The Gospel of Gold According to Peter: Peter
Source: Brian Sylvester of
The Gold Report
Peter Grandich believes that we're in the midst of a stealth
gold bull market. Grandich, editor and publisher of
The Grandich Letter,
recently penned the book
Confessions of a Wall Street Whiz Kid,
the moniker "Good Morning America" gave to him after he predicted
the Black Monday stock market crash in 1987. He's now predicting
gold to top $2,350/oz in this exclusive interview with
The Gold Report .
The Gold Report:
Going back to your time as a fund manager in the '80s on Wall
Street, how does what was happening then compare with what is
It's dramatically different. The biggest change is that the game
is stacked against the average investor more so than at any other
time. For example, the mortgage debacle a few years ago was
equivalent to all the big car companies manufacturing cars that
they knew were going to crash and buying life insurance on the
people that they sold the cars to knowing that they would die so
they could collect on both ends. That's what the financial
institutions did. Those people are still in charge of the game. I
take exception when I hear people talking as if the game is fair
and the average person has a reasonable chance.
One revelation in your book is that your struggles led you to a
belief in Christianity. Does your spiritual life influence your
Yes. There's far less chance of me pushing the envelope and
touching the gray area-or even going into the red area.
Another theme in the book is about being wrong and accepting that
as an investor. Could you talk about the psychological pitfalls
I could write a book about losing. The ultimate crime of
investing is not being wrong. The crime is staying wrong and that
happens to a lot of investors. They institute the worst
investment strategy and simply hope things will change. Hope is a
wonderful spiritual strategy but a very bad investment
The majority of investors usually can withstand the financial
risk that they're taking, but greatly underestimate the mental
anguish that can come from the downside of what their investments
or speculations/gambling will bring. Wall Street created the word
"speculating" so that it doesn't have to use the word "gambling,"
but it's gambling. You have to be prepared to lose part or all
your money when you gamble and I don't think most investors are.
They think of the best possible scenario and never think of the
Most investors don't operate with a real plan either. That's
why they lose over time because they don't have a written
strategy and instead choose emotions and day-to-day,
At the Cambridge House investment conference in Vancouver, you
said that you don't look fondly upon the economic outlook for the
U.S., but you remain bullish on some foreign markets, especially
China. China's markets lack transparency and even some Chinese
companies listed on North American markets have proven to be less
than trustworthy, such as Chinese timber producer Sino-Forest
Corp. Are you sending investors into the lion's den?
It's foolhardy to think that the U.S. is the safest place and
China's the worst place to invest in equities. There's no
question that China's going through some growing pains. But there
are also shady things that go on here in the U.S. that don't get
reported or are twisted.
It's no longer a question of if China will become the world's
largest economic power, but when. To not have exposure to Chinese
equities over the next several years would be like not getting
exposure to U.S. equities during our greatest growth in markets
from the '50s-'90s. And right behind China will follow India. If
we don't have exposure to China and India and the companies that
do business there over the long term, we're shortchanging
How should investors get exposure to China without getting
The simplest, safest way is through exchange-traded funds or
mutual funds that specialize in a group of stocks to avoid
getting caught in one particular stock or style of business.
What are some Chinese investment themes that perhaps investors
can piggyback on?
China has a tremendous need for resources. That appetite is not
going to disappear anytime soon. It's underpinning the
commodities bull market, in particular steel and iron ore.
I read a report recently that said China was seeking alternative
sources of iron ore for its smelters as part of an effort to
limit its reliance on iron ore from Australia and Brazil. China's
looking to northeastern Canada in the Labrador Trough. Do you
know anything about that?
A couple of my clients are there and some of my largest personal
holdings are there. The Labrador Trough is probably the most
interesting play in the world right now. A Chinese company
recently did a big deal withAdriana Resources Inc. (ADI:TSX.V;
ANARF:OTCBB; A7R:FSE) up there.
I'm very bullish onAlderon Iron Ore Corp. (ADV:TSX;
ALDFF:OTCQX) . I call it the son of Consolidated Thompson because
it has many of the people who were successful at Consolidated
Thompson and is following Consolidated's path, but in a more
expedited way. I believe it's going to go the same way and be
taken over within 12 months.
Alderon has the Kami iron ore project near to Consolidated
Thompson's Bloom Lake deposit in the Labrador Trough. A recent
preliminary economic assessment (PEA) on the project reported a
pre-tax net present value (
) of just above $3 billion (
). How does the Kami deposit compare with its peers?
Alderon should be able to develop Kami at a lower cost, which is
key in that area. There's no question that there's a lot of iron
ore up there, but success is a question of cost, efficiency and
effectiveness. The expectation is that it will get port access in
a relatively short period. The last missing ingredient will be an
offtake agreement with a Chinese company, and the company seems
to be suggesting that it's in advanced talks. All in all, the
next big deal in that area appears to be Alderon.
A year from now, Alderon could be worth $10-12/share based on
what Consolidated Thompson was worth. It's a legitimate target to
have in the back of our minds.
Are there any other iron juniors that you're following?
A big story on the exploration front is going to beCap-Ex
Ventures Ltd. (CEV:TSX.V) . I was able to see Cap-Ex's plans for
its drill program in 2012 and it's just unbelievable. This
deposit already looks like it's much bigger than anything else
there. The company has four to six drills going. It's an
interesting story. There is alsoZone Resources Inc. (ZNR:TSX.V;
7ZR.F:FSE) , a little company that is very low priced, very early
stage and high risk. Its recent results from its 2011 program
indicate that it could be into something significant. There is
some serious talk that Quebec's government and the Chinese may
expand infrastructure in the far north, where there presently
isn't much now.
You expect the U.S. dollar to weaken once attention shifts away
from the troubled euro. At that point, do you expect gold to have
a sizeable run?
I have called this the mother of all gold bull markets. I don't
think we'll see a bull market like this again in our lifetime.
However, it's also been the most stealth bull market. North
Americans, and particularly Americans, have shown little or no
participation, yet the price has increased five to six fold. All
the fundamentals remain in place: central banks have gone from
big sellers to net buyers and major producers don't forward sell
The news that the Fed plans to continue flooding the system
with cheap paper is just another example of why gold's path of
least resistance is to the upside. I believe an all-time high,
not just a nominal high, but adjusted for inflation, could reach
Which of your junior gold equities that you follow have recent
news that could act as catalysts?
Of all the companies that I am involved with, just about every
one is an undervalued junior because they have multiple,
advanced-stage exploration projects in either prefeasibility or
feasibility studies. Their values are far more than their market
caps. For instance, ifSunridge Gold Corp.'s (SGC:TSX.V) project
wasn't in Eritrea, this stock would already be many times its
Wouldn't it then be taken out?
Yes. The market is discounting this project somewhere between 80%
and 99% because it's in Eritrea. However, the country risk is
even less than what it was. The U.N. sanctions against the
country ended up getting watered down. The Chinese have announced
a major investment in Eritrea and are talking about doing
It's extremely good for Sunridge and bullish for the bigger
company in Eritrea at the moment,Nevsun Resources Ltd. (NSU:TSX;
NSU:NYSE.A) . I would not put it past Nevsun to acquire it, but I
would think Nevsun would wait until Sunridge's projects are more
advanced. Once Sunridge's studies are in, Nevsun, another company
or Sunridge will develop it. It's close to getting updated
resources on multiple projects, so it's just too compelling.
Even though they've moved up somewhat, Sunridge shares are
still substantially lower than their 52-week high. This is a key
year for Sunridge. It's gone through tough times. Its stock went
down to pennies on the dollar. If it demonstrates what I think
it's going to in these reports, no matter that it's in Eritrea,
it should have a much higher valuation.
Some people that I've met who are familiar with Sunridge
believe its Emba Derho zinc-gold-copper VMS deposit is bigger
than Nevsun's Bisha project. That says a lot.
Could Nevsun be taken out by something like Rio Alto Mining Ltd.
(RIO:TSX.V; RIO:BVL; RIOAF:OTCQX), BHP Billiton Ltd. (BHP:NYSE;
BHPLF:OTCPK) or a Chinese company?
Both Nevsun and Sunridge could be gobbled up by a bigger company.
But Nevsun could also be interested by something that's worth 5
to 10 times more than its current value with the advantage of
being in its own backyard.
Also, Cliff Davis, the chief executive of Nevsun, and the
principals of Sunridge go back a long time. They have cooperated
on a lot of things. But no matter what happens, Sunridge's stock
is extremely cheap.
Many retail investors hope that they will exit their junior
resource equity positions via a takeover at a considerable
premium. Shareholders ofMinefinders Corp. (MFL:TSX; MFN:NYSE)
recently got their wish when Pan American Silver Corp. (PAA:TSX;
PAAS:NASDAQ) made a $1.5B takeover bid in January. Did that news
bolster your hopes of takeovers for other companies with
properties in Mexico, likeTimmins Gold Corp. (TMM:TSX.V;
TMM:NYSE.A) andGeologix Explorations Inc. (GIX:TSX) ?
I believe that they're both prime takeover candidates. The
difference is that only Timmins could actually be an acquirer, as
well as be acquired.
Pan American is putting a lot of stock in Mexico. Obviously,
Minefinders has had some problems with its Dolores operation, but
it's going to bring its expertise to bear on a promising
Timmins Gold had production of about 21,500 oz in Q411 from
its San Francisco mine. But its recoveries were only 65%, up from
about 50% in Q311. Do you have any reservations about Timmins
because of its low recoveries?
No. Timmins started from scratch and was producing within three
years during the worst financial crisis in the modern era. CEO
Bruce Bragagnolo should be congratulated. The company seems to be
quite assured that it has the heap leaching all worked out. It is
quite confident that it will reach 100,000 oz in 2012.
Geologix continues to drill the Tepal project in Mexico, which is
really a copper play. Drilling has revealed that there's
significant mineralization at depth. That could lead to an
underground operation after the open pit is completed. What could
that do to the share price?
The share price is just too cheap. Regardless of that, the
drilling news indicates that it could have something bigger. But
by the time the reports start to come together in the spring,
Geologix may not be around. It could become an acquisition target
before it has a chance to be reasonably priced. That's not a
problem for those of us who entered recently, but it may not get
the full value that it wants.
So many good, advanced-stage exploration projects were beaten
down in 2011-some to 80% below their 52-week highs. The Geologixs
of the world are on the lists of the majors because the majors
still struggle with replenishing resources. Mexico, despite its
problems with crime, is still a very favorable mining district
without many of the headaches some other areas of the world
Do you have any other stories you'd like to tell us about
There is one company:Excelsior Mining Corp. (MIN:TSX.V) , a
copper project in Arizona. It's my largest holding, so I'm
speaking my book. It's incredibly cheap, but once management puts
a couple of things in place, it's going to tell the story in a
big way and I hope the stock will react. It's truly an unknown
story right now. It could be worth a lot more than it currently
Its primary project is North Star, where it is doing in-situ
recovery. What are your thoughts on that method of copper
It's safe and environmentally friendly, but people don't
understand it. Another company has run into some issues with part
of its project being close to a town and there's been a push to
not allow it to have permits. The good news for Excelsior is that
it's truly out in God's country. There's no situation like that
The PEA stated an NPV of $480M with an internal rate of return of
34%. Would you like to see that a bit higher?
Making money at about $0.60 copper costs is livable. There still
needs to be a better understanding of the deposit, metallurgy and
exploration potential, too. Because of the style of the
management team, I anticipate that this won't end up being a
Any parting thoughts for us today, Peter?
The mother of all gold bull markets remains intact. The bears
have once again been bloodied and they'll go into hiding until we
go through $2,000/oz and then they'll come out again. Then the
media will flock to them to tell us for the 19th time why gold
has topped out.
Thanks for sharing your forecast.
Financial Adviser and Market AnalystPeter Grandich started
The Grandich Letter
-now a blog-without a high school diploma or even a day of
formal training. His ability to interpret and forecast financial
happenings, which once earned him the moniker "Wall Street Whiz
Kid," has led to hundreds of media interviews. He is regarded as
one of the world's foremost market strategists. He's also
published a new book called
Confessions of a Wall Street Whiz Kid.
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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:
Alderon Iron Ore Corp., Geologix Explorations Inc., Sunridge Gold
Corp., Timmins Gold Corp. Streetwise Reports does not accept
stock in exchange for services.
3) Peter Grandich: I personally and/or my family own shares of
the following companies mentioned in this interview: Alderon Iron
Ore Corp., Cap-Ex Ventures Ltd., Excelsior Mining Corp., Geologix
Exploration Inc., Sunridge Gold Corp. and Zone Resources Inc. I
personally and/or my family am paid by the following companies
mentioned in this interview: Alderon Iron Ore Corp., Cap-Ex
Ventures Ltd., Excelsior Mining Corp., Geologix Explorations
Inc., Sunridge Gold Corp, Zone Resources Inc., Timmins Gold Corp.
I was not paid by Streetwise for participating in this story.
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