The Gold Report: You've written that the China-led Asian
Infrastructure Investment Bank (AIIB) could lead to a boom in commodities. We
recently saw that South Korea is joining a number of European countries and
signing on, despite U.S. reservations. Do you see this as a threat to U.S.
fiscal dominance?
Chen Lin: I think this is a first step for China. The country has a
huge reserve, $4 trillion, much more than it needs on the balance sheet to
stabilize its currency. The rest is wasted, collecting no interest. China
made some huge mistakes in the past through poor acquisition decisions
because of faulty lending standards. This is a sign that it has learned from
its mistakes and wants to make the most of the trillions it has to loan out
right now. The bank will operate close to international standards, and
because it has many nations involved already, defaulting loans will include
less risk.
This is a test. If it is successful, it can expand to Africa, South
America, even Europe and North America. China has trillions of dollars
sitting, doing nothing. It wants to find a way to lend money it can almost
guarantee to get back and then put the money to use in the form of
development. China has a huge infrastructure network capacity, requiring
steel and cement. This creates jobs, which is good for the economy. That was
the thinking behind the announcement.
If the AIIB is successful, it will be a big boon for base metals, energy,
platinum and palladium sectors. It may even boost silver demand and prices
because of its industrial use. I don't think it will have too much impact on
gold, though.
TGR: Does that include copper? It has been below $3 per pound
($3/lb) all year.
CL: Yes. Copper is integral to electric railroads and power lines,
so copper prices could be positively impacted.
I have been watching copper closely for quite some time. Last year I was
telling every gold company I invest in to hedge copper when it was over
$3/lb. I think China's growth is slowing down. Copper is very much related to
Chinese housing. China has a law that every new house has to use new copper
for water pipes instead of recycled copper for safety reasons. So all this
copper has been going into new buildings in China, many of which are sitting
empty. When housing construction slows down, copper demand goes down. I saw
that coming for a while. I have not been very bullish on copper and am still
not very bullish on copper going forward. This Asian development bank could
change that potentially, but we have to watch.
TGR: What commodities are you buying and selling to prepare for the
rest of 2015?
CL: Right now, I'm still more focused on energy. If my calculation is
right, then 2015 will be the bargain year for energy. For gold, the year to
buy may be 2016 or 2017. It may be sooner, but you need to watch closely.
Sometimes, the bottom is hard to tell exactly.
TGR: It sounds as if you are watching gold companies very closely.
You recently visited a couple of projects. What did you find?
CL: As I told my subscribers last year, I see the bottom of gold
coming. So I wish to spend more time investigating which companies will be
the next winners. I spent a lot of time visiting gold companies since last
year. I recently visited OceanaGold Corp. (OGC:TSX; OGC:ASX), at both its New
Zealand operations and its Philippines operations. OceanaGold is one of the
lowest-cost gold producers. It is generating a lot of cash. If it wanted, it
could pay off all its debt by the end of 2015. But it may do an acquisition
instead. Right now, the weak New Zealand dollar and the lower oil price are
helping it a lot as well. OceanaGold is one of the acquirers in the industry.
It is bargain hunting. Last year, it gave a proposal to Alacer Gold Corp.
(ASR:TSX; AQG:ASX), but it was rejected. We'll see what it buys this year.
TGR: What about the resources that OceanaGold has now? Is it still
looking to expand the Frasers underground project and the Didipio project?
CL: Yes. In New Zealand, OceanaGold has been mining with a full
three-year reserve for 25 years. So it's very likely it will expand its
reserve again. Right now, it's set to close by the end of 2017. I talked to
management and saw the potential exploration site and it seems pretty open. I
think OceanaGold will find new resources and new reserves and then continue
to mine after 2017. It is a mining tenement with many targets on the trend;
OceanaGold has been mining this way for the past 25 years and I am sure that
will continue. In the Philippines, Didipio is the first mine in the region
and there are many exciting targets in the area.
TGR: What are some other companies that you visited?
CL: In the Philippines, I also visited B2Gold Corp.'s
(BTG:NYSE; BTO:TSX; B2G:NSX) Masbate mine. I visited the project three
years ago when it was owned by CGA Mining Ltd. Then B2Gold bought it, and I
was a very happy CGA shareholder. It has been well run. B2Gold actually
continues investing in the mine, putting in a new mill. The mine is going
pretty smoothly. There is also a plan to expand the mine going forward. So I
was pleased.
Compared with OceanaGold, B2Gold has been a very aggressive acquirer. It
just bought the Otjikoto mine in Namibia, on time and on schedule, which is a
very rare thing these days in the gold mining industry. It is also looking at
its next mine. It's a mine in Mali, Fekola. I would watch the performance of
Otjikoto closely to ensure the company can continue to perform and build out
the next mine. Management's plan is to become a 900,000 ounce (900,000 oz)
annual producer by 2018.
TGR: Are there other projects that you've been visiting?
CL: Last year, I visited many projects in the Yukon and in British
Columbia. One of the very exciting upcoming projects is Pretium
Resources Inc.'s (PVG:TSX; PVG:NYSE) Brucejack. It just got provincial
approval. It probably will get the final approval very soon. Then we'll see
the financing and buildout of the mine. It's a very high-grade, low-cost,
exciting story.
TGR: Do you feel that the Yukon government has become more mining
friendly recently?
CL: Last year, I met with Yukon Premier Darrell Pasloski. He told me,
"Look, Chen, in the Yukon, there are only two industries—tourism and
mining." So I say, yes, the Yukon government is trying to work as hard
as it can to create jobs, and that will benefit the mining industry.
TGR: Is there one mining story that people will be talking about 5
or 10 years from now because they wish they had seen it coming?
CL: With every recession, every crash, there are always a few
winners that come out of it. If companies like OceanaGold or B2Gold play
their cards well, they will have the chance to become winners after this
downturn.
Investors remember Goldcorp Inc. (G:TSX; GG:NYSE) when it was still run by
Rob McEwen in the early days. We want to invest in the next Goldcorp. That is
what we have to find.
TGR: You called this the opportunity of a lifetime in the energy
investment environment right now. Do you feel the same way about gold or are
we at a different stage in the gold price life cycle?
CL: I'm in a wait-and-see mode. Since Goldman Sachs made the statement
that gold will reach $1,000/oz by the end of 2016, it has created some buying
opportunities for us. So for now, I'm studying companies.
The Chinese government is trying to buy as much gold as it can without
impacting the gold price. It probably is very happy with our friend Goldman.
Eventually, the tide will turn. The timing of gold's rebound will depend on a
lot of factors, which I'm watching carefully. Right now, my best guess is
probably 2016–2017.
TGR: Thank you for your time, Chen.
Chen Lin writes the popular stock newsletter What Is
Chen Buying? What Is Chen Selling?, published and distributed by Taylor
Hard Money Advisors, Inc. While a doctoral candidate in aeronautical
engineering at Princeton, Lin found his investment strategies were so
profitable that he put his Ph.D. on the back burner. He employs a
value-oriented approach and often demonstrates excellent market timing due to
his exceptional technical analysis.
