Emerging Gold Juniors and Explorers Should Recover in
2012: Jeff Berwick
Source: Brian Sylvester of
The Gold Report
Jeff Berwick, chief editor and founder of
The Dollar Vigilante
and avowed anarchist, holds precious metals for safety and holds
their equities for profits. In this exclusive
interview, he counsels geopolitical diversity and paying close
attention to precious metal stocks.
The Gold Report:
The Dollar Vigilante,
is the closest thing the newsletter industry has to a comic book
superhero. Why the name?
In 2007 a headline, "Where are the bond vigilantes?" started me
thinking that you really cannot have bond vigilantes when the
central banks can buy as many bonds as they want. There is no
point in being a bond vigilante if you cannot influence
governments and central banks by selling bonds. I realized that
the only way you could do that was by selling dollars.
A dollar vigilante is a free market individual who protests
the government monopoly and financial policies, such as
fractional reserve banking and unbacked fiat currencies, by
selling those same fiat currencies in favor of other assets,
including gold and precious metals. We are dollar vigilantes to
protect ourselves from what we see is the coming demise of the
fiat currency system and the collapse of the socialist, Western
nation base as we know it.
Are you really an anarchist?
Yes, I am 100% anarchist. Anarchy to me is a belief that all
transactions, all activity, should be voluntary. It is a peaceful
philosophy of not forcing anyone to do anything and not allowing
anyone else to force you to do anything. By its nature,
governments and taxes are not voluntary. Government actions are
violent and coercive, and theft as well. We are against those
In the February issue of
The Dollar Vigilante
your partner Ed Bugos wrote that 2012 will be the "last hurrah
for equity bulls." Can you explain the rationale behind that?
Ed was reflecting on when he might turn bearish on the stock
market in general, after having remained bullish since 2009. He
sees 2012 as a "buy everything" kind of year, when bears will be
throwing in the towel and trying to call the next "black swan"
The bears' capitulation here, the expanding bullish froth and
the withdrawal of the monetary stimulus and other phenomena will
set us up for the next wave of the financial crisis, which we
believe will likely be in 2013.
Here's a statement from Mr. Bugos that sounds positive for the
companies our readers are looking for: "The downgrade of our
short-term outlook for the U.S. dollar and Treasury bonds. .
.falls into line with the rest of our view, the return of the
reflation trade disguised as a recovery trade or 'return to
risk.'" How will that happen?
We have been proposing that narrative since we upgraded our stock
market outlook in September 2011 to bullish. Our forecast for a
sideways gold price looking out 12 months rested on a return of
bullish sentiment and stocks in the economy, especially in the
U.S., which will result in people liquidating the safe haven
assets they ran to last year: U.S. dollars, Japanese yen, Swiss
francs, Treasury bonds and gold.
Last year people bought gold and gold stocks expecting a
financial calamity, even while the Fed was increasing the money
supply by double digits. February 2012 marked the 38th
consecutive month in which the annualized money supply in the
U.S. grew by more than 10%-an all-time record.
Now, people are beginning to sell gold, again for the wrong
reasons; they think the crisis has passed and we are moving on to
growth again. But that is a mirage. Instead of growth, this
increase in money supply diverts resources to wealth-destructive
activities. The central banks have created another boom and
investors are falling for it. A good 80% of the recovery in
earnings since 2008 is the result of monetary debasement. That is
why price/earnings ratios remain so low.
Should people hold both precious metals and precious metals
equities, or lean more toward one or the other?
Personally, I hold both: precious metals for safety and stocks
The next few years will be dangerous times for investors.
During the last inflationary near-collapse of the monetary system
in the late 1970s, there was less debt and interest rates could
rise to their natural market levels, which turned out to be close
to 18%. Today, a 15% interest rate would mean all of the U.S.
government's revenue would be needed just to pay the interest on
its debt, guaranteeing a monetary system collapse. So, I own gold
and silver to protect my wealth.
Let's talk about some of those stocks. Last month
The Dollar Vigilante
downgraded its outlook on precious metals equities to "neutral."
What is your outlook on precious metals equities for the rest of
Ed believes the December 2012 lows will be the low on average,
especially for the juniors. He sees gold producers and juniors as
quite separate. He is quite bullish on the juniors, but not as
much on the producers. Our 2012 gold price outlook predicts a
2-in-3 chance of being range bound between $1,500/ounce (oz) and
$1,800/oz and maybe 1-in-5 chance of gold declining to $1,350/oz.
In any case, he expects a year-end rally to new highs.
We expect the equities that are most sensitive to the gold
price in the short term to be at their worst in the next few
months. However, we see explorers and emerging juniors recovering
and trading higher, after being beaten down last year on what
turned out to be a bum call for the deflation trade.
The worst is over for nonproducing juniors, but gold
price-sensitive plays, which would include explorers with
proved-up ounces at the lower-grade end of the spectrum, might be
treading water until June, as gold prices retreat to the lower
end of our expected range for 2012.
In your newsletter, you suggest that
Golden Predator Corp. (GPD:TSX)
could become a producer sooner than expected. How would that
Its flagship project, Brewery Creek, is a fully permitted mine
with two leach pads in place holding 120,000 oz (120 Koz) of
gold, 30% of which the company thinks may be recoverable. In the
ground, it has an NI 43-101 resource estimate of about 288 Koz
gold, half Indicated, half Inferred, some of it in the Proven and
Probable category at a grade of about 1.6 grams per ton in
near-surface oxides. That estimate will probably grow to 1
million ounces (Moz) once it publishes its updated NI 43-101 in
the next few months.
If the leach pads on the property still work, the capital
expense (capex) required to fund the project to production should
be less than $20 million (
), more if it has to build new leach pads. Golden Predator has a
strong balance sheet; it will not have to issue a trillion shares
just to get up and running. That is one reason it makes sense to
start up with a resource as small as 1 Moz.
Management tells us they are targeting commercial production
and positive cash flow within 14 months, starting with
small-scale production of 30 Koz/year. Management will use the
cash flow to expand over two years to a processing rate of 140
Its royalty portfolio is strong, with more than a $30M net
present value (
) in our opinion and a lot of non-core assets it can monetize. It
is also looking at debt financing rather than equity.
Why debt financing?
I do not know, but we are supportive. We would rather see debt
financing than dilutive equity financing at this point. Too many
of the juniors are stuck having to do heavily dilutive equity
financing at the bottom of the market.
Nautilus Minerals Inc. (NUS:TSX)
a "must-own piece of a new industry," the new industry being
mining precious metals on the ocean floor. That seems more risky
than land-based operations. Why should investors take on that
There are big profits in being first. We disagree in general
about the relative risks of land-based mining vis-à-vis
underwater based. Naturally, the risks of any new industry will
be higher, but we expect there could be massive profits involved
As far as the risks go, a lot of the technology being used for
undersea mining is borrowed from the technology developed by oil
and gas drillers over the last 50 years or so. Remember, this is
not drilling deep into the ocean floor. It is dredging and
bringing up the sludge, as you see in one of my favorite TV
shows, "Bering Sea Gold."
Critics may also be worried about assaults by
environmentalists. We looked into the environmental issue and
concluded that the footprint will be smaller than on land.
This is not all sea floor mud. There also will be hard-rock
mining, I believe.
Yes and no. As I said, there are risks, but the rewards are
great. Looking at the resource estimates, there is an average
value of $1,000/ton (t) at current metals prices, including
copper, gold, silver and zinc. But, according to the company's
2010 study, it will cost only about $100/t to extract them from
the sea floor and transport to shore. In our view, the market
overestimates the risks of mining the sea floor and
underestimates the potential profits.
Tirex Resources Ltd. (TXX:TSX.V)
, which owns 90% of the Mirdita copper-gold volcanogenic massive
sulphide project in Albania, another jurisdiction unknown to most
of our readers. Tell us about that.
Let me start by talking about Albania. One of our strategies is
to diversify our gold stocks geopolitically. This is because we
believe the world's financial monetary system is going to
collapse and that governments will be the biggest risk to our
capital over the next few years.
We want to own gold stocks in many different places because we
never know which government will tax or nationalize gold
equities. We like Tirex, in part, because we do not see a lot of
political risk in Albania.
One of the uncertainties keeping Tirex from breaking away is
the issue of permits. Another junior company in Albania ran into
some low-level corruption with the local bureaucracy. This
scandal cast a shadow over Tirex's prospects for getting a
Recently, Tirex brought on to its board a high-level fund
manager with connections to top-level bureaucrats; this is a good
sign that Tirex will not have too much difficulty getting its
The company is in a joint venture with a local miner that will
trade its facilities in exchange for an interest. Basically,
Tirex will be toll milling its way to production once it gets its
What other companies do follow?
We really like
Amarillo Gold Corp. (AGC:TSX.V)
Merrex Gold Inc. (MXI:TSX.V; MXGIF:OTCQX)
Merrex will have 35% of 5-10 Moz at Siribaya in Mali, and that
is not even its best target. We believe the market is going the
wrong way on this deal.
IAMGOLD Corp. (IMG:TSX; IAG:NYSE)
has earned its 50% interest in Siribaya one year early, and in
2012 is spending an amount equal to what it spent the previous
three years. Based on what we have seen, drilling done in 2011
will increase the resource from 378 Koz to more than 1 Moz. This
year's drilling could triple that in 12 months.
The joint venture has shown continuity on that trend for up to
8 kilometers (km) with more than 50,000 meters of reverse
circulation drilling. It will be easy to prove up more than 5
Moz, the amount usually needed to turn the market's head. The
next year or two will be rife with good drills and the potential
for a big find. Most of its drilling now is at surface; there is
a lot of potential when it goes deeper.
As we speak there is news of a "coup" in Mali. As an
anarchist, I am always in favor of governments being overthrown-I
just wish they'd stop replacing them with other governments! But
in this particular case we have already been in communication
with our sources on the ground in Mali. From what we hear it
seems, so far, very much a case of "business as usual." Merrex
has no expats in country at present, so no issues there, and
IAMGOLD's in country guy is telling us that this is very much the
military being unhappy about its inability to counter the
insurgency's firepower in the far north of Mali, at the Libyan
border, and we are getting the same feedback from our Malian
Obviously, we are monitoring the situation but for now we are
not doing anything precipitous in the market on the sell side. In
fact, we are looking at this at the moment as a buy opportunity.
We don't expect any kind of uprising that would in any way affect
foreign business interests adversely.
But, this again points out the importance of geopolitical
diversification and not placing all your eggs in one statist
basket. Governments are the biggest threat to our liberties and
wealth at this time.
On to Amarillo Gold and its Mara Rosa gold project in Brazil.
The company plans to put Mara Rosa, a 1.3 Moz hosted-load
deposit, into production by 2014 or 2015. Its prefeasibility
study announced last year that it calculated an after-tax NPV of
$178M using a $1,200/oz gold price and proposing an operation
yielding 124 Koz/year gold over an initial seven-year mine life.
It is moving toward a feasibility study now.
The company has average total cash operating costs of $524/oz
and a forecasted preproduction capex of approximately $184M.
These economics are robust, but not as robust as originally
thought. The capex is twice the estimate in an earlier
preliminary economic assessment. Mine life was also shortened. On
the other hand, it increased production rates to maximize
near-term cash flows and optimize NPV.
The bad news is that the capital requirement equals more than
twice its total market cap, which will mean it will have to do a
dilutive financing or an equally burdensome debt security. Either
way, our $1.75/share valuation assumes full equity dilution as
the worst-case scenario. That attributes an NPV of $212M to Mara
Rosa, meaning it is $50M toward its exploration portfolio in
What is the next catalyst there?
It will probably have to do a financing fairly soon. But we like
what we've seen so far.
Do you have any parting thoughts for our readers?
We believe these are dangerous times for investors. In no more
than five years, the U.S. dollar will be in a state of collapse
and it will take down all fiat currencies with it. It is more
important than ever to be prepared. That means diversifying your
gold equities geopolitically.
Diversify your physical gold as well. In 1933, the U.S.
government confiscated gold; it could do it again or it could tax
it at a high rate. Try to put your physical gold holdings in
different jurisdictions. I hold precious metals in more than a
dozen countries to limit the political risk.
My overall message is that this is a highly dangerous time.
People who are investing in gold and gold stocks are in the right
area, but you have to go beyond that. It is more important than
ever to do your own research.
If we can get rid of this system controlled by the central
banks and move on to a more free market system-which I hope would
include gold as money-the world would be a much safer, more
prosperous, better place.
Jeff, thank you for your time.
is the chief editor of
The Dollar Viligante
newsletter. His background in the financial markets dates
back to his founding of Canada's largest financial website,
Stockhouse.com, in 1994. He served as CEO from 1994 until 2002,
when he sold the company, and continued on as a director until
2007. To this day more than a million investors use
Stockhouse.com for investment information every month. Berwick
is also the host of Anarchast, an anarcho-capitalist video
podcast; a frequent contributor to numerous financial and
precious metal websites; and a speaker at hard-money investment
and freedom conferences.
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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:
Golden Predator Corp., Amarillo Gold Corp., Merrex Gold Inc.
Streetwise Reports does not accept stock in exchange for
3) Jeff Berwick: 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. I was not paid by Streetwise
Reports for participating in this story.
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