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-- Posted Monday, 31 May 2010 | | Source: GoldSeek.com
London-based CD Capital Founder Carmel Daniele has seen these sorts of market jitters before, and insists there is little to worry about in this exclusive interview with The Gold Report. "Most people sell in May and go away. It happens every year," she says. The self-assured Daniele launched the CD Private Equity Natural Resources Fund in 2006 to tap into what she calls a commodity super-cycle. She says that despite a recent dip in the copper price, the super-cycle is in good form, and she envisages gold nearing $2,000 within 12 months. She also recommends you take advantage with some promising junior gold plays in Colombia.
The Gold Report: You started your namesake CD Private Equity Natural Resources Fund in 2006 to take advantage of the commodity super-cycle, which you believe could last more than 20 years. Copper, often considered a barometer of global economic health, fell from about $3.60 per pound to less than $3.00 from April to May. Is the super-cycle still in good health?
Carmel Daniele: I still think it's in good health. If you look at history, these super-cycles last on average about 30 years. The U.S. super-cycle involved the urbanization of 100 million people and it lasted 40 years in the 1880s. Then the modernization of Japan in the 1960s involved 30 million people and that super-cycle lasted 30 years. This super-cycle involves the urbanization and industrialization of 3 billion people. We're only 10 years in, so I wouldn't be surprised if it lasts longer than 20 years. I've got a great chart on this tracking gold alongside copper. The thing is, the swings are quite violent. It's quite common for the price of copper to go up and down, but the long-term trend is up.
TGR: Do you look at anything else besides the chart that allows you some confidence in the cycle?
CD: I look at the growing number of people in the world; the growing middle class which is fuelling demand for resources. But I also look at the supply side. It now takes a lot longer from the discovery of a mine to the point where it's into production. People have been talking for a long time about lots of copper companies in Alaska, and the DRC getting into production and supply coming on stream, but it just takes a lot longer. So the supply side constraints are heavily fuelling this super-cycle too.
I also look at what some of these emerging countries are doing rather than saying. If you look at China and India, you will see they are securing limited resources around the world in order to continue to build out their empires. So, if you take a macro view, this super-cycle is still very healthy. We try to invest in companies that have an asset that can develop and grow and then be sold to some of these emerging countries that desperately need the resource for their industrial revolutions.
TGR: Nonetheless, we are experiencing some volatile markets right now. I think investors in most places are looking for ways to find shelter.
CD: It's not uncommon. Basically, most people sell in May and go away. It happens every year, and I hear this every year. It's like, "Oh my goodness, the markets are really bad!" There's always something you can blame it on. At the moment, it's being blamed on the euro and the EU crisis. It happens every year.
TGR: German Chancellor Angela Merkel recently said that she fears for the euro.
CD: I think that the whole thing is being blown out of proportion. Nearly 70% of the euro area's economy is made up of the three countries: France, Germany and Italy. So unless their sovereign debt crisis derails, I don't see how the euro could weaken sufficiently. Greece is only a very small part of the EU area, just 2.5%. I can understand why she would say that because all of the euro countries have very different legislation, but they've all got the same currency. They are all affected and interrelated. For the euro to be saved, maybe what you could see is more legislation and some better enforcement so that the laws are aligned a bit more.
TGR: What's your hedge against a possible collapse of the euro?
CD: People are wondering, "Which currency do I hold my money in? The euro? The pound? U.S. dollars?" I hear this all the time. The safest bet is gold. It's the safest currency. It's become a currency. I am actually investing in gold equities as a result. I see gold doing very well.
TGR: How well?
CD: Gold could get really, really high, especially if China, for example, starts buying it. There's often been talk about them diversifying out of the U.S. dollar into gold. It could easily break through $2,000 if you have China suddenly buying it.
TGR: Where do you see the gold price headed in the next 12 months?
CD: I think mid $1,000 to $2,000.
TGR: How should investors get exposure to gold?
CD: Gold equities.
TGR: Are we talking seniors, intermediates, juniors?
CD: I prefer the juniors. You can invest in the juniors, mid-tiers or even the big caps, but my fund invests mainly in the juniors, as that is how you get the most leverage from the gold price.
TGR: What about other ways to gain exposure to gold?
CD: People can always buy gold bullion. That's probably the safest, but then you have to worry about where you're going to store it. Some people have invested in ETFs, but the problem is you don't actually have possession of the physical gold, even though they say they've got it backed by physical gold. I think gold equities are the best because you get a multiplier effect. I prefer the ones that have some exploration upside where the asset can grow. So you're not just betting on the gold price going up; you've got a resource that can potentially grow.
TGR: When you talk about gold the excitement in your voice is apparent. What is it about gold that makes you excited?
CD: Gold's a psychological metal. It's driven by more than just demand/supply dynamics. Basically when economies aren't doing very well, and people aren't feeling very optimistic, they tend to flock to gold. It's a currency as well. The potential is enormous there. Plus you've got China and India; if they start buying gold, it could easily skyrocket. Then you've got inflation because of all the paper money that's being printed and is starting to circulate in the economy due to government stimulus spending. Gold is a great hedge against inflation—to keep the purchasing power of your money. I suppose I prefer the gold equities because you get that multiplier effect. You see, if the gold price goes up, the leverage that you get is so much higher than just holding the gold bar itself.
TGR: What do you look for in a gold company?
CD: I like there to be growth in the underlying asset. There has to be some sort of upside. The deposit has to be in a safe jurisdiction. Very importantly, it has to be run by management with a good track record in developing an asset. The other thing I look for is whether the company is likely to be taken out—or even better, if it is both predator and prey. There's a lot of consolidation in the sector, because when companies start producing, they're shrinking, as they are depleting their asset. Every time they're producing gold, they've got to replace that resource. They either have to go out and discover one or buy out a junior.
TGR: Is there anything that we have not talked about that you're excited about in the gold sector right now?
CD: I think there's still a lot of money to go into the gold sector that hasn't, to date, and is ready to pile in.
TGR: Where would this money come from?
CD: Pension funds and very long-term money. In the past, funds mainly from the U.S., didn't believe so much in gold as a currency or anything else. Now I think they are starting to see the benefits of it being a hedge against inflation and a safe form of currency.
TGR: Carmel, thank you for talking with us.
Carmel Daniele is the founder of CD Capital and CEO of the CD Private Equity Natural Resources Fund. The Fund's investment objective is to achieve capital growth through pre-IPO and pre-trade sale companies in the natural resources sector, targeting opportunities that deliver substantial returns on exit. Carmel was previously focused on selecting and negotiating natural resource investments for the Special Situations Fund at RAB Capital. Prior to this, she was a Group Executive in Corporate Advisory at Newmont Mining, negotiating and structuring mergers and acquisitions around the world for the Newmont Capital group, which included the US$24 billion three-way merger between Franco-Nevada, Newmont and Normandy to create the largest gold company in the world.
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-- Posted Monday, 31 May 2010 | Digg This Article | Source: GoldSeek.com
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