Month: October 2013

Source: Tom Armistead of The Energy Report (10/17/13)

http://www.theenergyreport.com/pub/na/how-edward-guinness-alternative-energy-portfolio-climbed-67-in-one-year

Alternative energy is a long-term investment, but returns are already rolling in, says Edward Guinness, co-manager of the Guinness Atkinson Alternative Energy Fund, which is up a whopping 67% year to date. Before you know it, rooftop solar could be as ubiquitous as mobile phones, and developments in wind energy are already creating a compelling value proposition for energy consumers—especially in Europe, where energy prices are high. Learn about the holdings driving growth for Guinness’ fund in this interview with The Energy Report.

The Energy Report: Edward, welcome back to The Energy Report. What are the prospects for alternative energy today?

Edward Guinness: The prospects for alternative energy today are as good as they’ve ever been in the last five or ten years. If you look at the drivers behind the industry, first on my list are scarcity and high prices of fossil fuels. I put second on my list energy security; third, the environment; and fourth, climate change. All these factors remain a priority and a concern. And what has improved over the last five or ten years has been the cost and performance of some of the technologies for installations in the space. So when you look at the cost of wind or solar installations, wind installations on a per-kilowatt-hour basis have fallen by about 35% since 2007. On the solar side, installation costs have fallen by some estimates by about 80% since 2007. So you have seen a dramatic change in the economic potential of the alternative energy industry.

TER: These costs are the costs of materials, installation or the whole package?

EG: I’m thinking about it on a levelized cost-of-electricity basis. That is taking into account the whole package, and looking at it on a per-kilowatt-hour (KWh) basis.

TER: Do costs vary significantly around the world?

EG: “Yes” is the simple answer. For example, there are parts of the world that have much better wind resources. But some countries or regions pay a significantly higher price for electricity, and there the cost hurdle alternative energy needs to overcome in order to be really compelling is much lower.

TER: The prospects for renewable energy are tied to the need to reduce carbon emissions. Are there any technologies that could effectively reduce carbon emissions enough to make coal acceptable as a power-generation fuel?

EG: That’s a difficult question. From our perspective, carbon emissions are linked to two of the drivers for the fund, to the environmental side of things and to concerns about climate change. At what point does coal become acceptable? That’s a really difficult concept to tackle. But what I would say is that there are technologies that work today that I believe can be harnessed to replace fossil fuels over the next 50–100 years without the need for dramatic improvements in the underlying technology. I think we have the potential, particularly in solar, for installations to be considerably higher in 40 or 50 years than people are imagining today.

TER: Are any of the solar stocks in your Top 10 particularly adept at using those technologies?

EG: Absolutely. They’re predominantly the manufacturers of the solar modules that underpin the sector at the moment. They’re also moving into the installation market and developing sites themselves.

We own a number of Chinese service stocks that have really driven the costs down to the point where I feel much more confident that solar is going to perform a lot better than people expect. And the reason is that for a lot of consumers today, solar has got to a point where it provides an economic return without any subsidies, and all that we need to do over the next 40 years is work out how to use it efficiently. This could involve connecting solar to the grid, developing energy storage techniques, working in smaller networks or even just changing the way we consume electricity at home or in the workplace.

TER: There are several advances for solar photovoltaic technology—thin-film technology, the efficiency improvements, wide spread rooftop installations. Which of your Top-10 companies are working in those areas?

EG: I would point you to Trina Solar Ltd. (TSL:NYSE), which is a leading Chinese solar module manufacturer. At the moment the product is polysilicon-based, and I believe will remain that way. I’d look at SunPower Corp. (SPWR-A:NASDAQ; SPWR-B:NASDAQ), which is also polysilicon based. It has more expensive products but it has the highest-efficiency modules on the mass market today. That means its products are the most appropriate for rooftop use.

Another company leading the chart is China Singyes Solar Technologies Holdings Ltd. (CSSXF:OTC ; 750:HK), which is a leading Chinese installer. It buys modules and then deals with permitting and planning and grid connection. It connects the installations, whether they’re rooftop or greenfield, and then typically sells those to a financial investor or an aggregator.

I think the rooftop future potential is going to be a parallel to the mobile-phone industry, where people think maybe we’ll have 5–10% of rooftops covered, and then suddenly people will be saying 15–20%, and then in 40 or 50 years there will be solar electricity-generating material on almost all roofs or buildings. A huge number of buildings are suited to it: housing estates, big-box retail, factories—vast expanses of flat roofs on which panel-based installations work. Longer term, I expect the domestic rooftop market to move toward integrated solar tiles, but I think that’s probably another five or ten years away.

TER: Your Top-10 list is very heavily weighted with wind and solar. What about tidal, hydro, wave energy and geothermal? Are any of these technologies looking promising?

EG: I think some of these, particularly some of the large-scale ocean technologies, have real promise, but they’re a long way away from delivering. Most of them are a long way away from being able to deliver a cost estimate, let alone a competitive cost.

There are tidal installations in place today. There are a limited number of sites internationally where the opportunity is quite large, but we don’t see this as a big game changer internationally. Wave energy could be, but at the moment, the cost is about 10–15 times that of solar and it is still very much at the prototype stage. And these installations operate in one of the world’s most hostile environments: Salt water and moving parts don’t mix. And that’s why a lot of the prototype installations have either not worked or require quite significant maintenance schedules. Right now, there is no listed company for which that is a major part of the business, so I don’t see any investment opportunities there yet.

Geothermal is very interesting. I see opportunities in conventional geothermal, which is where you use either hot water or steam near the surface of the earth to generate electricity directly from a turbine. There are a number of sites around the Ring of Fire in the Pacific or along fault lines in Italy, but the space is geographically constrained. There are a handful of companies, and we hold one, Ormat Technologies Inc. (ORA:NYSE), that is very well positioned. A second technology is hot-rock geothermal, where the energy source is much deeper. It might be 5–10 miles beneath the Earth’s surface. And in a similar way to shale gas, you use fracking techniques to frack the rock and then you pump water down, which then goes through the fractures created in the rock to come back up additional wells, and you extract the heat from much farther down in that way. There are a number of prototype sites and a handful of listed companies with exploration prospects, but they’re highly risky. The benefit is there are a lot more sites globally with the potential for producing long-term, cheap electricity using this method.

We have a couple of hydro holdings, Verbund AG (OEZVY:OTC) and Cia Energética de Minas Gerais (CIG:NYSE). I’m very interested in ground-source heat pumps as a way of reducing energy consumed in the home. We hold one ground-source heat pump company, WaterFurnace Renewable Energy Inc. (WFI:TSX), which should be very well positioned as new housing in the U.S. begins to pick up. We have a smart metering holding, Itron Inc. (ITRI:NASDAQ), and one biofuels holding of a Peruvian biofuel company, Maple Energy Plc (MPLE:LSE), which produces its ethanol from sugar cane. On the battery technology side, I have a lithium mining holding, Canada Lithium Corp. (CLQ:TSX; CLQMF:OTCQX), because I think that the prospects for lithium prices and lithium producers are very attractive.

Another area I think is very interesting is offshore wind. We’re just starting to see large numbers of offshore wind installations go in, and it’s still a reasonably small percentage of the turbine manufacturers’ business models. We have exposure to three of those turbine manufacturers, but it’s an area I’m concerned about, and the cost of offshore wind installations seems to be about double the cost of an onshore wind installation. We are paying a large price for the convenience of not having the intrusion of onshore wind turbines, coupled with the challenge of working in a hostile offshore environment where the operating costs are much higher.

TER: Can you give me a rundown on the wind and solar holdings in your Top-10?

EG: One of my holdings is an inverter manufacturer, SMA Solar Technology AG (S92:XETRA), probably the world’s highest-quality inverter manufacturer. Inverters are the key piece that links solar installations to the electrical grid. I believe the difference in output can be as much as 10% between SMA’s inverters and other firms’ inverters, which makes a huge difference in the economics of a project.

On the wind side I have four different trades going on. First, I hold three wind turbine manufacturers,Vestas Wind Systems A/S (VWS:COP; 0NMKL:LSE), Gamesa Corporación Tecnológica SA (GCTAF:OTC) and Nordex SE (NDX1:GR). They have all done brilliantly this year on the back of improving order books. They’ve restructured and cut costs and they’re now beginning to see the rewards.

I then hold a handful of Chinese wind utilities that are building out Chinese wind farms. They’re benefiting from the fact there’s been a huge price war among the Chinese wind turbine manufacturers. They’re able to build projects that deliver 15%-plus returns. In the last two years, we’ve seen significant investment and improvements to the Chinese grid and progressive changes to wind energy regulation—and that is feeding through to their bottom lines.

I’ve got three holdings in large international wind utilities: Enel Green Power (EGPW:BIT), Acciona SA (0H4K.L:LSE) and EDP Renovaveis SA (EDPR:LSE), all of which have portfolios of wind and other technologies across the world that generate healthy returns. Those three companies are listed in Italy, Spain and Portugal, respectively, and that’s why you’re seeing quite depressed valuations resulting from concerns on the economic situation in those countries. I think the regulatory environment is going to improve in their home markets and, in the medium to long term, the discount for stocks from those countries is likely to diminish.

Another area of the wind space includes smaller wind developers or utilities, where they might be distressed but have managed to get their assets operating and are moving into profitability. The companies there areTheolia SA (THIXY:OTC) and Greentech Energy Systems (0HFD:LSE). We’ve got a great Canadian utility called Boralex Inc. (BLX:TSX) that operates wind assets in Canada and is building out additional wind assets that I think are very attractive prospects.

The last company is a bit of a special case; it’s a small wind utility in the U.K. called Good Energy Group Plc (GOOD:AIM), which also has 35,000 customers. We’ve gotten to know the management, and we understand the company’s business model. I think Good Energy Group has the potential to grow its customer base to 200,000–300,000 over the next two years.

TER: Very impressive. Talk a little bit about Germany, which has been pushing the envelope on solar and wind. Is the party over there for alternative energy?

EG: I think the party is definitely quieting down. I wouldn’t describe it as over. And over the long term I think Germany is in a rather unique and quite attractive position. Its solar industry’s manufacturing side has fallen off quite dramatically, but the much larger part of the solar industry in Germany includes the installers and the owners and operators of assets, and they’re still doing pretty well. You’ve seen the subsidies cut; we think installations this year will be in the 3–4GW level versus 8GW at its peak, but that still makes Germany in the top five on a country basis. The wind industry in Germany continues to be a manufacturer as well as an installer, and I think the technological advantage that companies such as Siemens AG (SI:NYSE), REpower Systems SE (a subsidiary of Suzlon Group [SUZLON:NSE]) and Nordex have built over the last 15 years count for much more on the wind side.

TER: You have said you foresee significant potential for further growth in solar energy. Which companies are most likely to experience the growth that you’re anticipating this year?

EG: I think it’s the leading solar companies. China is not allowing new capacity to be built unless it has significant technological improvement. Top-tier companies like Trina Solar and Yingli Green Energy Holding Co. Ltd. (YGE:NYSE) will be primary beneficiaries of volume growth increases. Last year we had around 30GW of global installations, which was the same as 2011. This year we’re expecting somewhere in the 35–40GW range. And I believe we’ll then move up to the 70-80GW range in the next two or three years on the back of a much broader base of demand than we’ve ever seen historically. I believe SMA Solar will be a direct beneficiary of that. It has a decent market share of global installations. I think it will maintain a good market share and that feeds directly through to its growth as well.

TER: How has the alternative energy fund performed this year?

EG: This year has been a standout year for the fund. We’ve had quite a few tough years since 2008. We’ve been positioned as one of the only pure-play funds in the sector. A number of our peers have moved to invest much more broadly in companies that are tangentially linked to the alternative energy sector, like General Electric Co. (GE:NYSE) and Siemens, where they do a lot more than just alternative energy. We have a much more focused approach where we have to invest in companies that are least 50% in alternative energy. We underperformed on the way down and we’re now hugely outperforming on the way up. We’re up 67% year-to-date and the fund is really capturing the growth and recovery of the alternative energy sector.

TER: How would you advise retail investors in the current market?

EG: I am just a humble fund manager. I try not to advise investors if I can avoid it. I think it’s tricky, but clearly any investor looking at alternative energy needs to think about it as a long-term investment. The risks are clear and the riskiness and volatility of the sector are shown by the volatility of the fund performance. It’s had tough times when we went through the economic crisis after 2008. And you can see how much it snapped back now. I still think there’s a huge opportunity. I feel I’m at the foothills of this recovery and the high-percentage performers this year reflect how far down we’ve gone. I look at my job as trying to climb that mountain.

TER: This has been a delightful talk. Thank you for joining us today.

Edward Guinness joined Guinness Asset Management in 2006. He is co-manager of the Guinness Atkinson Alternative Energy Fund. Previously, he worked for HSBC in corporate finance beginning in 1998; in 2002, he joined Tiedemann Investment Group in merger arbitrage. He graduated from Magdalene College, University of Cambridge, with a Master’s degree in engineering and management studies.

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1) Tom Armistead conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family owns shares of the following companies mentioned in this interview: None.

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London Gold Market Report
from Adrian Ash
BullionVault
Thurs 17 Oct 08:50 EST

The WHOLESALE price of gold in London leapt at the start of Thursday’s trade, rising $45 per ounce to hit 1-week highs above $1320 after the US Congress reached a short-term deal on the government’s debt limit.

Avoiding the technical default set to hit today, the compromise extends new borrowing to New Year 2014.

 Asian and European shares failed to follow US stocks higher on the news, while the Dollar fell hard and US bond yields also eased back.

Silver rose over 5% this morning to trade above $22 per ounce for the first time in a week.

 “The markets had anticipated a last-minute compromise of this kind,” says a note from German investment bank and bullion dealers Commerzbank.

 “What is more, this also means that the scaling back of Fed bond purchases will be further postponed. A renewed sell-off of precious metals thus failed to materialize.”

 Issued before the debt-limit fix, “Resistance lies between 1301 and 1307,” said Scotiabank’s technical analysis Wednesday night, pointing to gold’s 50% retracement of both its 2008-2011 uptrend and this year’s June-August rally.

 Longer-term, however, “Desire to buy gold as a hedge against the consequences of monetary policy has diminished,” reckons Credit Suisse analyst Tom Kendall, who in February announced the “beginning of the end of the era of gold”.

 “When you’ve got other asset classes, equities in particular, doing so well, then it’s hard to divert investments out of them and into something like gold, which is falling.”

 “A lot of gold,” agrees Robin Bhar at Societe Generale, also speaking to Bloomberg today, “has been held for speculative purposes, investment and a store of value, and that’s less of a reason going forward.

 “If you sell your gold and put your money into equities, other fixed-income assets or real estate, you’re going to show a return. The gold bull market is definitely over.”

 But “although the US has managed to avert a default,” counters Nic Brown’s commodity team at French investment and bullion bank Natixis, “[it] has clearly lost some credibility” with foreign creditors led by China.

 Not only did Washington’s behavior annoy T-bond holders, says Natixis, “a concrete long term solution has once again failed to emerge.”

 As a group, Natixis noted last week, central banks have turned net sellers of goldsince May, cutting 20 tonnes from the 10-year record-high gold reserves. But countries holding US debt “may [now] begin to revisit long term plans to diversify away from the Dollar into other currencies or gold,” it said Thursday.

 Chinese rating agency Dagong today downgraded US government debt from single A to A-minus this morning, regardless of the debt-ceiling deal.

 “A potential Fitch downgrade,” says Citigroup analysis, pointing to the major US ratings agency’s warning over the debt-ceiling deadline on Wednesday, “[would mean] the US will no longer be AAA on average.”

 Losing that status could see US debt forbidden to many central banks worldwide, says Citi.

 The Swiss National Bank, for instance, “insist on investing [only] in high-quality government bonds” with their $430 billion of reserves, one quarter of which s currently in US Dollar assets.

Shortly before the jump in gold, but after the US debt-limit deal, the Indian government revised its import tariff for gold bullion – seen as a key part of this year’s collapse in legal imports to the world’s No.1 consumer – to reflect lower values.

 Cutting the tariff value to $418 per 10 grams from $436, the Central Board of Excise & Customs acted “in line with global rates” according to NDTV, whilst maintaining the 10% duty.

 By the end of Indian dealing on Thursday however, the price of gold had recovered to $425 per 10 grams for London settlement, the international benchmark.

 For Indian consumers, premiums to buy gold over and above London prices have jumped this week to record highs of $100 per ounce amid falling supply and growing demand for autumn festive season.

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Mitchell Clark, B.Comm. For Profit Confidential

So far this earnings season, there’s no big revelation among earnings results from brand-name companies yet. With reduced expectations, financial metrics are currently being met.

Earnings from The Charles Schwab Corporation (SCHW) came in solid. The company reported third-quarter earnings of $290 million, representing solid growth of 17% over the comparable quarter.

Sales grew 15% to $1.37 billion, with double-digit growth being experienced in all three of the company’s main revenue sources. Quarterly sales are at a record high, with the exception of the heights reached during the Internet bubble.

Company management sees its profit margins expanding into 2014. The stock jumped on this positive report, but it was already expensively priced.

Johnson & Johnson (JNJ) came in slightly ahead of consensus on both revenues and earnings. Third-quarter sales grew 3.1% to $17.6 billion. Domestic sales grew 1.7%, while international sales grew 4.2%. Diluted earnings per share grew to $1.36, representing another solid gain around 8.8%.

Investors have come to expect outperformance from Johnson & Johnson, and the position just consolidated on its earnings report. This company is worthy of a look for any long-term equity market portfolio, especially during a market correction or when the position is down on its own.

The Coca-Cola Company (KO) performed as expected, announcing a two-percent gain in global volume growth, but a three-percent decline in revenues. Diluted earnings per share grew eight percent to $0.54.

Dominos Pizza, Inc. (DPZ) has been a huge winner over the last three years. In its latest quarter, domestic same store sales grew 5.4%, with earnings coming in at $30.6 million compared to $26.0 million.

The company’s bottom line was lower than the Street expected, and the position sold off considerably. Given its current earnings, Domino’s is expensively priced on the stock market, but its recent track record is impressive.

So once again, current numbers are basically meeting expectations, but genuine economic growth is lethargic. Of course, we’ve only been talking about earnings from large corporations so far. Smaller companies are typically faster growing and don’t report until quite a bit later in the season.

In my mind, current earnings combined with current monetary policy justify the stock market’s current level, but that doesn’t make the case for buying it.

Once again, this plays into my investment theme of owning shares in existing winners that have very strong balance sheets and the prospect for increasing dividends over the next two quarters. (See “If You’re Looking for Rising Dividend Income…”)

At the speculative end, junior energy and energy services continue to be attractive. Select biotechnology and pure play technology stocks offer potential.

There’s value in precious metals, but this value might be present for quite a while longer, with spot prices continuing to drift.

All in all, given current earnings and sales growth, I don’t believe there’s enough justification for a rising stock market. But then again, it’s been like this for quite a while, and the key stock indices continue to climb on nothing.

By George Leong, B.Comm. For Profit Confidential

What the heck is with this stock market? The ability of the stock market to hold and avert a major correction over the past two weeks and then follow this with an upward move on the charts is a surprise—at least in my view it is, as it clearly shows the bullish bias controlling this stock market.

The NASDAQ and Russell 2000 are at new recent highs as the desire for growth by investors continues, which has largely been the story this year.

The S&P 500 is within striking range of its September record high.

The focus on the debt ceiling is important but also way overdone, in my opinion, given that we are in the midst of the third-quarter earnings season and, well, it has been subpar early on.

Yes, it’s still early in the earnings season, but I expect more subpar results. Of course, what I expect doesn’t matter—momentum and speculation are what drive this stock market.

So far, about six percent of S&P 500 companies have reported, and a dismal 55% of these companies have beaten estimates. That’s just not good. The results are also well below the historical average at just over 60%, and to make matters worse, the results were compared to estimates that were already lowered by Wall Street. Revenue growth is also lackluster, as I expected, which is not what we should be seeing with an upward-trending stock market.

The big banks reported decent results, but much of the easy money in this stock market sector has been made. The retail sector, which I view as critical due to its impact on gross domestic product (GDP) growth, has been lackluster. And with Black Friday and the key holiday shopping season fast approaching, things aren’t looking good for the retail sector; if consumer spending continues to fizzle, then it’s likely we’ll see another downward drive in fourth-quarter GDP.

In my view, I would be taking some profits or cutting losses. Recall what I said in my previous article regarding greed, risk management, and the need to have an investment strategy in place. (Read “Four Strategies to Protect Your Profits in a Falling Stock Market.”)

And don’t forget that there are still growth issues in Europe and China that will continue to have an impact on the U.S. economy. Europe is showing some signs of pulling out of its recession, but it’s going to take some time, especially as the jobs market there continues to be dismal.

My feeling is we are likely seeing the top to the stock market for this year (we may see a move of just a few percentage points higher in the best-case scenario), so I’d look at taking some money off the table.

By HY Markets Forex Blog

WTI crude futures traded lower during the early hours of the European trading session on Thursday, after the US Congress passed the US debt limit on Wednesday which avoided the government default.

West Texas Intermediate (WTI) declined 0.55% to $101.73 per barrel, while the European benchmark Brent dropped 0.71% to $110.07 a barrel, at the time of writing.

WTI Crude – US Shutdown Ends

After sixteen days of a partial government shutdown caused by the US Congress failure to finalize the US government’s debt ceiling and health care issues, the US Congress finally ended the shutdown on Wednesday and passed bipartisan legislation just hours before the October 17 deadline, when the US Treasury’s borrowing limit would end.

Congress passed the bill to raise a debit bill of $16.7 trillion and open funding for the government until early 2014. President Barack Obama signed the legislation into law early on Thursday morning.

Both sides of the Congress supported the legislation and left the healthcare reform, also known as Obamacare intact.

In the Senate, 81 legislators voted for the bill, while 18 voted against the bill. In the House of Representatives, 285 voted for the legislation while 144 voted opposed it. The law raised the debt ceiling until February 7 and funds for the US government until January 15. The proposal introduced a budget conference which is expected to present a long-term fiscal plan by December 13.

Federal employees in the US are expected to resume work today, the White House Office of Management and Budget confirmed.

WTI Crude- US Inventories

US crude stockpiles advanced by 5.94 million barrels last week, reports from the American Petroleum Institute confirmed on Wednesday.

The consultant firm PIRA suggested that the US has surpassed Saudi Arabia as the largest oil producer in the world and also predicted the US to maintain its position.

The US accounts for 21% of global demand last year, according to BP’s Statistical Review of World Energy and according to the International Energy Agency estimates, this year is expected to be the same.

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By HY Markets Forex Blog

The US congress have approved the nation’s debit bill, with just hours before the October 17 deadline, where the US Treasury will exhaust its borrowing limit.

After nearly three weeks of a partial government shutdown due to the spending and Obamacare issues, the US congress have finally ended the shutdown on Wednesday after member of Congress a bill to raise the debt bill of $16.7 trillion and open funding for the US government until early 2014, reopening the government, federal agencies and bringing federal employees back to work.

In the Senate, the bill was opposed by 18 votes, while 81 legislators voted for the bill. In the House of Representatives, the deal was passed by 285-144. Both sides of the Congress supported the legislation and left the healthcare reform, also known as Obamacare intact.

President Barack Obama signed the legislation into law early on Thursday morning.

The proposal was a result of several days of discussions between a group of Senate officials with Minority Leader Mitch McConnell (R-Ky) and Majority Leader Harry Reid (D-Nev).

The proposal is raising the treasury’s borrowing limit until February 7 and the funds for the US government until January 15. The proposal also introduces tougher income verification for funding under the healthcare reform, also known as Obamacare.

Government Shutdown – Economy Threat

The US lawmakers faced major pressure to end the government shutdown which was threatening to the economy recovery and the possibility of causing a global economic meltdown.

On Tuesday, Fitch joined the International Monetary Fund (IMF) and World Bank and warned the Congress could cause both a domestic recession and global economic disaster.

The US Treasury has $30 billion in cash reserves, without any borrowing authority, according to the Fitch Ratings agency.

“The US risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens – all of which would damage the perception of US sovereign creditworthiness and the economy,” Fitch stated on Tuesday.

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By www.CentralBankNews.info     Mozambique’s central bank cut its benchmark standing facility rate by 50 basis points to 8.25 percent, saying the current trajectory of economic growth and inflation is consistent with its plan.
    It is the third rate cut this year by the Bank of Mozambique, which has now cut its benchmark rate by 125 basis points following earlier cuts in June and August.
    The central bank also said it would intervene in interbank markets to ensure the monetary base does not exceed 44.729 billion by the end of October, up from its target of 43.817 by end-September.
    Mozambique’s inflation rate rose marginally to 4.52 percent in September from 4.34 percent in August, still below this year’s high of 4.9 percent in May when inflation accelerated due to higher food prices caused by extensive flooding at the start of the year.
    Mozambique’s net international reserves rose by about $US 5.33 million to $2.8775 by the end of September, about 256.5 million above the bank’s target.
    At the end of September, the metical was trading at 29.86 to the U.S. dollar, a monthly depreciation of 0.03 percent for a cumulative and annual depreciation of 1.19 percent and 3.90 percent, respectively.
    Mozambique’s Gross Domestic Product expanded by 6.2 percent in the second quarter from the first for annual growth of 8.7 percent, sharply above the first quarter’s rate of 4.3 percent.

    www.CentralBankNews.info

By MoneyMorning.com.au

The internet is becoming a control mechanism for nation states. You only need to reference leaked information from Wikileaks, Edward Snowden and Bradley Chelsea Manning to see it for yourself.

Of recent note are the leaks about the NSA’s international and domestic cyber surveillance from Edward Snowden. Some of the leaked documents are titled, ‘Tor Stinks’, ‘XKEYSCORE’ and ‘PRISM’.

But nonetheless this recent enlightenment of government spying leads to a simple question.
What does all this cyber espionage mean for the future of the internet?

On one hand there’s the internet you know and use on a daily basis. You can go about your business on different websites and pretty much do what you like.

But you still find restrictions on what you can do at every corner. From pay-walls and firewalls to blocked content and perceived fear, you can barely go a day without some kind of block.

What you might notice on your day-to-day internet browse is how the internet is now predicting your every move. Ads pop up showing things that are of interest to you. Emails appear in your inbox tailored to you from your favourite sites. In fact your browser predicts where you want to go before you even do.

Funny how that works isn’t it? Because on your typical web page there are hundreds of lines of code that log and track a whole range of information about you.

Here’s a list of things that are recorded when you visit a typical website:

• Your IP address and how long you spend on that site.
• Keystrokes from a form you began to fill in.
• Your email address, date of birth, name, location, gender, and income if you sign in with Facebook

All this information paints a picture of you, what you like and what might be of interest to you.

Now as you’re well aware, you don’t get a say in the matter, let alone any reward for it. I know I can’t remember the last time I saw a credit to my bank for the personal information unwillingly taken from me. Companies collect and on-sell your information and governments collect and keep it. But do you get anything out of it aside from some online ads? No, you don’t. How’s that fair?

Some people say they don’t care who has their information, and that’s OK, it’s their choice. And in the right circumstance sharing of data can be beneficial. It can benefit public health and safety, monitor spread of disease and enhance social interactions.

I’m happy to share some of my information, but of course anonymously. If anyone wants my personal data, I want to have a choice to give it. Should I chose to give my information out I would expect to be rewarded for it also.

Unfortunately that’s not the trend right now. The trend is for companies, organisations, and particularly the government to just take your personal information at will.

However, there is an alternative to the internet. And it’s something you should be familiar with, as it’s going to form the backbone of the internet we mainly use in the future.

Lavabit vs the FBI

First things first, there’s one more example of government control that you might not have heard of but that is important to know about.

To keep your emails private and secure you can encrypt them. For your intended recipient to read the message they need a private Secure Sockets Layer (SSL) Key to decrypt the information.

In short an SSL key is a cryptographic protocol which allows users to securely share information over the internet. This is one of the best ways to keep information locked down, secure, and out of the way of prying eyes.

However, not even encryption can get in the way of an angry government.

Let me tell you a story about Lavabit. Lavabit is an encrypted emailing service. It allowed users to securely and safely transmit emails between one another completely encrypted from the powers that be. Should someone be able to record the data anyway it’d be useless without the private SSL key.

Ladar Levison is the founder and operator of Lavabit. Since 2004 Lavabit has grown to over 400,000 members using their encrypted mail service. It just so happens one of Lavabit’s members is none other than Edward Snowden.

The FBI got wind of Snowden’s Lavabit account and went to Lavabit for some friendly assistance. But they didn’t get the reception they expected.

The FBI ‘came-a-knockin’ at Lavabit HQ in Texas on the afternoon of 28 June. As part of their arsenal were plans to install a pen/trap device on Lavabit’s servers then and there in order to record a bunch of information about Snowden’s email account.

Lavabit didn’t want a bar of it and refused the FBI’s request. Lavabit said they couldn’t provide the information as the user (Snowden) had enabled Lavabit’s encryption services. Lavabit also said they could decrypt the information but they didn’t want to ‘defeat their own system‘.

Therefore the FBI got the courts to issue an ‘Order Compelling Compliance Forthwith‘against Lavabit. This would let the FBI install the pen/trap device and record the information they were after. They also expected Lavabit to cough up the SSL keys and decrypt it for them. The following is an excerpt from that order.

Click to enlarge

You’ll also notice scribbled on the end, ‘including the possibility of criminal contempt of Court.‘ Meaning Levison and Lavabit would be on criminal charges if they failed to comply. In the tech world, that’s basically a dare. And Lavabit dug their heels in.

In one corner you’ve got the FBI trying to get access to an encrypted email account that uses Lavabit’s email encryption service. And in the other corner there’s Ladar Levison and Lavabit refusing to comply with the FBI’s orders.

Not only did the FBI issue orders against Levison and Lavabit but they also issued a subpoena to Levison to testify in front of a grand jury. And they also issued a search and seizure warrant for the premises of Lavabit to take the SSL key regardless.
To summarise the events:

• The initial order compelled Lavabit to let the FBI install the pen/trap device. This would record all the information from Snowden’s email account. The court sealed the orders, and put a gag order on Levison.
• Lavabit refused to install the device. The court threatened criminal contempt of court.
• Levison raised a motion to unseal the documents. The court denied his motion.
• He did however agree to let the FBI install the device and get the information they needed.
• What Levison wouldn’t do was give up the SSL keys that would decrypt the information. This rendered the information the FBI gathered completely useless. The FBI didn’t like this.
• The court gave Levison a chance to comply with all their orders and hand over the SSL key.
• Levison responded that in doing so would breach the privacy of the 400,000-plus other users of Lavabit. If the FBI has the Masterkey to everyone’s Lavabit accounts they could do what they liked with everyone’s information. He argued this was in breach of the Fourth Amendment. Also, keeping him under a gag order breached his First Amendment rights.
• The courts disagreed with him on both issues.
• As such Levison was compelled to hand over the encryption keys. What happened next is hilarious…
• Levison sent the FBI the encryption key…on a black and white print out. The SSL key was on 11 pages with nothing but alphanumeric characters, 2560 characters in total. The FBI claimed it was illegible. But they were just lazy, as they said to use the print out would be a ‘laborious process‘.
• This meant to decrypt the information the FBI would have to manually input the 2560 characters without a mistake.
• Not impressed with Levison’s assistance, the FBI again demanded the encryption key in an electronic format to make it easier for them. To date Levison has refused to abide by this order.

Knowing good and well he’s in the midst of a losing battle Levison has made the ultimate sacrifice and shut down the Lavabit operations.

He’s closed the business to circumvent the FBI from accessing the encrypted information of all Lavabit users. The only way to protect the privacy of the users was to not have the business operation at all.

Should Levison’s appeal against the court orders fail, it’s more than likely Lavabit will resurface outside US borders.

That’s a trend you’ll start to see more of. Why? Because online and digital businesses are getting tired of being poked and prodded by the US. so they’ll shift operations outside of US borders to avoid the pervasive methods implemented by US government branches.

Whether you like it or not the internet is basically a breeding ground for tracking and sequestering of information against your free will. That doesn’t mean it doesn’t have a purpose anymore. But it does mean that everything you do on the internet you should do with caution.

The Deep Web

There is an alternative to the internet. It’s the Deep Web. The Deep Web is the anonymous internet. You access it through The Onion Routing Network (Tor Network) and no one, not even the National Security Agency, can see where you go or what you do.

One of the NSA PowerPoint presentations Snowden leaked, ‘Tor Stinks’, says in the document, ‘We will never be able to de-anonymize all Tor users all the time.‘

Translated, that means the NSA doesn’t know what to do about the Deep Web.

The Deep Web is where hackers, whistleblowers, coders, programmers and hacktivists hang out and work. Those in the know realise by using the Deep Web they can make it harder for government to track them.

But for many people they don’t know what they don’t know, and the DEEP Web is a big unknown to many people. That’s why we’re here to introduce you to it.

The thing about the Deep Web is it’s just like the normal internet. It’s a bit more ‘bare bones’, but it allows you privacy and anonymity. You can visit the Tor Project Website to learn more. I also recommend the Tor Browser to surf the internet/Deep Web.

To make something clear, it’s 100% legal to use the Tor Network, so don’t be afraid of using it.

When you’re in the Deep Web be aware there are illegal websites and illegal operations. But there are also those kinds of sites on the internet too. Remember, if it looks like trouble it probably is.

What the Deep Web allows you to do, its real benefit, is you can do what you want where you want with anonymity. Be warned it’s not a 100% failsafe to hiding your identity. But it’s a very good start to making it harder for government to track your online movements and steal your information.

Use the Deep Web for what it’s designed to be, a protection of your privacy and data. Users are often advocates of freedom of speech, privacy and anti-censorship. All necessary values in preserving the integrity of our connected, digital world.

As more people come to realise the benefits of protecting their privacy online, more people will use the Deep Web. And the more people who use the Deep Web, the more effective it becomes.

What this all means is the future will spread across two types of internet. They will branch further apart and eventually separate.

One will consist of the internet you know today as it slowly evolves into a more controlled, surveyed government arm.

And the other will be the Deep Web which will grow and expand. It will allow people to carry on their digital lives, with the ability to choose when they want to part with private information.

The Deep Web is the best way to beat the NSA and it’s the best way for the non-tech savvy to protect their privacy and information. So go ahead, try it out and be a part of the future of the internet.

Sam Volkering+
Technology Analyst

Ed note: Sam has just recorded a video exclusively for Revolutionary Tech Investor subscribers where he takes viewers on a tour of the Deep Web. To get a taste for some of the things he covers you can tune in to a video Skype call between Sam and Kris from last week. Check it out here…

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By MoneyMorning.com.au

After weeks of drama, what do you know, everything seems to have worked out just fine…in terms of the impact on stock markets anyway.

As for the longer term impact on the US and world economies, well, who knows. As the phrase ‘longer term’ implies, it may not be for a long time before the full impact becomes apparent.

Thinking about the long term is fine. That’s why we recommend owning gold. Gold is your long term insurance policy against the ultimate destruction of the paper-based monetary system.

But as we’ve explained in recent weeks, don’t forget the short term. And right now the short term outlook tells us not to miss out on this opportunity to buy stocks as the torrent of money continues to flow into the market…

We’ve taken and we continue to take a lot of stick for our stand on the stock market.

From the start of this mess we’ve told you not to panic. We told you not to sell your stocks.

In fact we told you to buy stocks.

Why? Because we knew that what happened overnight would happen. That politicians on either side of the aisle wouldn’t have the guts to go through with their threats if that meant the US government defaulting on its obligation to pay bond holders.

So yes, we’ll say it; we told you so…

We Don’t Blame You for Fearing the Market

To be honest we found much of it amusing. Even up until last night the mainstream drones really thought there was a chance the US government would default.

Bloomberg ran a story effectively saying a default was almost certain: ‘Treasury Paying $120 Billion in Bills Doubted as Fitch Warns‘.

When we read that, even we wavered in our conviction…for about 10 seconds, until we realised that news story was a bunch of junk.

The story claimed:

‘Investors holding $120 billion of Treasury bills coming due tomorrow are increasingly worried that they won’t get paid.

‘Rates on the bills, maturing the same day that Treasury Secretary Jacob J. Lew has said the U.S. will exhaust its borrowing capacity, rose as high as 0.37 percent yesterday before dropping to 0.13 percent today, according to Bloomberg Bond Trader prices. The securities, issued a year earlier, traded at a rate of negative 0.01 percent as recently as Sept. 26.‘

We don’t doubt the notion that investors were worried. The bond yields clearly showed that. It shows you that many investors preferred the certainty of getting back less than the bond’s face value rather than waiting a couple of days and facing the risk of holding an asset the government may not honour.

So for all urging that you shouldn’t sell and that you should even consider buying, when faced with news stories like that we get it if you didn’t have the confidence to stick with the investing gameplan.

But now that it’s over – at least for now – we’ve got another question for you: Now what’s stopping you from investing?

Don’t Get Paralysis by Macro-Analysis

You may have seen us use the term ‘paralysis by macro-analysis’ before.

What we mean by that is some investors become so caught up in analysing the big picture that they become unable to make an investing decision.

No sooner with the debt ceiling drama be off their radar than they’ll find another drama to worry about. Another drama that will make them too petrified to invest.

As we’ve said before, we get it that the world economy is pretty hairy and volatile right now. Don’t for a second think we’ve got our head in the sand thinking everything is fine. If you’ve read Money Morning for long enough you’ll know that’s not our style.

We just worry that fear will paralyse some investors so much that in ten years they’ll wonder why their retirement nest egg is so tiny. Then look back at the hundreds if not thousands of missed opportunities.

And believe us, there are plenty of great investment opportunities on the stock markets today. Even as bullish as we are, we see missed opportunities all the time. There are stocks we know we should have spotted, but we didn’t.

But there are stocks we did catch. Such as the Aussie biotech stock that we recommended in Revolutionary Tech Investor in July this year. Already it’s up 41%…even though many investors fled the market for fear of a US government debt default.

Or there’s the groundbreaking US 3D printing company that’s gained 20% since we recommended it in June…again, despite the fears of a US debt default.

This is No Time to Sit on the Sidelines

You see, this is an important lesson.

Just because the wheels stop turning in Washington DC it doesn’t mean the wheels stop turning on the broader economy.

If anything the private sector wheels should turn faster. There are fewer inspectors and bureaucrats and ‘jobsworths’ interfering and messing things up.

Just to repeat, we’re not saying there’s a clear path ahead for stocks. The deal in the US is only a brief reprieve until early January for the budget and early February for the debt ceiling.

But with Dr Janet L Yellen set to squeeze into the hotseat at US Federal Reserve chairman next year we’re certain of one thing. The last thing the doctor will do when she takes over is anything that will add more instability to the market.

That means more money printing and a higher market. It looks as though we’re on track for our year-end target of 6,000 points for the Australian market and 7,000 points in 2015.

This is no time for investors to sit on the sidelines as this bull market rally gathers pace.

Cheers,
Kris+

From the Port Phillip Publishing Library

Special Report: UNAVOIDABLE: Australia’s First Recession in 22 Years

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Source: Kevin Michael Grace of The Gold Report (10/16/13)

http://www.theaureport.com/pub/na/thibaut-lepouttre-juniors-that-can-deliver-the-goods

Now more than ever, investors simply can’t afford to wish upon a star and hope the drill bits will deliver something; they need to focus on miners that have what it takes to get through the down times, says Thibaut Lepouttre, editor of Belgium-based Caesars Report mining newsletter. In this interview with The Gold Report, Lepouttre reveals the results of his search over five continents to find those juniors in gold, iron ore and tungsten that offer superior value.

The Gold Report: German Finance Minister Wolfgang Schäuble said last month, “The Eurozone is clearly on the mend both structurally and cyclically.” How do we square this statement with the record high unemployment, economic contraction and soaring debt of the southern Europe Eurozone members?

Thibaut Lepouttre: We must look at this statement in the light of the German elections in September. Schäuble belongs to the same political party as Angela Merkel, and he was giving us a pep talk to help his chancellor get re-elected. Based on what I see here in Europe, I don’t have the impression that things are getting much better, and I think many more structural reforms will be necessary before that happens. The high yield on sovereign debt and the undercapitalized banks have been dealt with on an if-needed basis, without tackling the underlying, chronic problems.

TGR: In Spain, for example, there is 27% unemployment. What kind of political pressure does this put on the Eurozone? Do you think that Spain, Greece and Italy can be kept in the Eurozone?

TL: I don’t think the Eurozone will split up because for most of its countries the advantages of staying in the Eurozone outweigh the negatives. If any country were to leave the Eurozone and depreciate its new currency, it would be beneficial in the short term but harmful in the longer term because it would be tougher getting its debt financed on the international markets. And having depreciated once, most investors won’t trust it again, fearing further deprecations. Now, because of the single currency, Greece can easily find an investor in, for instance, Germany or Belgium, while it would mainly be limited to domestic investors if it were to get out of the Eurozone.

That said, I think the European Union is largely responsible for the crisis in southern Europe. Not only did it allow dubious countries to join, it also supported dubious spending. In a specific area in Spain, there are four parallel roads and two railroads in an area just three kilometers wide. Lots of Spaniards bought second houses or apartments, and thanks to the availability of cheap mortgages, people could actually pay them over 40, 50 or even 70 years. The last example would take three generations to pay off. It is painfully clear now that there was an urgent need for a banking regulator that could have scrutinized the lending of money to people who couldn’t afford it.

TGR: Could natural resources help regenerate the European economy?

TL: No question. Italy has oil and gas. Greece has gold. Cyprus has gold, copper and even gas. Spain has gold, copper and silver, and Portugal has tungsten, gold and copper. In Spain, it would make sense to recentralize the mining permitting process because every decision now is made by a local government. This way, mining could be encouraged on a national level and several thousand or even tens of thousands of jobs could be created.

If this recentralization were to occur, it might then be possible for Spain to institute a 5% gross production royalty on gold mining so it would receive gold that’s being mined in the country as bullion for its vault. This could strengthen the balance sheets of its national banks. By contributing increased labor and tax flows and increased gold holdings on the balance sheets of the national banks, mining could be a huge boost to Spain and to any other country in southern Europe that would take such measures. To clarify, this potential 5% royalty is my personal thought and not an official law.

TGR: Aren’t large-scale environmental protests against mining in Europe a serious problem?

TL: There are always protesters. I agree that every modern mine should be as environmentally friendly as possible, but in the end governments need to balance potential environmental problems against job creation and increased tax revenues.

TGR: You predicted in May that gold would trade between $1,250–1,500/ounce ($1,250–1,500/oz). You have been proven correct. Where does gold go from here?

TL: We’ve had very strong resistance at $1,410/oz, and when gold tried to break through just a few weeks ago, it dropped right back to the $1,300/oz level. I believe that gold will continue to trade sideways from here: between, let’s say, $1,200–1,410/oz. I’m not sure what kind of major economic catalyst could result in a push strong enough to break through this resistance.

TGR: The Federal Reserve has backed off from tapering quantitative easing (QE). Will this raise the price of gold over the long term?

TL: We’ve seen QE over the past three years, including the past two years when gold fell in price. The continuous printing of money by the U.S. will definitely be beneficial to the price of gold, but the problem is that this new money will cause inflation only when the velocity of money rises again. In a normal economic cycle, this happens between 24 and 36 months, but now the velocity of money is much lower than normal. I think we’ll see inflation rising 48–60 months after the printing started, that is, within two years from now. And that will indeed benefit the price of gold.

TGR: Times are tough, and there’s little margin of error for successful investors. What qualities must mining companies demonstrate for investors to favor them?

TL: I like to see a management team with a track record. The era of inexperienced managers is over. Further, a company must present to investors and potential investors a clear path and timeline toward production because now all anybody cares about is adding cash flow. In addition, the project must be financeable. I don’t think any company would now be able to find financing for a $2–3 billion low-grade copper project in Chile. Finally, in this downturn, effective transparency is more important than ever because investors always want to know what the company is doing behind the curtain.

TGR: You have spoken in the past of the importance of jurisdiction in resource investment. In this regard, what do you like about Australia?

TL: Australia, like Canada, is a real mining country with many skilled and experienced people who are subject to very clear mining code. The jurisdictional risk is close to zero, as Australia realizes it needs its mining sector to support its entire economy. It’s a great place to work. A few years ago, Australia instituted a new levy called the Minerals Resource Rent Tax (MRRT) to garner a larger share of mining profits. There was a huge protest against this tax, and last year, the first year it was implemented, it generated only $200 million ($200M), instead of the expected $3 billion. So I think Australia will abolish this tax within the next few years as the negatives outweigh the benefits.

TGR: Could you name some Australian companies you like?

TL: There are three I like. Iron Ore Holdings Ltd. (IOH:ASX ) is a prospect generator that identifies and advances iron ore projects, then sells or joint ventures them, including with big names like Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCP). It has a joint venture on its Iron Valley project (that should go into production in 2014) whereby Mineral Resources Ltd. (MIN:ASX) pays 100% of the capital expenditures, and Iron Ore Holdings receives a royalty sales, which could bring in about $20–30M per year at current prices. So the company has about $70M in cash and continues to work on two other advanced-stage projects.

TGR: What’s your prediction for the price of iron ore?

TL: It’s currently trading around $135–140/metric ton ($135-140/mt) of 62% iron content. This will drift down to maybe $110/mt because a lot of new projects are coming on-line and onstream, and even though the Chinese economy is still growing, it’s growing at a slower rate. I think we should expect a long-term price of about $100/mt.

TGR: How much does iron ore depend on the Chinese economy?

TL: About 60–70% of Australia’s iron ore is being shipped to China.

TGR: Where do you stand on the future of the Chinese economy?

TL: That’s a difficult question because we just can’t rely on any numbers the Chinese produce. There’s not a lot of transparency. Without trying to sound like a conspiracy theorist, it is possible China is trying to hide things from the rest of the world. I do believe its economy is still growing, but I also believe the world will have to accept single-digit growth instead of the 10-12% we’ve become used to.

TGR: What’s your second Australia-listed pick?

TL: Beadell Resources Ltd. (BDR:ASX) is a great operation. It operates the Tucano project in Brazil, a 5 million ounce (5 Moz) gold and iron ore deposit with underground potential. It will produce about 200,000–225,000 oz (200–225 Koz) next year with a steady rate of production of about 150 Koz per year, and this should generate about $90–100M per year in operational cash flow. Beadell will be debt free by the end of next year and will be in a really strong position to acquire new assets and continue to grow.

When the company struck its financing deal for the Tucano project, it hedged about 150 Koz of gold at $1,600/oz. In hindsight, that was a great move that enables the sale of gold at $300/oz above the current spot price. Beadell will also start to ship iron ore, starting probably early next year, and this could add another $15–20M to its bottom line.

TGR: What’s Beadell’s production price for gold?

TL: At this point, the company is mixing ore with a high-grade part of the deposit, and the production costs should be around $450/oz. This should increase toward $650–700/oz when it reaches steady-state output. Long term, I’m looking at a 150 Koz per year output at $700–750/oz.

TGR: And your third Australia-listed pick?

TL: Papillon Resources Inc. (PIR:ASX), which owns the 5.2 Moz Fekola gold project in Mali. The company’s recently released prefeasibility study outlines 300 Koz/year gold at an all-in cost of $725/oz. Because the capital expenditure (capex) is only $300M, the payback period will be only 1.5 years. Because the company operates in Mali, there are some political risks. As we know, there was a coup d’état 18 months ago, but things seemed to have quieted down since then. Lately, however, there has been some chatter about the Mali government increasing its taxes on gold and mining.

TGR: What’s your assessment of the jurisdictional risk of West Africa in general?

TL: Ghana and Burkina Faso are the most reliable countries because they know their economies are based on gold mining, and they have been making tremendous progress attracting foreign investment in mining. I’d like to highlight two companies in Burkina Faso. The first is True Gold Mining Inc. (TGM:TSX.V), formerly called Riverstone Resources. Its Karma project is amazing. It’s already environmentally permitted, and a feasibility study is expected this quarter.

According to its 2012 preliminary economic analysis, Karma could produce between 70–90 Koz gold annually at a cash cost of $525/oz. The capex is only $125M, and this could be reduced to about $100M if True Gold uses contract mining. The company has about $35M in working capital, so financing should not be a problem, and production could begin in the first half of 2016.

TGR: What’s the second Burkina Faso company?

TL: Sarama Resources Ltd. (SWA:TSX.V). The company’s South Houndé project is earlier stage, but it has about $7M in cash, which is something I really like to see in these uncertain times. The recently released initial resource estimate is 1.5 Moz gold at 1.6 grams/tonne (1.6 g/t). The company has explored only about 20% of its strike length, so there is a lot of potential, in excess of 3 Moz within 2–3 years, in my opinion. And as South Houndé is just 80 kilometers south of Endeavour Mining Corp’s. (EDV:TSX; EVR:ASX) Houndé project, I think Sarama could be a possible takeout candidate.

TGR: What high spots do you see in South America?

TL: Columbus Gold Corp. (CGT:TSX.V), which operates in French Guiana. This is an overseas department of France, so the political risk is close to zero. And since my last interview with The Gold Report, Columbus has entered a joint venture with Nord Gold N.V. (NORD:LSE), the subsidiary of Severstal, for its Paul Isnard gold project. Under the agreement, Nord Gold must spend $30M in exploration over three years, plus it has to finish a feasibility study. As a standalone, Columbus could never have done these things. I believe Paul Isnard could ultimately contain in excess of 10 Moz gold.

A second project I like is on the other side of South America: Red Eagle Mining Corp.’s (RD:TSX.V) Santa Rosa gold project in Colombia. The company released a preliminary economic assessment (PEA) in September, and if you look at the underground San Ramon zone, its net present value with an 8% discount rate is $92M. This is a 5.6 multiple over Red Eagle’s current market cap of $16.4M. The company has $8.5M in cash, but it will have to make a $4.5M property payment in November. So let’s say it has about $4M in unrestricted cash, which it could use to further advance the San Ramon zone and get it environmentally permitted.

TGR: What’s your assessment of Colombia’s jurisdictional risk?

TL: Much better than five or six years ago. I think Colombia could very well be the next Peru, whereby mining will be encouraged as long as the companies color between the lines and don’t do anything they aren’t supposed to do.

TGR: Any other companies you would like to talk about in the Americas?

TL: In Mexico, Silver Bull Resources Inc. (SVB:TSX; SVBL:NYSE.MKT) has recently released a positive PEA. The study outlined a production scenario of approximately 5.5 Moz per year at a C1 cash cost of $6.58/oz. This is much lower than I anticipated because the company will be able to recycle the cyanide it uses in its plant, which will obviously lower the cyanide consumption and the total cash cost. If one would compare Silver Bull’s Sierra Mojada project with Coeur Mining Inc.’s (CDM:TSX; CDE:NYSE) La Preciosa project, it becomes quite clear that Coeur bought the wrong early-stage Mexican silver project.

The PEA uses a zinc price of $1.15/pound ($1.15/lb) and a silver price of $23.5/oz as a base case scenario, but even at a lower silver price of $20/oz for silver and 0.90/lb for zinc, the Sierra Mojada project yields positive returns and a positive NPV at 8% discount (I think the company’s base case of 5% is a bit too low).

TGR: Let’s talk about Canada. Do you think that the mining industry in Canada is in decline? There are problems with both provincial and federal permitting, with relations with First Nations people, who are claiming oversight over developments, and with the TSX Venture Exchange. Recently, many British Columbia juniors seem to prefer working in Mexico, rather than in their home province. What do you think?

TL: I believe that Canada is a top mining destination and will continue to be so. Most projects will get permitted, but maybe not with best case scenarios. Mexico is very attractive because of its gold and silver history and its much lower labor costs. But since Mexico has announced plans to increase its mining tax, I do think a lot of companies will return to Canada because this makes Mexico less attractive than before.

TGR: Which companies do you like in Canada?

TL: It’s very important to follow the companies that can raise money. For instance, Integra Gold Corp. (ICG:TSX.V) raised $4.4M for exploration at its Lamaque gold project in Quebec.

If investors are looking for a near-term commercial producer, I visited Metanor Resources Inc. (MTO:TSX.V) earlier this year, and although the company has had its fair share of bad luck, it is currently ramping up production at the Bachelor Lake gold mine in Quebec. This is an underground operation, and the company is opening up more and more stopes. But investors should be aware that this isn’t really a linear process.

TGR: What grade is it getting?

TL: Between 5 and 7 g/t.

TGR: When will Metanor go into commercial production and what will the production costs be?

TL: At this point, Metanor is still offsetting the gold revenue against the underground development costs. I hope to see declared commercial production in December of this year or early next year. Metanor is aiming for a cash cost of less than $1,000/oz, but proof of the pudding will be in the eating.

TGR: What do you like about tungsten?

TL: Tungsten has some irreplaceable uses and thus scores very high on the list of governmental strategic minerals, about the third highest in the E.U. and U.S. I’m pretty sure that the Department of Defense has a tungsten stockpile. China dominates world production; it has also been the predominant world exporter for decades, but has now started to stockpile tungsten. China has become a net importer. So it has become essential to develop tungsten projects outside China in order to guarantee continued supply to the West.

TGR: Can we expect tungsten prices to increase?

TL: I think so. I’m perfectly comfortable with the current price: $400–410/mt. Most mining companies will make a lot of money at those prices. If China continues its new stance, I believe we will see a price increase.

TGR: Is there a tungsten play you like?

TL: I went to Portugal, a mining-friendly country, in June to visit Blackheath Resources Inc. (BHR:TSX.V). Under its agreement with Avrupa Minerals Ltd. (AVU:TSX.V), Blackheath will have 70% this year and the option to acquire 85% of Covas, one of the highest grade, if not the highest grade, projects in Europe. So, while a competitor, such as Wolf Minerals Ltd. (WLF:ASX), will produce tungsten at an average grade of 0.19%, Covas has an average grade of 0.78%. This translates into a rough value of $310 per tonne of ore. The most recent Covas drill program has hit intercepts up to 1% and even 2% tungsten. Grade is king everywhere, be it in gold or tungsten.

Blackheath has a very good chance to develop its Covas and the Borralha project mainly because of its CEO, Jim Robertson. He was involved with Primary Metals, also a tungsten company operating in Portugal, which was floated at $0.15/share I think five or six years ago and was taken out by a Japanese metals trader at $3.65/share three years later. I trust this management team, and I’m pretty sure it will repeat the same trick.

TGR: Given all of the losses investors have suffered over the last couple of years, what are the factors that should keep them in the market?

TL: It all comes down to having a decent selection procedure. I can tell you that about 25–30% of the mining companies on the TSX Venture Exchange today won’t survive this downturn. Investors need to take a look at companies with cash in the bank, real value in the ground and management that can deliver the goods. This is not the time to wish upon a star and hope that the drill bits will deliver something.

TGR: Thibaut, thank you for your time and your insights.

Thibaut Lepouttre is the editor of the Caesars Report, a newsletter and mining portal based in Belgium that covers several junior mining companies with a special focus on precious metals and base metals. Lepouttre has a Bachelor of Law degree and two economics masters degrees that have forged his analytical approach to the mining sector. Considered a number cruncher, Lepouttre focuses on the valuations of companies and is consistently on the lookout for the next undervalued mining company.

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DISCLOSURE:

1) Kevin Michael Grace conducted this interview for The Gold Report and provides services to The Gold Report as an employee. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: True Gold Mining Inc., Sarama Resources Ltd., Silver Bull Resources Inc. and Red Eagle Mining Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Thibaut Lepouttre: I or my family own shares of the following companies mentioned in this interview: Blackheath Resources Inc., Columbus Gold Corp., Iron Ore Holdings Inc., Beadell Resources Ltd., True Gold Mining Inc. and Metanor Resources Inc. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Blackheath Resources Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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