but was delayed in this action by the falling capital and commodity markets. However, the Company was very active in working to increase the resources/reserves and reduce project costs/risks during 2009, and consequently anticipates a significantly more bankable Feasibility Study to be completed around mid-2010, with significantly lower capital expenditures than the $379 million estimated in the September 2008 Feasibility Study. At that point, the Company aims to commence financing and construction, targeting initial production in late 2012.
Equally important is the fact that long-lived reserves in a politically stable nation have attracted the attention of multiple potential cobalt (and nickel/manganese) off-take partners in the Far East. Such companies think more about long-term supply issues than Western banks and trading companies, increasing the likelihood of mutually beneficial agreements being reached.
Q: Lastly, if you could only buy 1 stock (other than Geovic) today what would it be and why do you like it?
I would say that the entire precious metals sector has tremendous upside potential; particularly the smaller companies due to their upside leverage and currently near record-low valuations. But the nature of such investments depends on one's appetite for risk.
To be conservative, I would highly recommend Central Fund of Canada (AMEX:CEF, Stock Forum) and Central Gold Trust (AMEX: GTU, Stock Forum); (TSX: T.GTU.UN, Stock Forum), two closed-end funds managed in Canada but traded in both Canada and the United States. CEF holds roughly 60% gold bullion and 40% silver bullion, while GTU holds 100% gold. The premiums to NAV, or Net Asset Value, have fallen closer to the 5%-10% range in recent months, but I believe they will return to the 30%+ range as the PM bull takes off, particularly if mistrust in paper securities causes investors to flee from potentially dangerous ETFs such as GLD and SLV. CEF and GTU are GUARANTEED to hold the gold and silver they purport, while, in my view, GLD and SLV are not.
Arjun Rudra, Editor of http://please-dont-take-me-seriously.blogspot.com/
I’m a 24 year old recent Simon Fraser University graduate in Vancouver, running a blog about investing in general, commodities and resource stocks at: http://please-dont-take-me-seriously.blogspot.com The blog covers commodity and mining-related news from around the world ,while offering insights and analysis of micro-cap mining stocks. Ever so often. I am also able to interview portfolio managers, analysts and company executives to probe their insights into the world or resources.
