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-- Posted Monday, 7 February 2011 | | Source: GoldSeek.com
By The Gold Report and Lawrence Roulston The value of gold may be plummeting but many gold stocks are clocking double-digit gains, according to Lawrence Roulston, the editor of the Resource Opportunities newsletter and an expert on mining investments. "It's definitely a buying opportunity. The fundamentals are strong, and we're seeing weaknesses in the prices on a short-term basis here," he says. In this exclusive interview with The Gold Report, Roulston explains why he loves the prospect generator model and why now is the perfect time to snub bullion and cozy up to mining equities.
The Gold Report: So far this year, gold prices have fallen from about $1,420/oz. to around $1,360/oz. Yesterday, DundeeWealth Chief Economist Dr. Martin Murenbeeld told a Toronto audience that this correction could go even deeper and last as long as half the year. Do you agree?
Lawrence Roulston: There are so many variables impacting the gold price that it's really hard to make short-term predictions. My approach is to recognize the long-term strength in the gold market, and then use short-term corrections as buying opportunities.
I focus on companies involved in the gold sector rather than looking at the bullion market directly. Exploration and development (E&D) companies will gain from that long-term strength in the gold market. The companies that are successful at advancing their projects are going to generate gains for shareholders that are far greater than the short-term moves in the metal prices. Let me explain, the recent dip in the gold price is around 5%. But the stocks of several companies we follow have gained 50% during that time. Those big gains are based on advancing the projects and meeting milestones along the exploration cycle.
TGR: What other advice would you give to gold investors?
LR: There is tremendous upside in the gold market. If an investor is hoping to profit by day trading bullion or gold stocks, I'm not really the person to help in that regard. I believe there is enormous strength in the market for investors who are looking at the bigger, long-term picture.
The paper currencies in the world are on a downward path. There has been evidence of that for a decade, and there is evidence that it is most likely going to continue. For example, investors in Europe are becoming nervous about the euro and they're turning to gold. I believe that trend was a major component in the increase of the gold price last year. I believe that trend will continue over the long term as concerns about the euro and other currencies spread to other parts of the world. Gold is becoming more important now as a hard asset to protect value in the long term.
TGR: Do you spend a lot of time looking at the macro level, such as issues with inflation in China?
LR: I spend a fair amount of time monitoring what's going on in the world. I spend a lot of time traveling, and I spend a lot of time in China. Last fall, I was in four other Asian countries. I've been to Europe twice in just the last several months. A major purpose of this travel is to keep tabs on the pulse of the market. I'm very concerned with a number of variables that are going to impact currencies and that could be supportive of the gold market in the long term.
TGR: Do you build financial models on the companies you are researching?
LR: I have years of experience building very sophisticated models. But models are not that effective for early stage companies. It's more a matter of judgment and experience than it is of trying to reduce things to simplistic numbers.
TGR: Indeed. It's difficult to develop a proper model without revenue. You follow mining plays in Colombia and Guyana and track what's going on in old camps like the Yukon and Alaska. Would you rather be in a new play in an old camp or a new play in a new camp?
LR: I definitely would rather be in a new play in an old camp. A tremendous amount of exploration work was done all around the world over several decades. Areas like the Yukon and Alaska saw a lot of really good work done by major companies and juniors, as well as prospectors. Building on that historic information is far more beneficial than is starting from scratch. Perhaps the recent discoveries in the Yukon are not based directly on work that was done previously, but that earlier work provided a geological context that was a basis for the new discoveries. There's always a huge benefit in building on work that was done previously.
TGR: Are you following some companies with promising mineral development projects in Alaska?
LR: I'm following several companies in Alaska. Alaska hasn't had the really big promotional effort behind it that the Yukon has experienced, but there's been a lot of success there. The team behind Millrock Resources (TSX.V:MRO, MLRKF.PK) has had a tremendous amount of experience in Alaska. It's putting that to good use, following the prospect generator model. Now that the company has a number of joint venture (JV) partners that are spending money on its projects, Millrock has had a fourfold increase in its share price over the last year.
TGR: What are your thoughts on the prospect generator model?
LR: I love the prospect generator model. In fact, in a previous life, I was involved in operating a group of exploration companies and we followed that model. That was in the 1980s, and we were among the early ones to adopt it.
There are a lot of companies that claim to be following the prospect generator model, but unless they're very aggressive and effective at bringing in partners, there's not much value in being a prospect generator. That's where a lot of the companies fall down. They're just not aggressive enough at bringing in partners.
Other companies claim to be prospect generators but spend their money drilling their own projects and missing most of the time. Then investors are confused as to what the business model really is. But companies that follow the model properly like Millrock are enormously successful.
TGR: Millrock recently brought in Brixton Metals Corp. (TSX.V:BBB) to pay for work on the Cristo Property in southern Alaska. That's the same geological belt that holds Kiska Metals Corp.'s (TSX.V:KSK) Whistler Project and Northern Dynasty's Pebble Deposit. What do you think of the Brixton deal?
LR: It's very interesting. It's in an early stage. I'm really pleased to be a Millrock shareholder, with the other company out there spending money on that early stage exploration. I think there's enormous potential in that district. The geological team behind Millrock is very familiar with the Northern Dynasty geological setting. That's very encouraging.
TGR: Let's discuss your general outlook for the gold market.
LR: Over the last few months, investors have come back into the junior mining sector in a big way. A lot of companies have seen gains, and there's still huge upside potential. Many of the companies are well financed and are carrying out very productive work programs that are going to generate substantial news flow throughout the year.
A lot less investor attention has been devoted to base metals. I think a lot of investors are surprised to hear that the copper price is near an all-time record high. The base metal market is very strong on a fundamental basis; however, investor interest hasn't really delved into the smaller E&D companies in that space yet. I think there's huge potential in the smaller companies in the junior exploration space.
TGR: So this is a buying opportunity?
LR: It's definitely a buying opportunity. The fundamentals are strong, and we're seeing weaknesses in the prices on a short-term basis here. Investors in North America are so hung up on what's happening with the U.S. economy that they've completely lost sight of what's happening in the rest of the world. Europe is struggling, but Asia and Latin America are doing very well. Latin America had 6% growth last year, and growth in Asia is even more powerful than that. It's the emerging economies that are the driving force in the metals market. That's why we're seeing copper at an all-time high; it's the strong demand that's coming from emerging economies.
TGR: Thanks for sharing your expertise.
Lawrence Roulston is the editor of the Resource Opportunities newsletter. He is also a geologist with engineering and business training and more than 20 years of hands-on experience in the resource industry. Roulston's experience and extensive personal contacts in the industry provide unique insights that have generated an impressive track record for his newsletter. After completing his studies at the University of British Columbia in 1975, Roulston worked as an analyst for Cominco Ltd. and for a mid-sized Calgary oil group for several years. In 1984, he became the vice president for a group of mineral exploration companies. He was also vice president in an investment management firm focused on the resource industry. From 1994 to 1997, Roulston was CEO and director of a mineral exploration company; and since then, he has been a resource industry consultant and independent mining analyst.
*Lawrence Roulston believes Guyana will soon be recognized as an emerging gold producer and that some of the companies operating in the country offer enormous opportunities for investors. Receive your free copy of Resource Opportunities' Guyana report here.
Streetwise - The Gold Report is Copyright © 2011 by Streetwise Reports LLC. All rights are reserved.
DISCLOSURE:
1.) Brian Sylvester of The Gold Report conducted this interview. He personally and/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: Millrock.
3.) Lawrence Roulston: I personally and/or my family own shares of the following companies mentioned in this interview: Millrock. Neither I personally nor my family are paid by any companies. Corporate Contact: Millrock Resources Inc. 604-638-3164 info@millrockresources.com www.millrockresources.com TSX-V: MRO OTCQX: MLRKF Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. GoldSeek.com, Gold Seek LLC have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; GoldSeek.com, Gold Seek LLC make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of GoldSeek.com only and are subject to change without notice. GoldSeek.com assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report. Additional Disclosure: The owner, editor, writer and publisher and their associates are not responsible for errors or omissions. The author of this report is not a registered financial advisor. Readers should not view this material as offering investment related advice. Authors have taken precautions to ensure accuracy of information provided. Information collected and presented are from what is perceived as reliable sources, but since the information source(s) are beyond our control, no representation or guarantee is made that it is complete or accurate. The reader accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Past results are not necessarily indicative of future results. Any statements non-factual in nature constitute only current opinions, which are subject to change. The information presented in stock reports are not a specific buy or sell recommendation and is presented solely for informational purposes only. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise outside of the trading timeframe listed above. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities & therefore information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. Investors are advised to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.
-- Posted Monday, 7 February 2011 | Digg This Article | Source: GoldSeek.com
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