Gold!

"Peter Spina: There's a lot of confusion out there now, but the bull market in gold is not about jewelry demand; it's about money. As gold keeps reaching new record highs, it's becoming more apparent what's driving it. The true issue at hand is trust (or lack of it) in the value of paper money—specifically the U.S. dollar. What's really made this country so strong has been the value of its currency.

We're seeing a shift away from U.S. dollar reserve assets. The value of the dollar had been primarily driven by demand in its global use, including trade in dollars, specifically, the oil trade. There are growing rumors about shifting some of that oil trade away from the dollar, and at the same time, central banks around the world are diversifying away from it. Combine that with other factors we're experiencing—trade deficits, internal deficits, the incredible amount of printing of dollars to bail out banks and provide stimulus and so on. It can't go on.

The U.S. internal deficit is nearing $2 trillion a year and growing, especially in the last year. Now they're talking about projections from the recent financial bailouts total obligations exceeding $20 trillion. That doesn't take into account future banking and derivative issues, which are upcoming. Already, we do not have the ability to finance our debt. It requires about 80% of the world's savings to support our debt habits, and we're just increasing our debt load so quickly—our appetite for a debt is increasing.

How do we continue to finance this kind of system? This has to play itself out at some point and I believe inflation will be the outcome from all this paper printing via growing monetization of U.S. debt. It will cheapen the debt load, but there will be some severe consequences to pay. The price we'll pay will be reflected in devaluation of the U.S. dollar along with a degree of influence such power provides. Gold will benefit from this process. As people look for sound money and a safe-haven asset, gold will be the obvious choice."

"And then, of course, the property. You want to look at various criteria in that respect including geography. I prefer locations in Mexico, Canada and Nevada for mining companies. Grades, environmental location, etc. are all very key investment decision makers."

"TGR: Who else is on your radar?

PS: Another would be Gold Resource Corp. (OTCBB:GORO, FSE:GIH), which has several properties in Oaxaca in southern Mexico. They have under 50 million shares, no debt. They have several large shareholders, including management. One of the largest investors is Hochschild Mining (HOC: LSE) and the Tocqueville Gold Fund. Gold Resource Corp. is expected to produce 70,000 ounces of gold in the first year at $100 an ounce production cost at its El Aguila property. That's very high-grading gold. They're going to increase that to 110,000-plus ounces in years two,177,000 gold equivalent ounces in year three and onwards. As they encounter more base metals, those will be used as credits against production, so their production costs will go to zero or even go to a negative cost.

A lot more exploration work is needed to define the size of this project because of the significant upside their property remains huge. Right now they have several years of production reserves, and we'll see how that exploration work pans out" 

"TGR: How close are they to production?

PS: They're actually mining the open pit ore right now. They have all permits in hand. From what they've said in the recent past, the mill should be completed within a matter of days, weeks. I would expect some sort of initial production to begin this month or next.

TGR: So they meet your criteria of being able to essentially live on their own cash flow, not needing to go to the capital markets.

PS: Exactly. They're going to be producing an incredible amount of cash flow. If you're looking at 70,000 ounces with a net $100 an ounce margin in the first year alone, that's up to $1.50 a share right now in free cash flow. Gold Resource also plans to pay out about a third of their cash in the form of a dividend payment, which could be quite the dividend going forward. That's definitely a company to consider." 

"TGR: Any others?

PS: Timmins Gold Corp. (TSX.V:TMM) is another one in Northern Mexico. They're just starting production in an old open pit gold heap leach operation in Sonora. I believe this class of gold producers will soon see additional attention from investors and larger gold miners looking to grow their reserves and production levels therefore providing more upside. With just over 100 million shares, it's not as attractive of a share structure, but Timmins is now fully financed and soon producing cash flow with their first gold pour expected in January. They're looking at 80,000 ounces a year, $400 or so an ounce production cost, and they're trading around 70 cents a share. They have other prospective projects and some strong investor backing. That looks like a pretty good value to me. " 

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From:

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You know how I feel about this. We cannot eat the shiny pieces.