-- Posted Friday, 8 May 2009 | | Source: GoldSeek.com
Whether it's precious or base metals in the ground, Rosseau Asset Management founder Warren Irwin likes to see extensive, aggressive drill programs in promising deposits. In this exclusive interview with The Gold Report, he says that investments in such companies have paid off in the past and are likely to do so in the future. Gold or silver, copper or nickel, even if commodity prices fall, he argues that the miners with the higher-grade deposits and busy drills have—and offer—the best price protection.
The Gold Report: Opinions go both ways—whether people should be buying or selling gold, for instance. Copper is picking up and going strong, so some folks say it's time to get back into base metals. Would you share your overview of the precious and base metals markets today? Where do you see the opportunities?
Warren Irwin: I've been investing in these sectors for years and one thing I try to avoid is a view on the commodity itself. I try to invest in the companies within a sector that have tremendous upside potential, whether the commodity goes up or not. If the commodity declines in value, extensive drill programs will help offset that decline. This approach has worked really well for us.
A couple of interesting things are going on with respect to both base metals and gold. Central banks have informal agreements to keep a lid on the gold price because its rapid appreciation would undermine the strength of the fiat currency system. Longer term, despite that downward pressure, there seems to be demand on the buy side and gold's fundamentals are pretty good. In the meantime, we just try to pick the best among miners that are finding gold every day as they sink drills into their properties.
On base metals, copper in particular has had a reasonable run the last little while. Much of that is due to countries like China stepping up to the plate and investing money in copper they'd otherwise invest in U.S. dollars. I'm sure the amount of copper the Chinese are buying is well in excess of their demand, but over the longer term they believe it's a good place to keep their money. That's been very bullish for copper.
TGR: If they're buying more copper than they need, won't copper fall once they stop buying? It will take years for them to work through the inventory they've accumulated.
WI: That may be the case. I think they view copper as a strategic metal. They are building out their electrical infrastructure, so they're going to be using a lot of it over the coming years. But you're right. It certainly would be something to keep an eye on when they start backing off buying copper.
TGR: When you talk about gold, are you also thinking of the precious metals—silver, platinum and palladium?
WI: When I look at precious metals, I generally focus on gold and silver. The reason I don't consider platinum and palladium precious metals is due to the industrial demand for them. The correlation between platinum-palladium prices to automotive sales is strong. So in terms of precious metals, I stick more to silver and gold. Even with silver and gold, the relationships between those two commodities can be quite volatile.
We've had substantial silver positions in the past and we really liked some of the companies that had good silver deposits. I'm definitely quite positive on gold and silver, long term. I think buying good companies in those businesses is a smart thing to do.
TGR: Are you thinking of near-term producers or more of drill plays?
WI: I'm a real fan of drill plays. I'm not a fan of near-term producers because, as I suggested, we've really benefited when we've been able to buy into a company with maybe a half a million ounces that's on its way to one to two million ounces. That way, if the price of gold stays where it is, that's great. If it goes up, that's better. But if the price drops from, let's say, $875 an ounce down to $700, the fact that this company is drilling out resources from half a million to one to two million—that increase in resources will offset a substantial amount of the decline in the gold price. For that reason, we generally stay with higher-grade deposits because they offer the best price protection.
TGR: When you say "long term," what's your timeline?
WI: I think it's just a matter of time before the printing of U.S. dollars has a massive inflationary impact on the world. And I think gold will be a very strong performer once people figure that out. People will tire of earning virtually nothing in their money market accounts. As they gradually start seeing the impact from the U.S. government printing a substantial amount of dollars, they will realize they are losing purchasing power. At that stage, they will see gold as one of the better-performing investments.
TGR: You say the U.S. government, but aren't all governments trying to print their way out of this economic morass?
WI: Not all of them, and not to the same extent as the U.S. The U.S. is really the poster child for printing currency. Another important factor, too, is that because gold is dollar-denominated, its performance in U.S. dollar terms would be very good. That's why I focus more on the U.S. dollar than other currencies.
TGR: Geithner says he's just going to increase interest rates to control inflation in the future and just pull out some of the M1s. If we're looking at gold as a hedge against an inflationary U.S. dollar, and you listen to Geithner, what's to say gold's really going to take off and they can't continue to manipulate it for another 10 years?
WI: We'll see what happens. History is rife with examples of currencies that have not fared well. I was on a website the other day looking at 500 failed fiat currencies, and it was surprising what a short lifespan these paper currencies had. You don't have to go very far back to see the number of industrial countries that printed their way into some serious problems. The most recent major industrial country to do so was Germany in the early part of the last century. I have serious concerns about that. If they were taking bets on whether Geithner would be right or I would be right, I think many would bet on me.
TGR: That same article said an average fiat currency had a life expectancy of around 100 years. That argues for increasing value for precious metals, gold and silver. What drives base metals? And which ones do you like?
WI: Base metals have been bouncing around. They got a bit carried away for a while when you had nickel north of $20 and now it's down below the cost of production in major mining camps, such as Sudbury. I don't think there's much downside from here. The prices of some of these base metals have muddled along here for a while and, in that muddling along kind of environment, the best ones to invest in are companies that are able to increase their resources through an extensive and aggressive drill program. I'm always on the lookout for new discoveries—I like looking at new copper and nickel discoveries.
Warren Irwin is founder, Portfolio Manager and Chief Investment Officer at Toronto-based Rosseau Asset Management Ltd., a top-rated Canadian money management firm that has also earned significant recognition globally. Catering to high net worth and institutional investors, Rosseau specializes in maximizing long-term capital appreciation through North American special situation and event-driven investing. Established in 1998, Rosseau has some C$125 million assets under management, and has made a name for itself as a strong performer in the area of alternative investments. Rosseau's flagship fund boasts a 20.47% average compound rate of return since inception over 10 years ago, compared to 5.67% for the S&P TSX Total Return Index over same period. Warren is rightfully proud of earning such returns against a backdrop of fallout from the Long-Term Capital's implosion and the worst financial meltdown since the 1930s.
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-- Posted Friday, 8 May 2009 | Digg This Article
| Source: GoldSeek.com
