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[ThatHawaiiGuy]

Gold:

[Got about half way thru will work on this more later.]

New York Gold Show Notes

I decided to start a new thread, to make sure there was enough electronic "room".

I was there, with Bill Linke, for about 10 hours, from 7:45 A.M. to 6:00 P.M. and we only took two short breaks from the main presentation room. So we pretty much heard it all.

However, bear in mind that what I heard and wrote down is only a small percentage of what was said, and is, of course, colored by what I felt was important, or what appealed to me, but I feel that I got a sense of the continuity of the message, and it definitely wasn't "buy Microsoft and Intel on the dips".

I'll present this in chronological order.

Rick Rule - Global Resourse Investments - When asked, "What one junior mining stock would you buy if it were to be the only one?" he said "Quest". When asked about Silver Standard (SSRI), he said, they own silver in the ground and will do well if and only if silver goes up in price. On options, he said use them only to do something that you would want to do anyway, sell puts and calls, don't buy them, thereby having time work for you and not against you. If you have profits in juniors, take them. Gold is not overbought, just the PM shares, as they are too high relative to their 200 DMA's. 90% of the gold story is the U.S. dollar crisis. The impact of China on gold will not be having its currency, the renminbi, backed by gold, but rather the ownership of gold by private Chinese citizens.[See my posts from China on RB.] The Barrick/JPM/Blanchard lawsuit is a sideshow (sidebar: Tad doesn't agree, more on this later). Gold will retrace before the ETF starts up, but the commercials will be hurt. Humerous observation:

"Elections are advanced auctions of property to be stolen."

Frank Holmes - U.S. Global Investors - Whatever China needs, go long ... copper, gold, oil, etc. China is now the #4 GDP in the world. Gold mine supply is shrinking. Low interest rates discourage gold hedging. Mergers will drive up the price of gold. Liguidity makes PM stocks and gold go up at the same time. The psychology of money and finance is becoming better understood; Yale University is a leader in this field. The efficient frontier portfolio (don't know exactly what this is, I suspect some sort of sector-rotation approach to investing) shows a 20% gold position. 80% of mutual fund inflows are going to funds with a Morningstar rating of 4 or 5. Gold PM's peak at 35-40 times cash flow. We'll continue to have short-term corrections.

Joe Conway - IAM Gold - They hold their cash positon in gold because it's a superior currency.

Robert Buchan - Kinross Gold - Mergers in the PM industry will be top-down, there will be no more mergers between majors. 2.7% of their reserves are hedged, but this position will be gone in 15 months. They have $125 million incash, and no debt.

Barry Linden - Agnico-Eagle Mines - (Sorry, I didn't get much out of this presentation, laden with drill hole analysis, tonage rates, additional costs for this and that, etc.; all I can tell you is that their premier property is located on the Cadillac-Bousquet Belt, and I think this is good.)

http://finance.yahoo.com/q?s=AEM&d=t

Ferdi Dippenaar - Harmony/Armgold - They will be South Africa's (SA) largest unhedged gold producer. Results for 2004 shoud be similar to 2003. They have had a 100% increase in reserves in the last 2 years. They now have the world's largest gold resource, and they are the world's 5th largest gold producer as a result of the merger. The largest challenge to the gold industry is replacing mine reserves. A 1% increase in the price of gold means a 10% earnings increase for Harmony. Their profit margin is now 18%. Their recovery ratio for gold will increase from 5.3 to 6.0 grams per ton. They will not resort to hedging to fund future projects.

http://finance.yahoo.com/q?s=HMY&d=t

Mark (Lom) Bristo - Randgold Resources - Their emphasis is on value, the will be looking for acquisitions. Their discovery costs in Mali are $10/oz. The do not mine in SA, only Central Africa. Cash costs are $86/0z. for 1.6 million ozs. in Morilla, and their total cash costs for the last 6 months are $90/oz. They are currently turning resources into reserves. Randgold will probably merge with Ashanti, the due dilligence is now in progress. Their share price performance vs. the pog is the strongest of the majors.

http://finance.yahoo.com/q?s=RANGY&d=t

http://finance.yahoo.com/q?s=ASL&d=t

Ian Murray - Durban Roodepoort Deep - They are the most leveraged of the miners. They offer 1 million ozs. of gold production. 80% of their shares are owned here in the U.S. They have current mine life of 15 years, for 15 million ozs. They are unhedged, both gold and currency. They just floated 18 million shares for acquisition. They are in the top 10 of shares traded of all ADR's. They represent a pure gold play and a pure currency play, with a 1:7 ratio of pog to profit. They get their properties from other miners who have given them up, they extend the life of mines. SA legislation calls for 26% Black ownership in 10 years, but they comply now.

http://finance.yahoo.com/q?s=DROOY&d=t

Barry Cooper - CIBC World Markets - 10% pog move now gets 15-20% share price moves, but this beta is off its highs because the pog rise has been matched by cash cost rise. The industry average cash cost is $180 - $221. It is being affected by currency fluxuations. He believes that the U.S. dollar is no longer the driver of the pog, but rather, the new driver will be the shrinking supply vs. rising demand. The rising demand will come from India and China, with Chinese demand coming from both the Central Bank and also from private ownership. China is the world's largest consumer of gold, and this provides a floor of support for the pog. Foreign reserves are up 21% in China, and they will use these reserves to buy more gold if the price goes down. The demand for gold in China will go up if the renminbi is revalued down, and this pickup will occur in advance of any revaluation. The signal that China is about to revalue, would be China pushing out goods and products to the world at an even greater, accelerated pace. The following four PM companies ... Goldcorp, Meridian, Miramar, and Minefinders ... all find gold at lower discovery costs than the rest of the industry. They spend $10 -$20 per oz., but the industry average is $50, so these companies can and do therefore sell at higher multiples.

http://finance.yahoo.com/q/cq?s=GG,G.TO&d=v1

http://finance.yahoo.com/q?s=MDG&d=t

http://finance.yahoo.com/q?s=MNG&d=t

http://finance.yahoo.com/q/bc?s=MFN&t=2y

Chris Bradbrook - Goldcorp - (*** Very important, IMO, we've had this discussion on the Board several times, and I would like to believe that the following is true) ... There have been 2 periods over the last 107 years when the Dow didn't go up for an extended period of time, namely, 1929 - 1934 and 1966 - 1980. In the first period, Homestake Mining went up 7-fold, and in the second period Homestake went up 6-fold. More recently, from 1999 to now, the Dow is down 18% but HUI is up 3-fold. Look at gold as portfolion insurance, because a 10% position in gold can offset a large decrease in the rest of the portfolio. Goldcorp is finding gold at a cost of $11/oz. They have 7 tonnes of gold.

http://finance.yahoo.com/q/cq?s=GG,G.TO&d=v1

Wayne Hubert - Meridian Gold - The current negative real interest rates are driving the pog higher. Hedging is a good source of demand for gold, and puts a floor under the price. The gold index tripled the last two times we had negative real interest rates (1980 and 1992). The rising cash costs put a floor under the pog. We have declining mine supply, and whereas industry exploration costs were $3 billion, they are now lower. XAU leverages the pog by 3 times. The S&P and XAU are usually inverse to each other. The intermediate-sized companies will get more leverage out of a 1-million-oz. mine discovery. Low cash costs give Meridian a margin of profit of 27%. The company has doubled reserves over the last 3 year. They have not floated shares, and they have no debt. El Penon is the company's foundation, with a cash cost of $48. It is the driest place on Earth.

http://finance.yahoo.com/q?s=MDG&d=t

Dave Fennell - Miramar Mining - They are an emerging producer. They own the premier Hope Bay property, on a greenstone belt (which is a long-life, low cost resource). They have no debt.

Christian Briggs - Benchmark Ventures - Rare gold coins went up 1000% in 1980 when gold went from $550 to $800. MS65 and above perform much better. A graph of key-date coins, from 1970 - 2003, shows higher lows and higher highs consistently. Rare coins have compounded what the value of gold has done. They offer paperless privacy.


Jim Grant - Grant's Interest Rate Observer - (This guy is just great ... a real entertainer, with a solid message ... watchout for the "men's suit saw!") Gold is not a bargain, even at less than the cash cost. Gold is a hedge. He is bullish on gold because it is a hedge against the risks that lie before us, the risk of what may go wrong. Gold competes with credit for capital. Now the opportunity cost of owning gold is nil. Real interest rates are now zero, so now the question becomes, "what is the cost of NOT owning gold". The renminbi is the frozen emmission of a communist state. The monetary system is closer and closer to at least a halt in its progress, if not a breakdown. Martin Meger writes in "The FED", that the standard of gold and its discipline have been replaced by the discretion of one man, Alan Greenspan. $939 billion of U.S. Treasury debt is now held by foreign central banks, and this is 18% higher than it was only 12 months ago. This situation will be resolved with a lower U.S. dollar exchange rate. Never before has a currency commanded this level of respect without gold; it stands for the idea of America. What is gold up against? the monetary world is a world of error. Econometric models: when you finally GET it, you don't like it! The Fed believes it can stabilize prices, it wants to create enough credit to stabilize both prices and the global market. What is the forecast for gold? "I looked in a Brooks Brothers catalogue, and I saw that a men's suit costs $590, so that's my prediction for gold! that's where gold is going! The trend will continue: Chinese goods here, U.S. dollars there. Gold is a hedge against, not an event, but an unfolding.

[Saying is POG remains constant over the centuries, one ounce buys a a set of clothes (suit) a pair of shoes and a belt...]

Phillips Baker - Hecla Mining - They have a low cash cost at $138. $7 million of share value is traded per day. The stock is up 122% from the low of 6 months ago. The company is over 100 years old. They are making money on silver even at these prices. They have hedges for 75,000 ozs. Silver will go up in sympathy with gold or the economy (for industrial uses). Digital photography will have no effect on silver demand because the process still requires the use of silver. Disposable cameras will find increased use in other parts of the world, as their economies improve. They are in Venezuala, where there is political instability, but business still gets done.



Kieth Hulley - Apex Silver - Current silver prices are unsustainable. They have the world's largest primary silver project, San Cristobal. The site is user-friendly, with a low strip ratio and a cash cost of $2/oz. The silver market will enjoy increases in fabricated demand, and new industrial uses as in wood preservation, to replace arsenic. 70% of silver production is as a byproduct of other metals. The fundamentals are compelling.



Clive Johnson - Bema Gold - They can become a 1 million oz. producer from existing properties. They are still committed to exploration. Their cash cost at Julietta is $110/oz. They'll be debt-free 1 year from now. They do hedge their gold revenue against the SA Rand. Their cash cost in Chili is $220, they think it will soon be feasible to go back into production there (Refugia). He doesn't see adding more shares. Their overall cash cost is $175. They are now an intermediate gold producer, by taking measured risks. They do some hedging, 120,000 ozs., a 4% position. They will use options to hedge in the future.

Chris Bradbrook - Goldcorp - The average gold bull market lasts 12 years, but it takes 6-10 years to discover and develope a project. A new mine discovery creates much larger growth for the intermediates (GG, AEM, GLG, MDG, BGO) than for the giants (NEM, KGC, ABX). KGC has negative 30% growth. Real growth is per-share, cash-flow, earnings growth, not just getting larger for the sake of getting larger.

Panel Discussion, with Thom Calandra (TC), Bob Bishop (BB), Robert Friedland (RF, of Ivanhoe Mines), and Chris Bradbrook (CB) - BB: buy the hunted gold companies, not the hunters. The large PM's are not as nimble now as they used to be. The action will now be in the acquisition of juniors by the others. Miramar is in a gold belt, they control 30 million ozs. but their stock price is now a little frothy, but it could be special. TC: Individual investors are having a large effect on share prices. RF: Ivanhow is a proxy for gold exploration in China, and China is the only part of the world that is truly growing. CB: central bank sales cannot stop the pog if it is truly a bull market. TC: the longs on the COMEX may be anticipating the coming gold ETF, in the next 6-8 weeks. CB & RF: Gold confiscation is unlikely. RF: Buy what China needs, namely copper, nickel, platinum, oil, natural gas. Copper has outperformed gold over the last 20 years.



Ian Telfer - Wheaton River - They are now the 4th largest in Canada. Their management team took over 2 years ago, they have grown by acquisition. Now mining 710,000 ozs./year. Their cash cost was $187/oz., now $120. Reserves: the ratio was 238 shares for 1 oz. now 79 shares for 1 oz. They eliminate the risks of exporation and production by purchasing mines that are already in operation. They acquire at P/E's of 6 and 7, and the industry average is 50. Their current P/E is 17.



Mark Skousen - Forecasts and Strategies - Public policies affecting pog are mostly positive for a higher pog. Fed's easy money, artificially low interest rates, creating artificial growth, money supply not expanded equally to all parts of the economy, are all bullish for pog. He will be teaching the principles of Austrian economics at the Columbia School of Business, "I will be telling them things they have never heard before!" (the room errupted in spontaneous applause ... take heart, Tom Burger, you now have friends in high places!). He is bullish on equity reits but not on mortgage reits. The Fed is switching policy to fighting deflation with re-inflation, but will probably not take it to the levels of the 1970's. Fiscal policy is good for gold, lower taxes for investors. Government spending is out of control, the fastest since FDR, Bush is a Keynesian, he has yet to veto one piece of legislation. Deficeit spending doesn't necessarily raise interest rates, but it keeps them from falling. Foreign policy is bullish for gold, it is imperialistic and inflationary. We are expanding both domestic and foreign spending by government. Watch Exxon-Mobil (XOM), it is hitting new highs. Gold is the best economic indicator of future inflation. He has not always been bullish on gold, but he is now. The CPI is a poor indicator, the current 2% is too low. He likes Toqueville, Masters 100 Fund, FreeportMcMoran, both common and convertible.


Jim Rogers - Commodities, not stocks, is the place to be now. We face a sideways stock market, stocks are not coming back to what they were in the '90s. His Commodity Index Fund is up 100% since 1998, it is not a managed fund. People catch on at the wrong time. Supply and demand get out of whack. Only 3 offshore drilling rigs have been built in the last few years, yet demand has continued to grow, with flat to down supply. Big inventories held prices down, plus the cold war meant that people had stockpiles. It's all just a matter of history and simple economics. War always makes commodities go higher, plus incompetence at the Fed, they are saying, "We are going to debase the currency". It is always a disaster. This bull market in commodities will last a long time. There are no commodity mutual funds at this time. The excess capacity we see now is in non-productive assets. The commodity market has been much less volitile than the stock market. You can buy countries which export commodities, or you can buy states (if you are going to buy a vacation house, buy it in Nebraska, not in Massachesetts). Greenspan is doing the same thing here that he is telling the Japanese to do. ETF's will demolish the mutual fund industry. The best way to invest in China is to buy what China imports: copper, oil, sugar, coffee, soy beans. The world would be better off without central bankers. There are no good currencies anymore. Singapore wants one, but they can't do it because they would become non-competative. If you buy land, buy productive land. Fannie May is a sham, he is short the stock, it might become a $5 stock.

********

Tad's afterthought on the way home - The question about central banks supressing the price of gold, and the "no" answer. At first I said to myself, o'k, sounds logical, why would I, as a central banker, want to supress the price of that which I own, but aha!, I would be more than willing to do it if I could thereby increase the amount of debt, which produces for me a stream of interest income, probably many times greater than the mark-to-market value of my gold, and when that jig is up, I've still got my gold, and can now allow it to go up in price, so I get "paid" for that as well, in the end. Congressman Ron Paul said, in that very important speach, posted twice here on the Board, and in Richard's remarks last night, "To maintain confidence in the U.S. dollar, gold prices must be held in check..." to which I agree, FWIW.

All corrections and comments welcome, except any personal attacks because Mark Skousen said that the Bush Administration is Keynesian, go to Columbia U. and tell Mr. Skousen, if you must!

Regards, Tad.

Tad Clawson

http://www.atomicbobs.com/forum/index.php?mode=read&id=2371