Gold Stocks Should Win Regardless of Economic Turmoil: Chen
Source: Zig Lambo of
The Gold Report
Investors focused on picking the next ailing economy have
reinforced gold as the ultimate refuge if all the financial
juggling fails. In this exclusive interview with
The Gold Report,
Chen Lin talks about the effects of risk aversion on the
performance of gold stocks. While it has been a tough year for
precious metals stocks, there are some very promising stories
smart investors should be looking at as others decide to clean
house for tax purposes.
The Gold Report:
When you last spoke with
The Gold Report
in August, the gold:silver ratio was about 40:1. Today it's about
53:1. In August, you were looking for a lower gold:silver ratio
that you thought would probably be more reasonable under the
circumstances. Yet it seems to have gone the other direction.
What do you think has happened here? Was silver drastically
overpriced or not able to keep up with the gold?
In the last interview, I was pretty evenly bidding between gold
and silver. I don't have a particular preference. At that time,
there were some major funds buying silver. Historically it has
been lower-as low as 10:1 a very long time ago. But, right now,
it's in a reasonable range. So, I'm not saying that one is
overvalued and the other is undervalued. Silver has some
industrial components to it while gold is mainly monetary. I'm
personally looking for the silver:gold ratio to go lower over the
long run. Right now, the financial crisis has pushed central
banks to actually start buying more gold in the past quarter. So,
that's probably keeping the gold price higher.
So, what you're saying is the European debt crisis is the thing
that's really driving the gold price higher.
Two or three of the central banks have put a historical amount of
gold on their books, which tells you there's more focus on gold
because of the European crisis.
What do you think is going to happen with metals prices if this
Eurozone situation deteriorates further?
That's a hard question. I think it's in the hands of the
policymakers. When Greece said we're going to do the referendum
and that Greece could be kicked out of the Eurozone, the Greek
people were rushing to their banks to get the euro out. If the
euro starts falling apart, I think gold could be one of the hard
assets people in Europe will try to get their hands on. That
could be very positive for gold. I can see Germany give in to the
other euro countries and basically agree to use the European
Central Bank to print money. That's probably the most likely
outcome. That would delay the crisis and investors would focus on
other countries such as Japan and the United States. Then Europe
may quiet down a little bit. But, that would be very positive to
gold as well. Gold can potentially have a very explosive move on
You've had pretty spectacular performance since you started your
portfolio with about $5,000. In August, it was down about 10% for
the year. What's happened here in the last three or four
It's been down between 10% and 15% so far, it has been quite flat
this year. Considering that I own a lot of junior stocks, those
stocks can be very volatile.
It's been a tough year for everybody and not easy to show any
spectacular gains in 2011. How about some of the individual
stocks in your portfolio; do you have some nice winners that
you'd like to talk about?
Prophecy Platinum Corp. (NKL:TSX.V; PNIKD:OTCPK; P94P:Fkft) was a
spectacular winner. The rest have been holding on. However, I'm
quite optimistic because some of the stocks have some major news
coming in the next few months.
You mentioned platinum, which always used to trade at a pretty
substantial premium to gold. It's obviously a lot rarer than
gold. Yet somehow, it's faded into obscurity in the last few
years. Do you have any opinions on why that might be the
In fact, I was out telling everybody that I'm loading up on
platinum. Platinum is less than 10% of the global production of
gold. Some 75% of global production comes from South Africa,
which is having problems with electricity, labor disputes and
other issues. Right now platinum is trading at a discount to
gold. It's almost unheard of. It used to be platinum was twice as
much as gold. There could be hedge funds that may be long
platinum and short gold and are having some problems and may be
unwinding some positions. Over the long run, I think platinum is
probably a very good investment.
Tell us more about Prophecy Platinum.
This stock has been a spectacular winner for me this year. It's
up from less than $1/share to over $6/share in quite a short
time. Now it's pulled back to about the $3/share range. Prophecy
just completed a private placement, of which 25% was
participation by the insiders. That's very strong insider
participation. The price right now is at around the private
placement price. Prophecy has a huge platinum group metals (
) deposit in the Yukon. It's 12 million ounces in the NI 43-101.
Prophecy just had some very nice drill holes. When the next
update comes out, it will probably have more PGM and the gold.
So, that's looking very good. It has a sister company called
Prophecy Coal Corp. (PCY:TSX; PRPCF:OTCQX; 1P2:Fkft), which owns
about 45% of Prophecy Platinum. If you deduct its cash and the
value of its Prophecy Platinum holdings, you get the coalmine in
Mongolia for free. Plus you have leverage to this platinum
The platinum price situation is just hard to believe-the way it
has fallen back. Maybe it has something to do with less
The industrial demand will slow down a little bit. But, it's not
this dramatic. I feel it's like when silver dropped to $10/ounce
in 2008. The price dropped so low that I think it's an
opportunity for investors to buy platinum and platinum stocks on
Another platinum producer I like is Stillwater Mining Company
(SWC:NYSE). That's the largest platinum producer in North
Stillwater. That's the only producer in the U.S. that I'm aware
Right. It fell very hard recently and lost two-thirds of its
market cap. It now has a little bit of a rebound. I bought it
pretty close to the bottom and I'm still holding it.
You recently returned from a visit to Haiti where you went to
take a look at the Majescor Resources Inc. (MJX:TSX.V) gold
property. What kind of report do you have on that?
Oh, I was very excited about that. The property has a huge
potential and Newmont Mining Corp. (NEM:NYSE) is also in the
area. Newmont has been very interested in Majescor's drilling
program and even invited Majescor's company executives to its
office when I was there. That tells you how much focus it has on
this drilling program by Majescor. It will have drilling results
coming out in December. First, it was targeting copper and
copper-gold and then it will drill out the area with some very
high gold intercepts. In a previous release, Majescor showed 10
meters of something like 70 grams per ton. It will drill that
next year. Basically, it's a gold and copper or copper and gold
project, depending on where you focus on it.
So, we're going to wait for results next month and see how that
Exactly. Its market cap is only $15 million and it could have a
world-class deposit. Plus all the majors are looking at the
So there may be a good chance that it will get taken out pretty
quickly if the stock doesn't go crazy.
Majescor has been working on this project for two or three years
and finally the drilling starts. It's a pretty exciting time for
Back in August you were also pretty positive on Pretium Resources
Inc. (PVG:TSX). The company has a couple of properties that look
pretty interesting at Snowfield and Brucejack. What's been going
on with those properties since last August?
I visited its property and it was very, very exciting. The
high-grade gold intercept was fantastic. Right now, the market is
in a holding mode and we haven't seen much movement in the past
few months. Once people see how good a deposit it is and
recognize how undervalued it is, I think we should see some good
upside movement on this stock.
You also visited the Romios Gold Resources Inc. (RG:TSX.V;
RMIOF:NASDAQ; D4R:Fkft) and the NovaGold Resources Inc. (NG:TSX;
NG:NYSE.A) properties up in Northwestern B.C. last summer. What's
going on there?
Romios started releasing drilling results and you can see it has
some pretty good intercepts. It is still looking for the sweet
spot and will probably need to take more time to drill out this
area to find the center of the deposit.
When do you expect some significant news?
Depending on the next round of drilling results, it could mean
Romios needs to come back next year to do more drilling. It
already released a few rounds of results and I think it has maybe
one or two rounds of results left.
Romios is near NovaGold. Do you think there's some possibility
that NovaGold may try to take a run at Romios?
NovaGold has a new CEO and plans to sell this Galore Creek
deposit. Last time I think I was hoping it would have fantastic
drilling results and then we would have a takeover situation.
But, now it looks like it has found a deposit and needs to drill
more. So, you probably need a little bit more patience to see how
it develops, probably into next year.
What about NovaCopper?
NovaGold wants to spin copper projects off and potentially the
name could be NovaCopper. We'll have to see what kind of deal it
has and what direction that property goes.
What about other companies in your portfolio? Any developments
there that our readers should be aware of?
I'm still holding a lot of OceanaGold Corp. (OGC:TSX; OGC:ASX).
The company is a producer in New Zealand and is starting up its
new gold mine in the Philippines. It's probably one of the
cheaper gold producers you can find. I also own Coeur d'Alene
Mines Corp. (CDM:TSX; CDE:NYSE). That's a big silver producer and
just had a management change. The company has two new silver
mines going and half a billion dollar cash flow each year. It's
building up a third mine, which is a gold mine, and a fourth
mine, a silver mine. It doesn't have much in capital requirements
coming and I hope will end up paying a dividend. I've been
holding the stock for a while and expect to keep holding it.
What are your expectations as far as market performance in the
last weeks of the year? Then what happens next year with the
precious metals and mining stocks?
A lot depends on the European solution. I think the most likely
result would be a massive money printing in the Eurozone. That
would be very positive for gold. As far as gold mining, we have
seen the general lack of capital in mining stocks. That's why I
try to stay with companies with a strong cash flow. Many
exploration companies and emerging producers are trading at very
low valuation. Still, the market doesn't give them recognition.
If we have any solutions in the Europe situation, these stocks
can have a huge run.
Are there any other parting thoughts you might want to leave with
our readers as far as how they should be playing this market?
Gold stocks are extremely undervalued right now versus the gold
price. I personally believe that gold will go much higher. How
high will gold stocks go? I think this depends on market
conditions. Gold stocks have two faces. One is related to gold.
The other is related to the capital markets. Mining companies
need to raise money to produce gold. It's a very
capital-intensive industry. So, if the capital market doesn't
improve, gold mining stocks may lag behind gold for some time.
But, once we have some stabilization, I can see some extremely
undervalued gold stocks out there. Another idea to think about is
to try to follow what the majors like. A company like Majescor
clearly has the interest from majors. Majors are flooded with
cash and can afford to pay a reasonable market price for a
property. So, I think it's probably a good time to follow the
trades of the majors.
You've given us some good information and food for thought.
Thanks for joining us today.
Thanks for having me.
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.
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1) Zig Lambo of
The Gold Report
conducted and edited this interview. He personally, and/or his
family, own shares of the following companies mentioned in this
2) The following companies mentioned in the interview are
The Gold Report:
Majescor Resources Inc., Pretium Resources Inc., NovaGold
3) Chen Lin: I personally and/or my family own shares of the
following companies mentioned in this interview: Every stock
except NovaGold Resources Inc. I personally, and/or my family, am
paid by the following companies mentioned in this interview:
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