The Gold Report: Gold and silver prices have risen fairly
dramatically since the first of the year. What's your outlook for the metals?
Brien Lundin: We are on a razor's edge right now. The new gold
rally has been somewhat confirmed by silver also beginning its own rally and
by the mining stocks leading the charge ahead. On the other side, however, we
have a massive, historically large net short position that's been built up by
the large commercial traders. Typically, when the large commercials have
built up such large net short positions, it is followed closely by a severe
correction in gold. Right now, we have a battle royale between the bulls in
gold and the large commercials that are short the market. There is a chance
that the bulls could continue to buy and force the large commercials to begin
covering their shorts. This hasn't happened often during this long turnaround
in gold since the turn of the century, but it has happened on occasion. When
it does, we see spectacular rises in the price of gold and silver and in the
values of mining stocks.
The next few weeks will tell the tale because the commercials will either
be forced to capitulate or they will force their whims upon the market, and
we'll have a fairly severe correction. Even so, that correction would
represent a buying opportunity over the longer term because the commercials
will reload at the bottom of the market, will cover their shorts and then the
cycle will begin anew.
TGR: How would you recommend that investors position themselves in
this environment?
BL: They should continue buying companies that have large, world-class
resources that are still being priced at a fraction of what their values
should be in a buoyant metals market. We've seen a number of these companies
advance very strongly in gold and silver over the last couple of months, but
there are opportunities in other metals, as well as in some gold and silver
companies that are a bit farther down the food chain and more toward the
exploration end.
I've liked gold and silver for a while. At the end of the year, I
recommended that readers of Gold Newsletter buy companies that had
large gold and silver resources to prepare for the big move that I saw
coming. That actually happened, and we've had these tremendous rallies in
gold, silver and the related mining stocks.
There are some companies in other commodities that are similarly
positioned. One of the commodities that I really like is uranium. The
fundamentals for the uranium market virtually guarantee a significant price
rise over the next year or two. The utilities have been relying on contracted
supplies of uranium for the past few years, and these contracts are now expiring.
So over the next year or so, the utilities are going to be forced to come
back into the market and start buying uranium to lock in future supplies.
This will require a significant rise in the price of uranium. There are a few
companies that are very well positioned for this.
TGR: Would you tell us about a few of those companies?
BL: One of the ones I've recommended for a while is Energy
Fuels Inc. (EFR:TSX; UUUU:NYSE.MKT; EFRFF:OTCQX). The company is a fairly
diversified producer and is the second largest producer in North America.
It's one of the survivors from the uranium mania that we had about 10 years
ago. Energy Fuels acquired other junior companies over the years and has built
up a remarkable portfolio of producing and near-production assets. Because
it's in production right now, it can benefit immediately from rising uranium
prices. It also has a number of projects that it can bring on-line fairly
quickly to also give it upside leverage. So I really like Energy Fuels.
Another interesting company that I recently recommended is CanAlaska
Uranium Ltd. (CVV:TSX.V; CVVUF:OTCBB; DH7:FSE). It has an extensive land
position in the Athabasca Basin, which is ground zero for uranium exploration
and development. CanAlaska has a couple of projects that are being drilled
right now that are in joint ventures with major companies. Its West McArthur
project is adjacent to the world's richest uranium mine, the McArthur River
mine of Cameco Corp. (CCO:TSX; CCJ:NYSE). It has a number of targets trending
toward the McArthur River mine that are in line to be drilled under a joint
venture with Cameco.
Interestingly, CanAlaska also acquired some kimberlite targets in a recent
ground staking, so there's a bit of blue sky upside that you wouldn't find in
a typical uranium company. It's starting to explore those kimberlite targets
and determine if they have the potential to be diamondiferous. CanAlaska has
a lot going on, and I think it's still fairly undervalued, although it has
had a big run recently.
TGR: We noticed that the Gold Newsletter portfolio has
performed very nicely. Could you expand on some of the highlights?
BL: In December we discussed in our newsletter the potential for
negative interest rates in the U.S., long before anyone else was really
bringing that up. We saw a potentially dramatic rise in gold and silver early
in the year, and we strongly recommended a number of companies that were
either in production or had identified resources. They performed extremely
well. For example, we recommended Eurasian
Minerals Inc. (EMX:TSX.V; EMXX:NYSE); that's up 189% since then. We were
big backers of Newmarket Gold Inc. (NMI:TSX; NMKTF:OTCQX), which is up
146% since January. We recommended Silvercorp
Metals Inc. (SVM:TSX; SVM:NYSE), which is up 324%. Almaden
Minerals Ltd. (AMM:TSX; AAU:NYSE) is up 158%. Excellon
Resources Inc. (EXN:TSX; EXLLF:OTCPK) has been really a star performer.
It's up 463% since our December recommendation. Great Panther
Silver Ltd. (GPR:TSX; GPL:NYSE.MKT) is up 505% since we recommended it in
January. So it's been a wonderful three months, but we still feel that there
are still some outstanding opportunities out there.
TGR: Could you talk a little bit more about some of those
companies?
BL: Newmarket has a few Australian producing mines that it acquired
with Crocodile Gold Corp. last year. It has turned around those mines and
developed some interesting exploration targets adjacent to them. Newmarket
has increased production and dropped costs, and recently gained an important
new investor in Eric Sprott. The key with Newmarket is the backers behind it
are some of the stellar names in mining globally. I think that investors
sometimes look at Newmarket's Australian projects and like what they see, but
believe that's all there is to the company. However, the plans of management
and its backers are much larger. They're on the hunt for other projects to
bring in, consolidate and improve. So I like Newmarket a lot because its
production profile and resource base are likely to grow significantly over
the medium term.
TGR: What is behind Great Panther's 505% rise?
BL: Great Panther grew its production by about 30% last year. This is
a year where it is consolidating that production, but that additional production
is also going to significantly leverage the company as metals prices rise. So
I really like Great Panther. President and CEO Bob Archer has done a
wonderful job of growing that company over the past 10 or so years. It's in
the absolute sweet spot for rising metals prices right now, and it's always
on the lookout for new projects and new mines to acquire. I don't think it's
going to be limited to silver going forward; its recent production actually
had a growing gold component to it. So it benefitted initially from the rise
in gold, and it will also benefit from the rise in silver prices.
TGR: Do you believe it still has good upside potential?
BL: Absolutely. That's the key. The companies I am talking about are
producers, so increases in gold and silver have a dramatic and immediate
effect on their values, going straight to the bottom line. So they are and
will continue to be levers on rising metals prices.
TGR: What other sectors are you looking at?
BL: I think there are some opportunities in copper plays right now.
Copper is another commodity that hasn't had quite the run of the precious
metals, but it's due for a significant rebound. We have four new
recommendations in the May issue of Gold Newsletter, two in copper and
two in gold.
TGR: The Metals Investor Forum in Vancouver on May 14-15, at which
you're one of the presenters, is an opportunity for experts and investors to
share investing ideas. Can you tell us about the conference?
BL: Any serious investor in the sector needs to focus on education
to try and pinpoint what the next big winners will be. There are a number of
opportunities to do that. There are free events like the Metals Investor
Forum, which should be attended by anyone who really wants to get ahead of
the market and find the best plays, especially in a bull market environment
like this. I also produce the New
Orleans Investment Conference, which is a paid event in the fall. It's
another example of the type of investor education that provides a huge return
on investment over the longer term and is the most rewarding investment that
you can make in a bull market in precious metals.
TGR: Any parting thoughts for our readers?
BL: Investors need to focus on educating themselves both through
attending events and subscribing to the better newsletters out there. The Gold
Newsletter has proven over 45 years that it can't be beat in terms of
performance during a bull market environment. I'd be pleased to offer The
Gold Report readers a limited, half-price opportunity to subscribe to Gold
Newsletter.
TGR: Thank you, Brien.
With a career spanning four decades in the investment markets, Brien Lundin serves as president and CEO of Jefferson
Financial, a highly regarded publisher of market analyses and producer of
investment-oriented events. Under the Jefferson Financial umbrella, Lundin
publishes and edits Gold Newsletter, a cornerstone of precious metals
advisories since 1971. He also hosts the New Orleans Investment Conference.
