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Miners that Create Their Own Momentum

 -- Published: Tuesday, 27 May 2014 | Print  | Disqus 

Jeff Wright of H.C. Wainwright & Co. doesn't anticipate a major shift in the price of gold near-term, so he doesn't expect the gold price to provide momentum for mining company stocks. Instead, he's looking at companies that can provide their own upward movement in this interview with The Mining Report.

The Mining Report: Jeff, when we talked three years ago, $2,000 per ounce ($2,000/oz) gold seemed to be within reach. The Toronto Stock Exchange was full of cash-heavy juniors. What is your forecast for gold's prospects for the rest of 2014 based on today's fundamentals?

Jeff Wright: Gold should stay centered around $1,300/oz, not moving more than $50 in either direction, through the end of the year. Forces holding gold within that narrow band include the U.S. Federal Reserve tapering quantitative easing to a point where, possibly in mid-October, asset purchases will end and interest rates will increase. Also, the macroeconomic environment's improvements are still fairly soft.

The one area of concern that could drive gold either much higher or much lower is the continuing crisis in the Ukraine. There is safe-haven demand around the world to avert exposure to what is now viewed as a soft conflict. If the conflict between Ukraine and Russia escalates, gold could go above $1,350/oz. If there is a peaceful resolution, gold could dip lower before coming back up $1,250–1,300/oz.

TMR: Do you think the Federal Reserve is willing to counterbalance if the price of gold goes way up?

JW: No, the Federal Reserve's mandate isn't aligned with the macro-political situation in Europe. The Federal Reserve would be much more concerned about the economic impact of a conflict in Europe and its impact on gross domestic product, employment and inflation, than on the price and movement of gold.

TMR: Even when the price of gold was a lot higher three years ago, we were talking about the flight of investors to larger companies. With gold in the range that you predict, are some juniors standing out as value plays?

JW: There was a flight from mining equities to the large-cap and the mid-cap companies a few years ago. Generalist investors left the gold and mining space as momentum dissipated. There are quality juniors out there that are in production or advancing large-scale, high-growth projects, but it becomes a stock picking exercise versus investing in a basket of juniors or large-cap mining companies.

TMR: How do you decide what goes in the basket?

JW: It comes down to if a company has a worthy project. Is the project going to be a true mine or is it a mine that's in production that has expansion possibilities versus one with a short mine life and a small project? We're not looking for small projects with limited mine lives.

Second, we want to be in good jurisdictions with stability. That being said, there are projects outside of the usual suspects in Canada or Nevada that make sense in today's price environment. We're not very positive on Africa based on the geopolitical risk and the lack of interest from U.S. institutions, but we also recognize there are some noteworthy large-scale projects there.

We still like Nevada. We like Mexico. We like Brazil. We like certain parts of Canada.

TMR: Are other small to midsized companies buying projects that have been deeply discounted?

JW: There are additional opportunities out there—other projects and companies are in play. A number of high-quality projects either have lower capital costs to get to production or a reasonable permitting timeline. These projects have substantial ounces and good grade, but are at a point where the existing management team, either through lack of ability to raise capital or with geologists who have done a great job on discovery but are not production-minded, can't take the company further. We see that transition all the time in mining and we're certainly at one of those points right now in the cycle.

TMR: What will set the stage for the next rally in the juniors and how can readers prepare themselves to play a part in that?

JW: It comes down to identifying companies that have a path toward advancing a project. Either they have the capital or they have the skill set. It's going to be a very selective rally through 2014. I don't see a broad market rally of all the juniors. There is going to be a number of companies that have good-quality projects that don't go anywhere, or that people aren't very excited about. A lot of that comes down to what's the next step on this project becoming an actual mine that can show production—and profitable production at that. Investors really have to do their homework and understand that a lot of projects aren't going to advance. They're going to be on the shelf for a while until either costs come down or commodity prices go up.

TMR: Thanks for your time.

- The Gold Report

Jeff Wright of H.C. Wainwright & Co. has more than 15 years of capital markets experience. Previously with Global Hunter Securities, Wright has also worked as a managing director and head of the natural-resource practice at Shoreline Pacific LLC. Prior to that he was vice president at Montgomery & Co. and was a leader on the team that launched a capital markets business in a historically mergers and acquisitions-focused investment bank. Wright was formerly a vice president at Robertson Stephens in the equity financial products group. Wright received his Master of Business Administration from the University of Southern California and his Bachelor of Arts degree in political science from North Carolina State University.

Want to read more Mining Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit The Mining Report homepage.

1) JT Long 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 employee.
2) Streetwise Reports does not accept stock in exchange for its services.
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