Doug Loud And Jeff Mosseri: Supply And Demand Will Rescue Gold Soon

TGR: This company's shares are down 40% over the last two months. Is there a buying opportunity here?

JM: Indeed. But in this market, any producer with good management, whose share price has been punished along with the rest of the market, is a buying opportunity.

DL: But investors have to be a little more patient. These companies aren't going to look good by the end of the week.

JM: Another midsized producer we like is HudBay Minerals Inc. (HBM:TSX; HBM:NYSE). The company has gold and copper. It's really interesting at its current price. It's more than doubled copper production in the last year and has succeeded in successfully integrating its Constancia mine in Peru, and solving the transportation problems that caused the company some headaches last quarter. Its Augusta in-situ copper project in Arizona is going to take a little more time, but I feel confident that HudBay will be successful in putting the mine into production.

TGR: Which smaller junior producers are you fond of?

JM: Klondex Mines Ltd. (KDX:TSX; KLNDF:OTCBB) is one.

TGR: How well is that company succeeding in finding synergies between its Fire Creek and Midas projects in Nevada?

JM: On Aug. 4 Klondex announced the discovery of new veins at Fire Creek, including 9.1 grams per ton gold over 17 meters. It is doing exactly what it should be doing: developing both mines side by side.

TGR: How good is Klondex's cash flow?

JM: It's $41M. The company has 128M shares outstanding and earnings before interest, taxes, depreciation and amortization of $74M, so it is deploying its cash correctly. This is an especially unappreciated company at this price level.

TGR: Do you believe First Majestic Silver Corp.'s (FR:TSX; AG:NYSE; FMV:FSE) takeover of SilverCrest Mines to be a portent of things to come?

DL: With the new Mexican tax situation, with its tax and accounting changes, operating in Mexico will be a specialized field for a while, but we believe that it will pay off in the end. Companies operating in that country are incentivized to take out other Mexican miners.

TGR: You like the takeover?

DL: We liked SilverCrest, and we like First Majestic eating it.

TGR: Which other silver producers do you like?

JM: First Majestic is our favorite. And we also like Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ), but it is in the middle of a management change. So we'll have to wait and see how the new CEO will steer the ship.

TGR: How about junior near-term silver producers?

JM: We still like MAG Silver Corp. (MAG:TSX; MVG:NYSE), but that's further down the road. What we like most about the company is its partnership with Fresnillo Plc (FRES:LSE).

DL: The silver market is challenging now. First Majestic has more silver in the ground and is producing more silver than when its shares were at $20 or $25. Now its shares are around $4. The gold/silver ratio is also way out of whack; it's about 80:1, instead of 50:1, or 60:1.

JM: We think that when the gold turns, silver will turn harder.

TGR: It has been reported that silver producers are hoarding bullion.

DL: First Majestic has been known to keep some off the market.

TGR: Is this a sound practice?

JM: It makes sense, if the company believes the price of silver will rise.

TGR: Besides 153 Moz silver, 430 Koz gold and 361 million pounds (361 Mlb) lead, MAG's Juanicipio project has 584 Mlb zinc. Could a rise in the price of zinc reposition this project as you suggest Alexco's Eagle Hill could be repositioned?

DL: Sure, if the government decides to get serious about investing in our infrastructure again. Once it decides to start fixing the highways and the bridges and building the pipelines, iron ore will come back, along with zinc, nickel and molybdenum. Which gets us back to our friend PolyMet Mining Corp. (POM:TSX; PLM:NYSE.MKT).

TGR: How is its NorthMet project in Minnesota progressing?

JM: We're relatively optimistic now for the first time in several years that NorthMet will actually be in production within two years. That's quite exciting because annual production will be in large numbers: 72 Mlb copper, 15.4 Mlb nickel, 720 Klb cobalt and 106 Koz precious metals.

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Disclosure:

1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of  more

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