It may be hard to find someone as enthusiastic about precious metals mining as Sean Brodrick. A natural resource strategist with the Baltimore-based Oxford Club, an independent financial organization, Brodrick isn’t only filling his own portfolio with gold miners, he’s launching two new newsletters to research and vet resource stocks. While Brodrick might be putting his money where his mouth is, it’s not without solid reasoning and deep research. In this interview with The Gold Report, Brodrick discusses the projects he’s visited, the management he’s met and the companies that are getting his attention.
The Gold Report: Sean, over the next two months, you’ll be launching two different newsletters. The first one will be called Gold and Resource Trader. Why is now the right time to debut?
Sean Brodrick: It is a good idea because gold is generally hated right now. I like to look smart. One way to look smart is to buy things near a bottom and then hold onto them as they increase in value.
There is real value in the gold mining area. I ran a screen recently showing 25 miners trading on U.S. exchanges below book value. Some of them I wouldn’t buy, but some I would. This shows that real value is there. We are closer to the bottom than we were to the top, so now is a good time to get in.
TGR: Tell us about the second newsletter you’re going to launch in January?
SB: Oxford Resource Explorer is about energy, metals and other resources. It’s more energy focused because there are tremendous opportunities right now. If you told people 10 years ago that the U.S. would be producing at this level, you would have gotten some head shaking. They just wouldn’t have believed that.
“In gold mininig, we are closer to the bottom than we were to the top, so now is a good time to get in.”
The amazing stuff is what’s coming down the pike. The Gulf of Mexico is just kicking into high gear again. This shows how the natural resource market can turn on its head. People think they have the story figured out, and something comes along and changes the whole thing around. That’s why people are so bearish on gold. They think, well, that’s it, gold’s done; gold has had its day in the sun. No, it hasn’t. There are many good fundamental reasons for gold to go higher.
TGR: In some recent posts on your blog, King One Eye, you note that China is the driving force behind physical demand for gold, yet the central banks are on pace to buy almost half the gold they did in 2012. Does that trend concern you?
SB: Sure, it concerns me and it bears watching. But what the world’s central banks will buy is a guess. The proof is that Chinese demand for gold just keeps rising year over year. There’s extraordinary growth in China as millions join the middle class. And it’s not just China. There is lot of uplift in the whole economic atmosphere across Asia.
“Chinese demand for gold just keeps rising year over year.”
The central banks are important and I am absolutely keeping an eye on what they’re doing. But you have to understand why the central banks buy gold. They buy gold because they want to have something real and tangible, in case there’s ever a run on their currency or some other kind of financial crisis, to keep people from freaking out.
But there are some good reasons to freak out. We have quantitative easing, not just in the U.S. where it’s $85 billion/month, but around the world. The balance sheet of the whole of central banks system is now estimated to be more than $20 trillion by Bloomberg. Central banks keep buying gold because they are worried that some of those pigeons will come home to roost eventually.
TGR: Are higher gold prices necessary to make money in mining equities?
SB: Many companies do need the price of gold to go higher. Mining costs have been going up. Some companies that could make it on $400–500/ounce ($400–500/oz) during the last decade can’t anymore. There are low-cost miners out there. In fact, I love finding low-cost miners. Those are the companies I’ll be recommending to my subscribers in my new publication. But unless we see the price of gold go higher, we’re probably going to see even more large projects shut down.
Also, declining ore grades are putting pressure on companies. There used to be nice, rich gold ore that could be dug up cheaply. Now, companies are mining the gold ore that they used to drive over to get to the easy gold ore that they mined up. That’s the problem with gold. It’s a non-renewable resource. Ore grades are declining and costs are going up. That’s a one-two punch that means the price of gold needs to trend higher for companies to make money.
TGR: You recently told MarketWatch that you examine earnings to see if they’re telling you the story on the individual company or if they’re indicative of a larger trend. Please explain that idea.
SB: Yamana Gold Inc. (NYSE:AUY) recently came out with pleasantly surprising earnings. For one thing, it is using an expected price of around $950/oz to build its models. That shows a company that is thinking in realistic terms. If there is a pullback in gold price, Yamana will be prepared and actually survive.
“The miners you want to buy are the ones that are smart enough to buy something now, when things are so darn cheap and there are projects that are going for a song.”
The earnings of other companies have really taken a slide year over year as the price of gold has gone down. However, there are companies that can make it at the current price. Primero Mining Corp. (PPP:NYSE; P:TSX)has a great low-cost gold structure. It also continues to do exploration, when some companies have pulled back because they don’t have the money for it.
That’s what I look for in an earnings report. If a company can’t make it at $1,400/oz gold, it definitely won’t make it at $1,100/oz gold.
TGR: You’ve noted in your blog that you’re buying on the dips and pullbacks. What are you buying?
SB: What I’m seeking isn’t right for everyone. It depends on individual appetite for risk. Investors need to know their appetite for pain in an unforgiving market like this. If you don’t have an appetite for that, then you might just want to stick to exchange-traded funds (ETFs), like the Market Vectors Gold Miners ETF (NYSEARCA:GDX), which is the large gold miners, and the Market Vectors Juniors Gold Miners ETF (NYSEARCA:GDXJ), which is the juniors. In fact, I bought both of those, not because I don’t have an appetite for risk but because I need something to benchmark my holdings against.(...)Click here to continue reading the original ETFDailyNews.com article: 3 Reasons Why Gold’s Best Days Are AheadYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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