"Gold had a really nice momentum to it," said the Canadian investor.
"Gold prices dropped over 30% in just a matter of months," said the Canadian. "All of a sudden, investors realized that most gold miners had thin, even miniscule margins. Or they were LOSING money, if you can believe that! It's because many management teams were doing a really piss-poor job of allocating capital."
"Look at the first quarter earnings of Goldcorp (NYSE:GG), Agnico-Eagle Mines (NYSE:AEM), New Gold Inc. and even Barrick Gold (NYSE:ABX)," said the Canadian investor. "They're all making progress on the cost side of the ledger."
"Keep in mind," said the Canadian investor, "that not all of these cost reductions are due to brilliant management. I know most of these guys, and nobody is really that good, such that they can move their needle that fast."A lot of that so-called 'cost-improvement' has to do with changing the mix of ore grade that engineers run through the plants. That is, they opened up the usually-locked doors on those 'magic stopes' in the mines, and pulled out high grades that they normally keep under wraps for special occasions. Like now, when they need to impress Wall Street.""Lower internal costs are all well and good," he continued. "Share prices seem to have found a floor; the downside for investors is limited, I'd say. But lowering internal costs doesn't recreate the momentum of 2011 and earlier. That momentum is still lacking, I'd say. Looking ahead, for big share price moves, we need to see firm, upward, sustained movement in gold prices. That's probably a function of big, macro-economic issues, perhaps world politics and the broad investment cycle turning."
"Look, right now, the market loves tech, tech and more tech. That, and biotech. Or dividend plays. Tech and yield, basically. But if enough people get burned? Another tech pullback or crash? A big, unexpected bankruptcy by a dividend payer that runs short of cash? Well, it'll be back to gold, which can go down, but never down to zero."
"It's a great company, with a super-strong exploration program," declared the investor. "They almost never drill a bad drill hole. Everything finds something, one way or another. They've scoped out a significant mineralization range, and a sizeable ore body. Plus, it's a very efficient discovery because we've got a stockpile of old cores from past work, which management is continually re-assaying. Every few months, like clockwork, they add gold and silver to the resource base. This small company is takeout bait for at least an intermediate-sized miner; but right now, the market just doesn't care. It's okay; we can afford to be patient with this one. Our time will come."
"Absolutely," he replied. "Inflation is baked into the cake. Heck, we're inside the bakery, there are so many cakes with inflation baked in. We already see inflation with food, and we're one bad harvest away from supermarket sticker-shock across the world. Energy could also explode upwards with just a few tweaks of the world production cycle."
"It seems like most Western nations don't want to run themselves as long-term propositions," he said. "Live for today, the current political cycle and news cycle. The heck with tomorrow. But like I said with some of the gold miners, we can be patient; our time will come."