-- Posted Friday, 3 May 2013 | | Disqus
Source: Brian Sylvester of The Gold Report
Investors were shaken by the market's death-defying drop and recovery in a matter of minutes recently. But the "tweet retreat" hasn't changed the reasons why investors need gold companies in their portfolio. Ryan Walker, a mining analyst with Casimir Capital in Toronto, tells investors to look past the headlines to what underpins the market. In this interview with The Gold Report, Walker says that all that cash pumped into the economy at some point has to start driving inflation.
The Gold Report: Casimir Capital adjusted its metal price forecasts after the recent drop in metals prices. What are your near-term numbers for gold and silver?
Ryan Walker: For the remainder of this year, we're forecasting $1,600/ounce ($1,600/oz) gold, then $1,700/oz next year and $1,800/oz for the subsequent two years. Long term, our price assumption is $1,400/oz.
For silver, we forecast $28/oz for this year, $30/oz next year and $33/oz for the subsequent two years. Our long-term price is $26/oz. Unfortunately, we put these out before the big crash in gold and silver. We missed that event in our forecast.
TGR: What's underpinning that bullishness?
RW: According to some reports, there's been some $6 trillion in quantitative easing over the past few years. At some point, inflation is in a real way going to kick in. It's been kept at bay so far, but inflation has got to send gold higher. While mechanisms exist to fight that, it is hard to see inflation not happening at some point. The big question is when, not if. We're bullish on gold, but we've tempered our expectations to reflect the current market.
TGR: Many precious metals investors are still reeling after that dramatic drop in the price of gold in mid-April. What happened there?
RW: It was a confluence of events. There were reports Cyprus would be required to sell gold as part of its bailout package. Some members of the Federal Reserve were hinting that it might be time to end or slow down the pace of quantitative easing. A couple of the major banks in the U.S. recommended going short gold. It all came together to spook an already jittery market. Exchange-traded funds are so easily traded that things start to trade through stop losses and cascade and feed on themselves and become a self-fulfilling prophecy.
As an example of how quickly things can move nowadays, the Dow Jones Industrial Average recently dropped 130 points in the span of about a minute on a false Twitter headline from the Associated Press that there were explosions at the White House. Then it popped right back up to where it was—all in less than five minutes. That's the kind of world we're in.
TGR: Should investors expect similar price shocks in the near and medium term?
RW: The potential is out there for it. Can you call the kind of thing that happened to the Dow recently? I don't think so. Have the fundamentals for gold changed? I don't think so.
TGR: Did what happened make you more of a conspiracy theorist about gold price manipulation?
RW: No, but you can definitely see where conspiracy theorists are coming from. Maybe it does make you wonder a little bit longer about some of those theories. But I think it was just the confluence of a number of factors that got things rolling, and then electronic trading just created a cascade effect.
TGR: Your coverage involves small-cap precious metals, mostly in the developer space. What's the essential investment thesis for those types of names?
RW: For the most part, I'm dealing with the explorers, emerging producers and developers. I look for something that's got potential to get big, an asset that would be attractive as a merger and acquisition (M&A) target. But if that doesn't happen, I look for something that could feasibly be put into production by a smaller company. With producers you look for the low-cost companies with solid balance sheets, but also companies that have some real legs to them, preferably somewhere in a safe jurisdiction.
TGR: What's your preferred valuation metric for junior explorers?
RW: A lot of people use Enterprise Value per ounce as an initial filter, which is fine for that purpose. Not all ounces are created equal, however. Generally, an ounce of sulphide gold requires more work to recover compared with oxide ounces, where recoveries can be easier and sometimes you don't need to go and build a big mill. Do you really value both those types of ounces the same way? You have to look at the whole picture—jurisdiction, management deposit type, metallurgy, etc.—there is no one magic bullet.
TGR: Has the recent dive in precious metals prices put further financing pressures on the explorers?
RW: Sure, but it is always an issue for them. I like to look for big deposits that can help self-finance, that might have by-product credits that could be sold forward. If a gold deposit has some silver, a company can sell forward the silver to fund the gold part of the deposit.
TGR: Explain grade smearing and how investors can identify it.
RW: I would encourage investors to not just read the headline numbers, but go down and read through press releases and the actual table of drill results. That headline might say 150m at some flashy high-grade number, but more often than not there are smaller subintervals included containing much higher grades, disproportionately influencing the overall average. When they're averaged, it makes the whole story sound good.
TGR: The precious metals space is generally quieter in the summer. What should investors expect this year?
RW: I wish I knew. The plunge heading into summer is an interesting set-up. I don't expect a massive rebound over the summer; the plunge happened in the blink of an eye, but I don't expect the recovery to do the same thing. It will be a slow and steady rise back up. Ultimately, I have to believe this massive money printing campaign that's been going on has got to come home to roost in the form of inflation. That's got to send gold higher.
Ryan Walker joined Casimir Capital as a mining equity analyst in October 2012; he previously served in a similar position at Jennings Capital and as a research associate at Wellington West Capital Markets. Prior to that, Walker has seven years of experience reporting on the mining industry for a well-respected trade publication. He holds a masters degree in geology from the University of Windsor.
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-- Posted Friday, 3 May 2013 | Digg This Article
| Source: GoldSeek.com
