Sascha Opel, publisher of one of Germany's most popular commodity newsletters,
looks at the economy with rose-colored glasses. He sees the end of the Euro
crisis and sees Asian growth as the engine pulling the world out of its
economic malaise. He finds the path to golden returns in gold and silver
companies likely to be taken over and in this exclusive interview with The Gold Report, he's
not afraid to name likely targets
The Gold Report: It's
been four years since you told The Gold Report that gold was beginning
the process of re-establishing itself as money. Where are we in that process
Sascha Opel: We are in the middle of
this process. Many people and even central banks have added gold to their
portfolios or balance sheets as they realized that no paper currency is 100%
safe anymore. The Greek haircut has made it clear to investors that even
European government bonds are not safe havens. The money went into German and
U.S. bonds. But what happens in the next few years with growing debt in these
countries? For me, what is still most important is unlike bank, corporate or
government bonds, gold has no risk of failure. Bonds
have to pay interest to the investors who take the risk to lend the money. If
you own gold you are completely independent from any government or any other
institution in the world. You are out of the modern financial system. You
don't owe anyone anything. Since 2008 it has been clear: gold is the only
TGR: Do you continue to buy and hold gold or has it become too
SO: If an investor bought gold at US$300/ounce (oz),
it is hard to buy more at US$1,700/oz. But if an investor still has no gold
and his whole portfolio is only based on "paper assets"—cash,
bonds—then it makes sense to convert some paper into hard assets like
gold and silver.
TGR: Do you believe gold will push above the US$2,000/oz threshold in 2012?
SO: I do not know. In our interviews in 2008 and 2009, I was very
lucky with my gold forecast. As I am convinced that the so-called "Euro
Crises" will be solved soon—the European Central Bank (ECB) is
buying time until 2015 with its three-year 1% tender for the banks—I
think the big buying from European and even U.S. investors that we saw in the
last few years will take a break this year.
But central banks in Asia used the last correction to add gold to their
balance sheets. I am convinced that China is still on the buying side as
well. It has not announced its gold holdings since 2009 when it was 1,050
tons. But one thing is obvious: China wants to establish the yuan as a global trade currency in the future. And the
Chinese know that if the Chinese Central Bank has large gold holdings,
confidence in a free trading currency might be much higher. The U.S. has more
than 8,000 tons of gold, Germany has 3,400 tons, the
central banks of the entire Eurozone own more than 11,000 tons of gold. My
conclusion: China will add several thousand tons to its holdings in the next
five years or so.
And that is one of the main reasons why I think gold will not move much over
US$2,000/oz this year. Perhaps we see US$2,000/oz shortly. But most of the central banks that want to
buy gold are not interested in such a high gold price and even the Federal
Reserve and ECB are not interested in the strong rise of the gold price over
a short period. I think we will see another 10–15% climb by the end of
2012, which means something around US$1,800–1,850/oz
by year-end. In a few years—or perhaps next year—gold will rise
above US$2,000/oz if the devaluation of all major
paper currencies continues.
TGR: Your company, Germany-based Orsus
Consult, publishes one of the most popular German newsletters on commodities
and junior mining and exploration. Most of the companies you write about are
Canada-based companies with additional listings on the Frankfurt Stock
Exchange. But the decline of the junior sector in the second half of 2011
took a heavy toll on the junior mining sector and the German market suffered,
too. What is the current appetite among German retail investors for junior
SO: There is still an appetite for good exploration stories over here.
But the 2008–09 collapse in the juniors wiped out many investors. The
investors who are still in the business are much more careful. There is no
more euphoria; it has been replaced by realism. Another problem pre-2008 was
a large number of unserious "pump-and-dump" promotions. We always
tried to help investors identify such bad promotions. But many retail
shareholders at that time lost money with these highly promoted stocks as
well as with good-quality stocks. In the end they saw no difference between
the good ones and the bad ones: they all lost money. Many investors sold
their stocks and were not involved anymore when many of the good stocks we
followed came back or were later taken out, companies like Premier Gold Mines Ltd. (PG:TSX), Osisko Mining Corp. (OSK:TSX), Corriente Resources Inc. (CTQ:TSX;
ETQ:NYSE.A) or Potash One Inc. (KCL:TSX).
TGR: Why are there not more Germany-based companies operating in this
sector given the potential for lucrative returns?
SO: That is a good question that I have been asking myself for years
now! We have a huge industrial base in Germany with big
carmakers—Mercedes, BMW, Audi, Volkswagen, Porsche—and we are the
second largest export nation in the world. We have almost no mines in
Germany, so we are very dependent on importing commodities. The big
steelmakers and other companies sold their "boring and
unproductive" mining assets in the '90s to concentrate on core
businesses. A few weeks ago some big German companies including BMW, BASF,
Daimler, Bosch and others founded the so-called "Allianz zur Rohstoffsicherung"
(Alliance for Resource Security). They want to invest in mining and
exploration projects, especially in tungsten, rare earth and coal to start.
In my opinion, this company comes a little bit late. But better late than
TGR: There are some promising mining projects throughout Europe in
places like Slovakia, Spain, Sweden and Romania. Do you have some favorite
miners active in these countries?
SO: I like Carpathian Gold Inc. (CPN:TSX), Colt
Resources Inc. (GTP:TSX.V; COLTF:OTCQX), Orex Minerals Inc. (REX:TSX.V) and Astur Gold Corp. (AST:TSX.V). Colt Resources has a great tungsten project in Portugal and a gold
project with good potential as well.
Astur owns one of the biggest gold deposits in
Western Europe, Salave in Asturias in northern
Spain. Recently Astur wanted to merge with Gold-Ore
Resources (GOZ:TSX), but then another company bought
Gold-Ore. So Astur Gold is on the table again as a
potential takeover target in Europe.
Orex is a small exploration company, which is run
by the Orko silver team, and owns the 1 million
ounce (Moz) Barsele gold
project in Sweden, where it is growing the resource. In addition Orex has a silver project in Mexico, where silver giant Fresnillo Plc (FRES:LSE) stepped in recently by investing CA$2 million (M) in
Orex via private placement at CA$0.80/share.
TGR: Sascha, you have owned junior
exploration companies like Aurelian Resources and watched them get taken over
at substantial premiums. What companies do you believe could see takeover
bids before the end of 2012?
SO: We were involved in quite a few takeovers since 2004, such as
Western Silver, bought by Glamis, now Goldcorp Inc. (G:TSX; GG:NYSE); Nevada Pacific Gold, bought by US Gold (UXG:TSX; UXG:NYSE); Wolfden Resources, bought by Zinifex
Ltd. (ZFX:ASX); Miramar, bought by Newmont Mining Corp. (NEM:NYSE); Aurelian
Resources, bought by Kinross Gold Corp (K:TSX; KGC:NYSE), Corriente,
bought by CRCC-Tongguan); Potash One, bought by the
German company K+S; and Blue Pearl Mining, bought by Thompson Creek Metals Co
We are always trying to find potential takeover candidates. Currently I see
many opportunities. From the companies in the gold sector with under a $100M
market cap, I see two potential takeovers in 2012: Mansfield Minerals Inc. (MDR:TSX.V) and Rye Patch Gold Corp. (RPM:TSX.V;
Mansfield owns the 3 Moz
Lindero gold project in
the Salta region in Argentina. Some 2 Moz are in
the reserves already. A prefeasibility study two years ago indicates that at
US$850/oz gold, Lindero
is a very attractive gold deposit capable of producing 161,000 oz of gold per year at a cash cost of US$373/oz over the initial five years of production. Mansfield
is trading at CA$1.20/share, giving it a CA$60M market cap, which is US$30/oz of reserves and US$20/oz
including the resources.
Rye Patch is a special situation. We bought the stock last year around
CA$0.30/share as we liked the valuation: 3.9 Moz
gold equivalent was trading at a market cap of CA$40M at the time, so
US$10/oz. Bill Howald and his team discovered more
than 80 Moz of gold in Nevada. Rye Patch has a
great management team. Although Rye Patch had CA$9M cash in the bank at the
time, the stock was unknown to brokers as it never did a brokered placement.
In late November, the stock went up 100% to CA$0.80/share when it announced
that it claimed 30 square kilometers around the Rochester silver mine of
Coeur D'Alene Mines Corp. (CDM:TSX; CDE:NYSE). Coeur forgot to pay its annual
claim fee and so the claim became open locatable public land. In a press
release Coeur announced that 20% of the reserves of the mine and "a
substantial" part of the resource—140 Moz
silver—fall under these claims. The two companies have met in court,
where Rye Patch was granted access to most of the claims outside of a small
court-defined boundary inside the operating mine.
Rye Patch's geologic team is back on the ground sampling, mapping and
starting a drill program. At the court hearing Bill Howald
said that he had already received a "low ball-offer" from Coeur to
buy the claims back. I am convinced that Coeur has to make a much higher
offer than the current share price of around CA$0.60–0.65/share. The
current market cap is only CA$85M or US$22/oz gold
equivalent WITHOUT the new claims at and around the Rochester silver mine. My
opinion: If Coeur offers CA$1/share, it would still be a very cheap takeover.
In addition Coeur would get a great geo-team on top of it. But if it waits
too long, another big name could step in and take Rye Patch out. Kinross
already owns Rye Patch shares and Barrick Gold
Corp. (ABX:TSX; ABX:NYSE) should have an eye on them
as well. Rye Patch is drilling only a few kilometers away from Barrick's recent big discoveries on the Cortez Trend in
Under the larger companies, you can find many, many potential takeover
targets, such as Detour Gold Corp. (DGC:TSX), Rubicon Minerals Corp.
(RBY:NYSE.A; RMX:TSX), Colossus
Minerals Inc. (CSI:TSX), Sandspring Resources Ltd. (SSP:TSX.V) and Queenston Mining Inc. (QMI:TSX) as exploration or
development companies. Alacer Gold Corp. (ASR:TSX), Perseus Mining Ltd. (TSX:PRU;
ASX:PRU), Centamin Egypt Ltd. (CEE:TSX; CNT:ASX,
CEY:LSE) and Allied Nevada Gold Corp. (ANV:TSX;
ANV:NYSE.A) are potential targets under the producers.
TGR: Some of the companies you follow are developing projects
in Nevada. Why do you believe Nevada is seeing an unprecedented resurgence in
SO: As we saw in the past, Nevada is one of the best places in the
world to find new gold mines. There are still big discoveries on the
different trends, like Carlin Trend, the Battle Mountain/ Eureka Trend and
the Cortez Trend. Barrick announced a potential 10+
Moz discovery at its Redhill
and Goldrush projects not far from its world-class
Cortez mine. The Nevada jurisdiction and infrastructure is very favorable for
mining as well. I was in South Africa for Mining INDABA last week and after
hearing the ongoing discussions about nationalization of the mining industry
in many countries, you know Nevada is a paradise.
TGR: What are some of your favorite plays in Nevada?
SO: Next to Rye Patch Gold, I like Premier Gold Mines. The company has
great assets in Red Lake, right next to Goldcorp's Red Lake mine. Goldcorp is
building a 4.5 kilometer underground train from the Bruce Channel deposit to
its Red Lake facilities, right through Premier's property—a great
"exploration program." With its Trans-Canada project, Premier owns
an entire district with many potential new gold mines. And in Nevada it just
announced a joint venture with Newmont to bring the Rain/Saddle deposit into
production. In the long term, Premium is a takeover target as well.
TGR: The DAX has climbed more than 500 points in the last month. Is
this a sign of things to come? What kind of year are you expecting?
SO: I am very optimistic for 2012. The Eurozone is in much better
shape than what you read, especially what you read in the U.S. press. OK,
Greece and Portugal are problems, but problems that can be solved. Italy, for
me, is not a problem at all. It is a very rich country with a strong
industrial base. In Germany the economy is doing very well; we have the lowest
unemployment rate in 20 years and the highest employment rate ever. Car sales
and exports to China and elsewhere in Asia are at record levels and the
growth rates are phenomenal. Some of the German DAX companies are trading on
very low valuations and high dividend levels (many yielding between 3.5% and
6%). For the next three years, the ECB has bought time to solve the problems
in the Eurozone, which is a reason to be optimistic.
But the main reason to be optimistic is Asia. To give you just one example:
China will build new buildings totaling two times the amount of U.S. living
space between now and 2030. You only have to read the 5-Year Plan of the
Chinese Communist Party to understand why it is investing all over the world
in commodities. In 10 years nobody will talk about the euro crisis or U.S.
debt anymore. Everyone will watch how the new Chinese and Asian middle class
is developing and what they are consuming.
TGR: Thanks for your optimistic assessment.
Opel, former chief editor of the first newsletter about
the German "Neuer Markt"
(New Market), brings a distinctive outlook to the precious metals market. He
was also the co-chief editor of Der Aktionaer (The Shareholder), one of the biggest German
stock market magazines, and adviser to an investment fund that achieved an
outstanding return of 700% in three years. Today his company, Orsus Consult GmbH, publishes one of the most popular
German newsletters on commodities and junior mining and exploration.
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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: Premier Gold Mines Ltd., Orex
Minerals Inc., Rye Patch Gold Corp., Detour Gold Corp., Rubicon Minerals
Corp., Colossus Minerals Inc., Sandspring Resources
Ltd., Queenston Mining Inc., Allied Nevada Gold
Corp., Goldcorp Inc. Streetwise Reports does not accept stock in exchange for
3) Sascha Opel: I personally and/or my family own
shares of the following companies mentioned in this interview: Rye Patch
Gold, Premier Gold Mines, Orex Minerals, Astur Gold, Mansfield Minerals, Queenston
Mining, Rubicon. An IR-Company I am involved with is paid by the following
companies mentioned in this interview: Rye Patch, Orex,
Mansfield. I was not paid by Streetwise for
participating in this story.