Byron King: Will Platinum Prices Persist?
Source: Brian Sylvester of
The lure of platinum is driving
Energy and Scarcity
Editor Byron King's investment choices for precious metals. In
this exclusive interview with
The Gold Report,
he explains the looming demand and global opportunities. "We
could see platinum prices skyrocket," he says.
: African Rainbow Minerals Ltd. - AngloGold Ashanti Ltd. -
Freeport-McMoRan Copper & Gold Inc. -
Gold Fields Ltd.
- Impala Platinum Holdings Ltd. -
Reservoir Capital Corp.
- Scorpio Mining Corp. - Stillwater Mining Company
The Gold Report:
Let's start with politics. In your opinion, would a Republican
president in 2012 be good for the gold price?
Whether Obama remains in office or a Republican wins the
election, it is going to be tough to deal with the inflation and
the built-in spending that is driving gold prices up. Republican
or Democrat, either way, if you want a stable gold price you are
going to be disappointed. If you want to see higher gold prices,
you are going to get your wish.
Do you think we could see dramatically higher inflation?
I think that's already cooked into the pie, yes. For the last 18
months, much of U.S. federal debt has been purchased by the
Federal Reserve. It's not people buying U.S. Savings Bonds who
are funding the deficit spending by owning the national debt. The
Federal Reserve is just issuing new money into the system. That
money is floating around the world somewhere and it's coming back
in terms of inflation. We see it in the rising prices for energy,
especially oil, plus gold, silver and other commodities. We see
it in inflation in other currencies and trading zones-the Chinese
yuan in Asia, the euro in Europe and even in South America's
otherwise strong currencies. These things all reflect the
inflation that's coming out of Washington D.C. to fund U.S.
The CFTC (Commodities Futures Trading Commission) said at the end
of June that money managers have slashed their net bullish
positions in gold futures to the lowest point in more than four
months and silver to the lowest point in more than a year. Do you
think that will affect the price given that hedge funds seem to
believe in the economic rebound and may be starting to get out of
gold and silver?
I think that people trade in and people trade out. What we're
seeing is a thought process that says, "We've had a nice run and
it's time to take some profits off the table and show some gains
to the bottom-line." This is a blip in the long-term upward
trend. I go back to the point that inflation is already baked
into the pie.
Gold hit a six-week low to end the second quarter, but was up 5%
and led all precious metals during the quarter. Meanwhile, silver
was down 7.5% after nine straight quarterly increases. What
performance do you expect from both metals in the third
I think that both will trade in a range without any real
breakouts. The world economy isn't panicked enough to drive
prices through the roof. But, it also isn't healthy enough for
people to decide that they would just as soon liquidate their
gold and silver positions and invest that cash somewhere else.
That's because the next question is: where is somewhere else?
What are the latitude and longitude of "somewhere else" that you
would invest if you liquidated?
You recently wrote in Agora Financial's
Daily Resource Hunter
that "Smart money is holding gold. Never sell the real metal.
Hang tough with the mining company shares." But equities, by and
large, have vastly underperformed gold in 2011. Why aren't you
telling people to sell?
I was writing that for a retail audience, not for professional
traders. When I say, "don't sell the real metal," I mean if you
own gold, keep it in your safe deposit box. Real metal is the
absolute last thing you want to sell, because looking 2, 5 or 10
years out, you may never ever see it again at current prices, and
in the worst case at any price. I think that the scarcity of the
physical stuff is that profound, and it's going to be even more
profound as the rest of the world begins to catch on.
As far as hanging tough with mining company shares, I mean
that, too. Implied in that statement is the idea that you've got
to grit your teeth and deal with the fact that mining company
shares have lagged the performance of gold over the past couple
of years. It's annoying from an investor's standpoint because the
mining companies are mining gold, which is going up in price, but
so are the companies' costs for energy, labor and other
I have selectively told people to sell a couple of mining
shares in the last six months or so. I got
readers out of two of the large South African players,
AngloGold Ashanti Ltd. (NYSE:AU; JSE:ANG; ASX:AGG; LSE:AGD)
Gold Fields Ltd. (
. Still, overall, I'm not telling people to sell gold mining
shares because, what do I tell them to do instead? Where do they
go with the money? I'm nervous about walking away from the gold
miners in this particular precious metal environment.
You recently spent time touring projects in southern Africa. Did
you return from that trip with any new investment ideas that you
could share with our readers?
South Africa is investable if you understand the level of risk.
The large, deep gold mines have profound problems because they're
large and deep. There are limits to how deep you can put human
beings underground and have them work. There are limits to what
technology can do in those deep, very hot, very stressful
environments. When you dig holes three and four km. deep, you get
these things called rock bursts where the walls explode inwards
because of the pressure of the weight of the rock above. It's
very deep, very dangerous mining. I think that within a couple of
years, we could see a dramatic falloff in overall gold production
out of South Africa, which would affect the world gold price.
In terms of the good news, the best investable item I brought
away from two recent trips to South Africa is platinum. South
Africa is one of the world's most significant platinum producers.
There's a looming shortage of platinum, which is used in the
chemicals industry, in the automotive and electronics industries
and in jewelry. It's become an investable item as well, in terms
There aren't enough large platinum projects to replace what is
being mined out. We could see platinum prices skyrocket. In terms
of larger companies that have an acceptable risk profile, I
Impala Platinum Holdings Ltd. (JSE:IMP)
. I think it's going to do well over the next two or three
Is it on the London stock exchange?
Impala trades on Johannesburg, London and on the Pink Sheets in
Do you have some smaller platinum names?
Another one that an Agora colleague has recommended-he sort of
beat me to it-is
African Rainbow Minerals Ltd. (
. It's a mining conglomerate. They mine iron, titanium, coal and
platinum. I don't want to say it's small, because it's a fairly
substantial company in South Africa. It is very well run, a
solidly positioned company. Impala Platinum and African Rainbow
are two nice ways to get exposure in the South African platinum
space. You can look elsewhere in the world for platinum, but I
think the South African plays are among the best.
As far as North American companies producing platinum, does it
comes down to
Stillwater Mining Co. (
Yes, in North America there's the Stillwater play. It's a $2.4
billion company that's done well over the past couple of
Here's what I think about platinum overall. It gets back to
the medium- and long-term future. If someone discovered a
platinum deposit tomorrow morning in Montana, Canada or Alaska,
how long would it take to get that mine up and running? How long
would it take to get the processing system up and running? We're
looking at 10 to 15 years.
As platinum goes into shortage in the next few years and
prices skyrocket, you want to be positioned in the companies that
have the best chance to move quickly. You're looking for the best
ideas in the here and now. Those two African plays are at the top
of the heap. If you're too nervous about South Africa, then
Stillwater will also do fine in a rising price environment.
In the April 6, 2011 edition of
Energy and Scarcity
you wrote about
Scorpio Mining Corp. (TSX:SPM)
. Do you still recommend Scorpio? And, what's the next step for
I like Scorpio and would still recommend it. Trailing price
earnings have gone from 8 to about 12, which is still low. It is
a smallish miner, but it's not one of those mining development
plays you see all over the landscape. It has a true
up-and-running, producing mine. When the company initially built
the project, it installed capacity, poured the concrete, did all
the design work for future expansion. And the future is now. It's
When silver and lead zinc prices were higher a couple months
ago, Scorpio was up around US$1.60 a share. Now it's in the
US$1.45 range. I think it still has an upside for the patient
investor. If you're looking for something to hang on to for the
next two or three years, I think you could do worse than Scorpio
Mining. They mine; they produce a profit. Can you imagine that, a
small mining company that produces a profit?
According to Google Finance, it has a P/E ratio of 5.5.
Going forward, yes. Scorpio is profitable; the numbers appear to
be improving and it'll stay profitable. It's going to be selling
product into a strong market. As far as I know, the political and
the crime issues in Mexico haven't affected Scorpio, but those
factors are a caveat on investing in Mexico.
Are there other precious metals names you could share with our
I just spent a week in Serbia, looking at a company I've followed
for a year and a half now called
Reservoir Capital Corp. (TSX.V:REO)
. Reservoir is several different things wrapped up in one
company. It's an energy play in terms of hydropower development.
But it also controls significant land position in the Balkans,
next to what was once the largest copper mine in Europe.
Reservoir is spinning off its mineral side into a group called
Reservoir Minerals. Right now the way to play it is to buy
Reservoir stock until they spin off Reservoir Minerals.
Reservoir has a 20-square-mile position over a known copper
district adjacent to a place called Bor, an old mining town in
Serbia. Nearby, it has a very strong land position in a historic
gold mining district called Deli Jovan. This was the home of
several historic gold mines from the early 1900s through the late
1930s. The old, Serbian gold mining company stopped gold mining
not because it ran out of gold, but because it ran out of time
when World War II came along. It sealed up the mines and the
former Yugoslavian government never reopened them. It wasn't part
of the five-year plan. Just last week I saw some of the
operations. Reservoir and its subsidiary, Reservoir Minerals,
have a strong copper and gold development future.
Are there any ownership security risk in Serbia?
Serbia is a poorly understood place. But, it's working very hard
to achieve EU membership and with that comes the legal
obligations of having a property system and a title system that
meets EU standards.
In terms of legal, claim and title security, the Reservoir
people have a very strong relationship with the Serbian
government. As an example, Reservoir arranged a meeting with the
Serbian Prime Minister for me and a couple of other Reservoir
investors. Management has a good relationship with the
Three visits in a year seems like a lot. What's behind that?
The first visit was to see things. The second time I was invited
by Serbia's Minister of Energy to speak at an energy conference
in Belgrade. While I was there I went out to see other things
that I hadn't seen or hadn't seen enough of the first time
around. The third time I led a group of
Energy and Scarcity Investor
readers to show them what is going on and let them make up their
Will the gold assets be rolled into Reservoir Minerals or will
they be in another company?
Currently, they are part of Reservoir Minerals. How things will
play out is still a bit of an open book. The copper is being
developed in cooperation with
Freeport-McMoRan Copper & Gold Inc. (
. Freeport has a huge drilling program going on right now; in
fact, the drilling rigs were on site last week during our visit.
Reservoir has another joint venture on the gold mining side, with
a London-listed company called Orogen Gold Ltd. (LSE:ORE). It's a
bunch of Irish guys who understand gold mining in this kind of
Is it part of a greenstone belt?
It's right at the edge of a mineralized Paleozoic gabbro complex.
Geologically it's good, solid hard-rock mining. It's right up the
alley of these Orogen guys.
It would probably be very amenable to high gold recoveries.
There's a lot of very good data, so far. You know the old
expression, "The best place to build a mine is next to another
mine." Well, this place has historical gold production from about
1904 until World War II. In its day, the Deli Jovan gold mines
made Serbia one of the wealthiest countries in Europe. By the
1910s, the Kingdom of Serbia was so rich that it made the
Austro-Hungarian and the Turkish Empires jealous, which had a lot
to do with the origins of World War I. Historically it's a very
rich place. Some of the assays from the old historical data on
the Deli Jovan mine are up to 200 g/t.
In a couple of weeks you are scheduled to speak at an Agora
Financial investment symposium in Vancouver called Fight or
Flight: Your Capital at Risk. What do you plan to talk about
My talk is titled "Re-Mining the Wealth of Nations Past;
Discovering Assets Hidden by History." I'm going to give several
examples of mining or resource plays that were simply lost to
history over time, and that are now coming back into vogue. It's
the idea of what's old is new again.
Do you have some parting thoughts on gold and silver and precious
metals in general?
Considering the uncertainly of government currencies such as the
dollar, the euro, the yen and the yuan, and even commodity
currencies like the Canadian dollar, the Russian ruble, the
Brazilian real, you must understand the need to have solid
exposure to precious metals in your own physical holdings of
metal. Take delivery. Don't comingle it in somebody else's vault.
That goes for gold, silver and platinum-and invest in mining
I just don't trust the politicians to do the right thing.
Nobody truly knows what the right thing is. I don't think the
current group of political leaders will be able to steer the ship
through the rocks without punching a few holes in the hull. And
if you're an investor out there? Well, you may as well have a
steerage ticket on the Titanic. There won't be any lifeboats for
you. You'll have to come up with your own means of saving
is the editor of
Energy & Scarcity Investor
. These publications reach over 60,000 paid subscribers. He is
also a contributor to the
. King is a Harvard-trained geologist who has traveled to every
U.S. state and territory and six of the seven continents. He has
conducted site visits to mineral deposits in 26 countries and
deep-water oil fields in five oceans. This provides him with a
unique perspective on the myriad of investment opportunities in
energy and mineral exploration. He has been interviewed by dozens
of major print and broadcast media outlets including
The Financial Times, The Guardian, The Washington Post, MSN
Marketwatch.com, Fox Business News, and
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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:
2) The following companies mentioned in the interview are
The Gold Report
The Energy Report:
GoldFields Ltd. and Reservoir Capital Corp.
3) Byron King: I personally and/or my family own shares of the
following companies mentioned in this interview: None. I
personally and/or my family am paid by the following companies
mentioned in this interview: None.
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