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Jeff Killeen: A Picky Player's Guide to a Cautiously Optimistic Mining Market


 -- Published: Wednesday, 26 March 2014 | Print  | Disqus 

Source: Brian Sylvester of The Gold Report  

 

The price of gold may be enjoying a double-digit increase so far this year and some equities may even have doubled their value, but Jeff Killeen of CIBC World Markets says it's not time to jump into metals with both feet. Be selective, Killeen says in this interview with The Gold Report.

 

The Gold Report: The price of gold has increased 14% this year. Is that due to gold's safe haven status?

 

Jeff Killeen: The safe-haven mentality is one element that's supporting the gold price. There is uncertainty in the market about the strength of the U.S. economy. A number of economic indicators reported during the last two months have not met forecasts. The rebound may be slower than expected. Buyers are coming back to bullion.

 

Unrest in the Ukraine is also helping to support the gold price, however, to a lesser extent than U.S. economic data. If weaker-than-expected indicators persist—and severe weather in the U.S results in soft data —such a scenario could be positive for gold in the near term.

 

Even before this rebound, there was very strong physical buying around the $1,200 per ounce ($1,200/oz) level from Asia. The investment community believed that there was a base established and started putting money back into the space with much less risk of a downside move.

 

TGR: It's now six years since the economic crisis of 2008. Is it possible that a consensus could form that a traditional economic recovery is not going to occur? And if this consensus does form, would it be a big boost for gold?

 

JK: Certainly. However, I think that that consensus may take a little while to form because most of the U.S. economic indicators started moving in the right direction in 2013. In the next three to six months the impact from severe weather last winter will obscure the data picture.

 

TGR: The mood at this year's Prospectors and Developers Association of Canada (PDAC) conference has been described as "cautious optimism." Would you agree?

 

JK: I'd say the tone was divergent—some senior management teams were feeling very cautious about commodity prices and general market appetite for mining equities, whereas a lot of the junior management teams had a much greater conviction that 2014 would be a strong year for the metals and equities.

 

TGR: If you look at the juniors and mid-caps, a lot of these stocks have gone up 25%, 50% and even 100% this year. I would have thought you would've seen a lot of smiling faces at PDAC as a result of that.

 

JK: Very true, but even a 100% uptick still leaves some share prices below where they may have been at better points in 2012. There is still that rearward-looking view to where the stock prices have come from, and a lot of them are a long way from there.

 

TGR: As capital returns to the mining sector, would it be correct to say that it will return first to the producers, second to companies with late-development assets and then, third and finally, to explorers?

 

JK: That succession sounds reasonable; however, new capital investment will certainly be selective. I would expect to see capital flowing into the space across the market-cap spectrum, but those companies or projects that are marginal at the current gold price or require further appreciation in the price to generate acceptable returns are likely to find it difficult to attract any new investments in 2014.

 

TGR: How can smaller companies, specifically explorers, demonstrate that they are worthy of financing?

 

JK: The first question anyone should ask when looking at the explorer space concerns the management team. Pick a solid team, especially in a market where accessing capital can be difficult. Spending dollars wisely is important.

 

Beyond that, a project with strong grades can give a comfort level to the buy side that a project could be profitable in the future, considering it's very difficult to assess where gold prices might be four, five or seven years from now.

 

Other benefits—geographic or logistic—such as being in the right region for having a smooth permitting process and having good roadways, rail or power, can add value.

 

TGR: Given the recent increase in the price of gold and the significant uptick in a lot of equities, do you think that investors are embracing the sea change?

 

JK: There is a belief within the investment community that we're finding a bottom for the commodities. We do know that equities underperformed to the down side of the gold and silver price. Even just to revalue based on current spot prices means that there is probably still some upside to be had in a lot of the equities. With that in mind, investors are feeling better, but not excited to the point where there's going to be broad-scale investment across the mining space. It's going to be selective. It's going to be higher-quality names or those that have a higher prospect for development. It's not going to be widespread just yet.

 

TGR: Jeff, thank you for your time and your insights.

 

Jeff Killeen has been with the CIBC Mining research team since early 2011. He covers and provides technical assessment of junior exploration and mining companies worldwide. Previously, Killeen worked as an exploration and mine geologist in several major mining camps, including the Sudbury basin and the Kirkland Lake region. Killeen earned his Bachelor of Science degree from Carleton University and is an executive committee member of the Toronto Geological Discussion Group.

 

DISCLOSURE: 
1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor.
2) Streetwise Reports does not accept stock in exchange for its services.
3) Jeff Killeen: I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent. 
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

 

Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

 

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

 

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

 

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.


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 -- Published: Wednesday, 26 March 2014 | E-Mail  | Print  | Source: GoldSeek.com

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