TORONTO – The Gold Report: Eric, the gold bears recently outnumbered the gold bulls inBloomberg’s weekly Gold Bull/Gold Bear Sentiment Survey for thefourth time in a year. Are you a bull or a bear? Eric Coffin: I think the gold price is going to end the year higher, so I guessthat makes me bullish, but I think of myself as agnostic. There needs to be a return of calm to Europe for the gold price tomove much higher. The currency pair trade between the euro and thedollar is going to be a big determinant to the gold price.
There’sbeen more noise about the EU providing stimulus funds to offset allthe government budget cuts in Europe. All of those countries haveto deal with their debt loads. But it’s not realistic to think thatthey can cut their deficit and 3% off their gross domestic productyear after year and realistically get any net growth. The other side of that equation is that the U.S.
has slowed down.That’ll help the gold price because a lot of goldbugs are riding onthere being another round of quantitative easing. I’m not sure it’sgoing to happen. But as long as Federal Reserve Chairman BenBernanke keeps saying it might happen, that’s good enough. TGR: Stagnant gold prices are translating to equities. Dome Infrared Camera
Canaccordreports that “sector weakness in the gold equities over the lastsix years has typically ended with ‘V’-shaped corrections to theupside.” Do you believe that’s what will happen this time? EC: I sure hope so because I’m on the buy side, not the sell side. I’mgoing to feel pretty dumb if it doesn’t happen. We’re still in abull market for gold. In a secular bull market, generally speaking,coming out of a dip tends to be an impressive move. Covert Video Cameras
TGR: Many Yukon junior mining companies are starting their 2012exploration programs after completing off-season financing onbuyers’ terms. What types of companies are getting financing? EC: The only financings I’ve seen in the past five months are eitherrelatively new deals where investors have a lot of respect formanagement-which is a roundabout way of saying that investorsfigure management will figure out a way to make money regardless-orcompanies that have something pretty definitive with a bunch ofdrill holes. Companies that didn’t take the opportunity to raisemoney last year are going to have to pull a rabbit out of theirhat. The Yukon is an expensive place. There’s no getting around it. LCD CCTV Monitors
Outside of companies with discoveries, nobody’s really done largefinancings and that’s going to be tough. About 60% of the companiesare going to have a hard time undertaking any significant programsthis year. If the market gets better, which I think is going tohappen, they still have a shot, but it’s at buyers’ terms. I suspect a lot of companies are going to say, “Let’s just wait andsee if next year is better.” You haven’t seen many announcements.Quite a few of those companies that were talking last year aboutdoing $4, $6, $8 million exploration programs-many of thoseprograms aren’t going to happen. TGR: Desjardins Capital reports that 26 mergers and acquisitions wortha combined $30 billion (B) took place during 2010 and 2011.
Thereare about 120 more companies operating in the Yukon. Are otherjunior explorers going to be forced to merge? EC: I think there will be merger activity at the junior level. Thereare a lot of companies with decent but not spectacular projectswhere they haven’t done enough work and are not in a position toraise money. A merger is one way out for them. TGR: Is it still fair to call the Yukon an area play when the shares ofmost of the juniors operating there have declined considerably,often by more than half? Even good results often don’t tangiblymove share prices.
EC: It still is an area play. This is a fairly common path even for asuccessful area play. The easy money has been made or, as is thecase here, the market’s just lousy and there is a lot ofconsolidation. The Yukon is getting to that point.
The fewcompanies that have done well will have the ability to pick up alot of projects. In any area play, anywhere from a third to a halfof the companies involved are piggybacking on the play to helpraise money. Those companies tend to disappear quickly if theydon’t find something large right away or if the financingenvironment gets difficult. The bad market has exacerbated thingsbut a large number of drop outs from an area play at this stage isnot an unexpected development.
TGR: What are your thoughts on what’s happening in Peru? EC: The political landscape has shifted a lot in Peru. It’s made itvery difficult for anybody outside of Peru-and maybe even insidePeru-to get a handle on what’s a good spot and what isn’t. Thereare a lot of South American countries where mining companies justshouldn’t go because they’re bound to face a political orindigenous population problem and they won’t get permitting. Now noone seems to know what the good areas and the bad areas are. That’sgoing to make it tough for everybody in Peru until this stuff getsclarified.
TGR: Do you have some parting thoughts for us on the market and how ittranslates to the retail investor? EC: I’m fairly comfortable that the U.S. is going to do OK over thenext couple of years. It’s going to have another political fight atthe end of the year when tax cuts die. Europe has the capability topull itself out of its problems.
In a large measure, it’s politicaldecision-making. I certainly appreciate northern Europeans andGermans that don’t really see why they should be footing the bill,but they can afford to foot the bill. We’re not particularly worried about China. It’s trying torebalance its economy. China’s in a different boat from Europe orthe U.S.
in that it’s got $3 trillion in reserves and can open thetaps anytime it wants. China will increase the growth rate when itfeels it’s the right time to do it. The world economy will do OK as well. I know it feels like the endof the world for investors that own a lot of resource stocks as Ido.
The secular bull market hasn’t ended. Ironically, all thepolitical problems in different producing regions are going toextend that secular bull market in metals because it’s that muchharder to grow production to a point that knocks metal prices down. I’ll just leave you with a contrarian thought: Everybody’s sonegative right now because this is what bottoms look like.Everybody thinks the world is coming to an end. Everybody thinksit’s the worst market they’ve ever been in.
Everybody thinksnothing is ever going to go up. That’s what a bottom looks like.It’s not fun to go through. There’s so much negativity everywherethat it’s telling me as a contrarian that there’s probably not alot more pain to go through before things start getting better. If readers would like to download HRA’s new company report onPrecipitate Gold Corp., HRA has set up a special free report offerfor a limited time.
Simply click here and they will send you the report. Eric Coffin is the editor of the HRA (Hard Rock Analyst) family ofpublications. Responsible for the “financial analysis” side of HRA,Coffin has a degree in corporate and investment finance. He hasextensive experience in merger and acquisitions and small-companyfinancing and promotion.
For many years, he tracked the financialperformance and funding of all exchange-listed Canadian miningcompanies and has helped with the formation of several successfulexploration ventures. Coffin was one of the first analysts to pointout the disastrous effects of gold hedging and gold loan-capitalfinancing in 1997. He also predicted the start of the currentsecular bull market in commodities based on the movement of theU.S. dollar in 2001 and the acceleration of growth in Asia andIndia. Coffin can be reached at firstname.lastname@example.org or the website.
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