Gold: The Emperor Has No Clothes

By: John Ing | Fri, Nov 23, 2007
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Gold came within a whisker of our oft repeated target of $850 an ounce last reached in 1980. The main driver is the debasement of the US currency, which is losing value against gold and other commodities. The dollar continued its slide, setting a record low against the euro. The protracted crisis in the credit markets threatens to cripple the US economy. The result has been a crisis of liquidity rather than default. America's tendency to live beyond its means is over. The US greenback is continuing its orderly retreat and every sign (financial, economic, and political) points to further depreciations. American's indebtedness, long its Achille's heel has unwittingly redrawn the economic and political map of the world. In the wake of a loss of trust in the US financial system, gold is a good thing to have and our intermediate target is $1,000 an ounce. Gold is a reasonable proxy for prices, a hedge against investor anxiety, and a store of value particularly compared to stocks and currencies, which are subject to a variety of unpredictable economic factors.

The Center Of Capitalism Is Burning

The main driver behind the collapse in credit are the "weapons of mass destruction" (as Buffett calls them) created by Wall Street. America's prescription was easy credit and to keep interest rates artificially low which was the cause of reckless lending and the subsequent implosion of almost $500 billion of derivatives. This time the big investment banks have been hoisted upon the very paper that they created which has already caused huge losses and the demise of some their leaders. Wall Street is in peril. Wall Street prospered by financial engineering every form of debt into tradeable assets to spread risk and of course generate fees. The slicing and dicing of risk created exotic derivatives of structured products. The boom hinged on cheap money and confidence in the quality of these assets. Today, we are in uncharted waters as no one knows to unwind these newly devised structures of finance.

Banks used to be safe as houses, yet history show that bank failures are all too common throughout financial history, from the closing of the Herstatt Bank to the collapse of Long Term Capital Management to the S & L debacle in the US. History shows no one is too big to fail. England experienced its first collapse in the millennium. Banks have been forced to increase their writedowns and the Street fears that there is insufficient capital to back these writedowns. Moreover, the newly appointed Emperors of the boom like the hedge funds and private equity players, feasted on the various financial products and became highly dependant on borrowed money and leverage. The credit crunch saw these institutions dump their assets. The emperor was found to have no clothes.

Central Banks Are Part of the Problem

However, what is also at risk is not only the financial institutions but the world's central bankers' credibility. The loss of that credibility is like losing one' virginity, once lost it cannot be restored. For example, in a bit of Wall Street cronyism, the Fed's helicopters dumped dollars on Wall Street and have not yet reached Main Street. Central banks attention today is exclusively focused on resolving the problems in the banking system, ignoring the inflationary consequences of an open vault monetary policy. That the central banks were willing to bailout the big banks, exposes not only the hypocrisy but the dangers to the financial system. Central banks are supposed to be independent and stewards of the financial system, they should not be co-dependent nor conflicted.

Also few notice that the central banks continue to flood the markets with money particularly at the last quarter end. After cutting rates by 25 basis points, the Fed pumped $41 billion into the US financial system, the most since September 2001. The Bank of England has so far extended our $40 billion to Northern Rock. There are still credit logjams from New York to Belgium, yet the monetary aggregates on a global basis remain loose. Central banks are simply printing too much money.

The Fed gave investors what they wanted by lowering short-term rates which was sort of shock therapy to the credit markets. However, the Fed's action comes at a cost. The reduction in rates removes the sole prop to the US dollar and reinforces the view that the Fed will reflate its way out of America's problems. The rate reduction in essence is the continuation of an overly loose monetary policy that will eventually undermine what is left of the integrity of the dollar. The rate reduction also comes on the heels of the Bank of England's U-turn bailout so soon after pledging it would not underwrite handouts. Financial panic hit the public and the central bankers.

"Made in America" Policy Scrapped

While Wall Street is enjoying the Federal Reserve's 25 basis point rate reduction, noteworthy is that many other central banks have not joined the Americans. For example, the Saudi's central bank matched the Fed's 25 basis point rate cut but ignored the bigger September reduction, raising speculation that Saudi's would follow Kuwait's example and drop the long-held dollar peg. Flush with $500 billion, the Saudi's may revalue the riyal upward and even tighten reserve requirements to quench inflation. Iceland too actually raised rates to a record 13.75 percent to rein in inflation. Australia's central bank raised its interest to 6.75 percent to an 11 year high despite the Aussie dollar at its highest level in 23 years. Few remember that Beijing broke its peg with the US dollar in mid 2005 and while the renminbi has appreciated, China's economy's growth is still among the fastest in the world. Even Ecuador is threatening to ditch the greenback. We believe that the shift by some central banks to decouple from the world's reserve currency is a desire to avoid being dragged down when the currency bubble bursts. Gold will be a good thing to have as a store of value and medium of exchange.

Subprime, the First Domino

In domino-like fashion, the sub-prime mortgage problem was only the first of many to fall as the result of the huge global imbalance that has emerged over the past ten years. What began as a sub-prime mortgage crunch, turned into a credit crunch and now a dollar crunch. In addition to the bailouts, investment bankers have created ever fancier securities or super-tranches of linked collateralized debt obligations of asset backed securities. However, investor appetite for these synthetic collateralized debt obligations has disappeared. Wall Street just doesn't get it. Bernanke's bailout only served to mask the real consequences of their earlier banking conduct. Nothing has changed. The second domino has fallen.

Coventree, Northern Rock and Countrywide were unheard names five years ago. These financial institutions seemingly grew from nowhere financed by easy credit as they financed long term liabilities with short term paper. Now, they have now been caught offside. Unfortunately this is not the end of the contagion.

Undermining the trust among banks, many banks have stopped dealing with one and other. In the UK that helped trigger a funding squeeze for Northern Rock which is now for sale. In Canada, Coventree triggered a collapse of the $50 billion Asset Backed Commercial Paper (ABCP) market. Today the banks are no longer willing to finance the structured products like ABCP conduits or SIVs. There are an estimated $350 billion and $400 billion of SIVs outstanding. But like ABCPs, the financial engineers failed in their attempt to unload risk unto others, and the investment banks are caught again.

Rather than bite the bullet and markdown assets to reasonable levels as they did during the S&L debacle of the late 1980s, Citicorp, Bank of America, and JP Morgan with the help of Treasury Secretary Paulson are stalled in the creation of a new superfund, the Master Liquidity Enhancement Conduit (MLEC) to avoid a fire sale of assets. The banks are throwing good money after bad money and are simply creating yet another derivative to paper over the sins of the last derivative. MLECs are to purchase assets from the same bank affiliated structures that could not find financing in an extinct commercial paper market. The MLECs only perpetuate and prop up that other weak paper like ABCP, SIVs etc. It won't cause the asset sales at realistic prices. It won't buff up balance sheets. It won't work. The dominoes keep toppling.

America's financial problem is that so much debt is backed by assets with inflated values that fire sales would drive prices down even further, putting pressure on the big investment banks' fragile capital base. Next year, an estimated 2 million homeowners will lose their homes, destroying $100 billion or more of value. With the mortgage market seized up and the home equity disappearing, an over-leverage consumer will have trouble keeping up with the payments. But where are those losses? The problem with America's credit woes is that this paper was built on loose sand. As long as the credit markets remain paralyzed, the big banks' balance sheets will weaken further as they are forced to take on their ever larger amounts of commercial paper and leveraged loans. All in all, this won't solve the liquidity problems. The banks reported their worst quarter since 2001 but the carnage keeps on mounting. Writeoffs on mortgage linked assets have surpassed $60 billion but the losses could exceed 5 times that. UBS recorded a loss of $3.4 billion, Citibank would face $10 billion of writedowns, Merrill Lynch's losses stood at $8 billion. Deutsche Bank revealed losses topping $3 billion. If the damage widens, it will wreak havoc on an over-leveraged economy much as the innocuous sub=prime crisis has done.

US Greenback Death Spiral

When Bush took office in January 2001, the national debt stock at less than $6 trillion. Today after tax cuts, war spending and a credit boom, the debt stands at $9 trillion. One of the biggest causalities is the US dollar, which has finally begun its overdue correction as the credit crisis unfolds. However, we believe the dollar's decline is just a prelude to a much more substantial fall given the need to shrink the $750 billion current account gap, which runs almost 6 percent of GDP. The US manufacturing sector has dwindled to less than 20 percent of GDP, worsening America's trade gap to grow. In 1988, the US trade gap stood at $247 billion (when the euro averaged $0.88). Today, the greenback has fallen 40 percent against the euro, but the trade gap has worsened (the euro is close to $1.50). America's trade deficit must be financed by $2 billion of capital a day from the rest of the world. Since foreign investors are no longer buying significant amounts of US stocks or even their paper in the wake of mortgage crisis, the trade deficit must somehow be financed. Former Fed Chairmen Greenspan said the dollar decline may reflect foreigner's reluctance to buy US securities and that, "there is a limit to the extent the obligations to foreigners can reach". We have reached that limit.

At a time when the US requires more than $2 billion a day to finance its bloated current account deficit, the depreciating dollar acts as a disincentive to foreign investors for additional investments in US securities, particularly when they reduce rates. To no surprise, foreign investors dumped their holdings of US securities by a record amount, according to the latest US Treasury figures. To be sure, the dollar has lost its safe haven status as the credit crisis unfolds. In August, total oversea holdings of US bonds, notes and equities fell a net $69.3 billion after a revised increase of $19.2 billion in July. The August outflow surpassed the previous record of $21.2 billion in March 1990.

The United States continues to spend more than it produces. The chronic twin deficits are bloated by war spending and America's insatiable appetite for oil which has caused the trade deficit to explode to almost 6 percent of GDP. Over the last ten years, the consumer accounted for 70 percent of American spending, driven largely by the housing boom and the doubling in property prices. That has ended and now price inflation not asset inflation will plague consumers in light of rising energy, food and higher financing costs.

Ironically the credit crunch started a new bubble. Newly created money is fuelling the boom in global commodities. Currencies are losing value against commodities and gold due to open-market operations that sees everyone absorbing excess dollars with newly created currencies. The printing presses are on full steam. Global monetary policies are excessively stimulate as a result of the demise of the greenback, ensuring our intermediate target of $1,000 an ounce. Reflationary forces to end the credit crunch has caused a dollar crunch and investors are looking to hard assets to keep their value. To be sure, the dollar has lost its status as the world's reserve currency.

China booms amid financial woes

The US is no longer the sole engine of global growth. While America is being buffeted by the housing downturn, credit woes and weak US dollar, China has replaced America as the rise of their consumer class, means their rapidly growing economy is no longer as dependent on exports. Today, three of the five most valuable companies in the world are now Chinese ahead of Exxon and General Electric. Japan too, continues to grow and surprisingly these countries have been able to withstand high oil prices - something that the Americans have not been able to achieve. More importantly, is that the central banks have pursued an independent monetary policy by the not following America's reduction in interest rates.

The turmoil in the global credit markets has so far left Asia, particularly China relatively unscathed. Asia's strong economic growth and massive foreign reserves have enabled Asia to withstand the slowdown in the US and Europe. Asia has decoupled from the US due in part to the robust economic growth and huge foreign reserves. Asian stock markets continue their rise. Unlike ten years ago, when Asia was the centre of a global financial storm, Asia has learned its lessons by decoupling from the North American train.

But perhaps no country has revelled in its independence than China which has pursued an independent monetary policy and avoided a major revaluation. Like elsewhere, interest rates did not drop after the US Federal Reserve rate cut. A revaluation would reduce China's income as well the value of foreign assets of more than $1 trillion since most of those reserves are in US dollar denominated investments. In addition, inflation would not be addressed by an upward revaluation. Price rises in China are mainly domestically generated and a revaluation would not help reduce these costs. If inflation were mainly imported, a revaluation would make sense. Moreover, at a time when currency uncertainty was prevalent, China finds itself competing for capital. A revaluation would increase the country's purchasing power and imports but make it more expensive for foreigners to invest. The US bilateral trade with China has gone from $6.2 billion in 1989 to a current estimated $250 billion this year. The government is slowly opening its capital markets to foreign investors, so a revaluation would also make it more costly.

Today, the world has become less US-centric and more Asia-centric where growth opportunities are more attractive. In addition, we believe China's surplus will be deployed strategically with some $16.1 billion of foreign assets purchased last year, up 34 percent from $12 billion from the previous year. China's $200 billion investment fund is a fraction of the wall of money destined and there will be stiff competition for foreign assets ranging from resources to Wall Street to auto-makers. Thanks to the capitalist stock market, the Shanghai stock market has climbed by a third since yearend. Yet the market is not even a source of funding for corporations. China's behemoths are largely state-backed and the balance sheets are state-backed. Fears of overheating are misplaced.

The bubble will eventually burst but China's entities' will escape unscathed. China has excess savings and they are still at the nascent stage in building experience in international investing. However, they have shown a propensity to learn fast. We believe China will shift more and more of its $1.4 trillion currency hoard to other assets, particularly gold. China has less than 2% or only 600 tonnes of gold in reserves, a small fraction relative to other major industrialized countries. That compares with over 8,100 tonnes for the Americans and 3,422 tonnes for the Germans, the two biggest holders of the metal. China will produce almost 260 tonnes, displacing the United States and Canada. South Africa, the world's largest producer, produced 275 tonnes, it's lowest in 85 years. China will want to be self-sufficient so we see the industry benefitting form privatization and the usage of western technology. China is an excellent gold province and relatively underexplored. We expect China to increase consumption of gold as its people become more prosperous and expect its central bank to boost its reserve position more in line with Europe that has a 15% weighting of gold behind the euro. Gold in particularly is something China does not have enough of yet. That will change.

The Chinese are now looking into buying stakes in companies such as KKR and private equity Carlyle following the acquisition of a stake in Bear Stearns. The National Council for Social Security Fund was set up as part of the pension plan policies for China and the security fund has joined a number of other large Chinese state institutions investing overseas. Recently Industrial and Commercial Bank of China, China's largest lender, struck a deal to buy 20 percent of Standard Bank in South Africa. In addition, the Chinese entities, through the mandates of their securities regulator, have approved QDIIs and QFIIs using large entities to make investments overseas. In addition, so many of the major Chinese Institutions have secured stock market listings, raising cash that they are now looking around for targets, particularly merger and acquisition vehicles. Because the one common challenge facing Chinese institutions is the lack of capital market knowledge, China is expected to seed many of the Chinese institutions in order that they make other acquisitions so they won't run into the high profile difficulties of earlier aborted deals like Minmetal's bid for Noranda.


Despite the move in gold and gold stocks, this asset class is relatively under-owned. Most institutional portfolios have less than a market weight and some in fact have no gold stocks at all. Despite sterling performances, many precious metals/portfolio managers tell us that withdrawals remain more of a concern than inflows. Part of the reason for the lack of retail involvement is that gold has yet to record new highs such as nickel, copper, lead or oil. Gold is money and with supplies constrained, growing demand from the Far East is expected to take gold stocks even higher. Gold is not only a commodity but money as well. We believe that the consequences of saving America's banks will cause a new cycle of credit creation, competitive devaluations and a round of inflation. The liabilities of the banking system are the main reason why gold will trade higher than $1,000 an ounce. Gold has no liabilities and throughout the millennium continues to maintain its value. Gold is immune to default. After all, in the gold world there is no mark to model only mark to market.

The gold price hurdled over the $800 an ounce barrier en route to $850 an once. The gold index finally increased with the larger cap companies leading the way. The senior producers have been plagued by a flat production profile and rising costs. We continue to believe that investors will be rewarded by investing in gold and particularly gold stocks, since there have been times when gold stocks have outperformed by gold more than 2 to 1. It is our belief that once gold breaks above $850, institutions will buy up whatever mining companies are left standing after the industry itself feasts on the remaining smaller players. The best potential remains the mid-tier and junior explorers from a risk reward point of view. We continue to like, Barrick, Kinross, Agnico-Eagle and Newmont among the larger cap players since they are liquid. However, the best potential remains the more junior situations like Aurizon Mining, Eldorado, Etruscan and High River Gold as growing producers. Noteworthy of our ten juniors, two juniors (Bema and Miramar) have been gobbled up. We also recommend the silver stocks such as MAG Silver Corp. and Excellon for their exploration prospects and their exposure to silver. We remain convinced that the junior explorers such as Continental Minerals, Philex Gold and St. Andrew Goldfields, Unigold and USGold are attractive due to their active exploration programs. The junior explorers and developers should be bought as a package and are attractive on a valuation basis particularly since the majors are paying more $300 an ounce for gold in the ground. We continue to believe that the takeover activities will continue and while we are likely to see fewer mega-deals, the industry consolidation will continue. As such, we expect the mid-caps to be among the hunters since they too are prey. Kinross and Agnico-Eagle and even Newmont are vulnerable.


Agnico-Eagle Mines

Agnico-Eagle, a second tier producer is flush with cash and on a growth trajectory that includes five mines under construction. These mines will not require further financings and to date, Agnico-Eagle's management has not been plagued with the execution problems of other producers. Agnico reported a modest profit in the third quarter of $0.08 or $11.5 million due primarily to a non-cash foreign currency translation loss of $25 million or $0.19 per share. At LaRonde, Agnico's main mine in Quebec, the mill processed an average of 7,500 tonnes of ore per day in line with expectations. Agnico still produces gold at (-$307) an ounce due to the byproduct credits. Agnico-Eagle's cash hoard stands at $427 million which is sufficient to finance its expansion. In addition, the Company will receive $122 million from the exercise of warrants at yearend. At 100 percent owned Goldex mine in north western Quebec, Agnico should producer 170,000 ounces beginning in the 2nd quarter of 2008. In northern Finland, 100 percent owned Kittalia mine will produce 150,000 ounces of gold by the 3rd quarter of next year. At 100 percent owned Lapa mine in northwestern Quebec, Agnico will producer 125,000 ounces per year now that the shaft has reached final depth. In addition, following the acquisition of Cumberland, Agnico-Eagle is developing the Meadowbank property in Nunavut but initial production is not expected until 2010. In summary, Agnico's plate is full with an excellent project pipeline. We continue to recommend the shares here for its rising production profile which is among the best in the industry.

Barrick Gold Corp

Barrick Gold, the largest gold producer in the world, launched a friendly $805 million all cash bid for Arizona Star which is a joint venture partner with Kinross on the huge Cerro Casale copper-gold project in Chile. Cerro Casale has a multi-billion dollar capital cost and Barrick's involvement will accelerate production, although that is not expected until after 2010. Barrick reported 3rd Quarter earnings of $0.40 of share or $345 million and gold production of 1.93 million ounces, down from 2.16 million ounces a year ago. Importantly, cash cost increased to $370 an ounce up from $281 an ounce. Barrick will meet this year's production guidance of 8 million ounces plus and over 400 million pounds of copper but the near term production profile is flat. Barrick's dilemma is that its pipeline requires multi-billion dollar expenditures at not only Cerro Casales, but Donlin Creek, Pascua Lama, Pueblo Viejo, and Buzwagi. While Barrick has an excellent pipeline, the huge capital commitments in order to replace its production is a daunting task. The biggest, however is Pascua Lama, where Barrick has more than 8.5 million ounces of hedges attached to it, making that project less and less viable at current gold prices. Consequently, we believe that Barrick will likely buy an unhedged producer, not ironically for its reserves, but for the unhedged production, as a way to offset the very expensive hedge policy. When that happens, Barrick will be an excellent buy, other than a trading buy.

High River Gold Mines

High River is bringing on one of the largest silver projects in the world which unfortunately is in Russia. The Prognoz project in eastern Russia has excellent grade, a strike length in excess of 1,800 metres and is a huge deposit. High River has a 42 percent interest in Prognoz. High River has brought on stream the Taparko mill which will result in 100,000 ounces of production next year and 140,000 ounces thereafter. The mill is still in a start-up phase and the start up complements the Berezitovy in Russia which came into production. High River is poised to produce over 300,000 ounces next year and thus the shares are recommended for its rising production profile.

Excellon Resources Inc.

For some time we have been recommended Excellon as a junior silver producer with excellent upside exploration potential. Excellon will producer 2.5 million ounce from its Platosa project in Durango Mexico despite capacity limitations at Penoles' Fresnillo Naica mill. Excellon plans to build its own mill which will not only let them handle increased capacity but also allow the Company to benefit from lead and zinc byproduct credits. Excellon paid its silver debentures off and so the balance sheet is pristine. The new mill will handle 350 tonnes of ore per day and a floatation plant is planned onsite to handle the lead and zinc concentrates. We expect the mill to start up late next year and the mill should pay back within months. More importantly, Excellon is in the midst of an aggressive exploration program with four rigs turning. The Company believes that they are on the edge of a carbonate replacement deposit (crd) which could launch the Company into major status. We like Excellon's near term prospects and believe the Company has the wherewithal to reach the next stage. Buy.

Etruscan Resources Inc.

Etruscan is a growing junior producer with a dominant land position in the gold belts of West Africa. The Company has projected 90,000 ounces from the 90 percent owned Youga project in Burkino Faso which will come on stream this quarter. We like Etruscan here not only for the production from Youga but also for its Samira Hill mine in Niger and the huge land package. Etruscan should release a new resource complementing Youga's mineable reserves of 580,000 ounces of gold. Youga and the Agbaou gold project in the Côte d'Ivoire lie in the West African gold belt. In addition the Diba and Finkolo prospectus in Mali complements the Youga and Etruscan has a resource in excess of 2 million ounces. Etruscan has not only a solid production base but the exploration prospects and land package make this an excellent play. We recommend the shares here.

Mag Silver Corp.

Mag Silver released additional results from the Juanicipio property in Mexico. The company has been developing this prospect with joint venture partner Penoles, owner and operator of the nearby Fresnillo mine. Penoles has a 56 percent interest and a high grade silver prospect with a strike length of more than 1.3 kilometres. The Company has been drilling wide step outs and have enjoyed continous success and to date, we estimate the envelope contains 250 million ounces. Management is extremely experienced and we believe the Zacatecas Juanicipio property is the crown jewel. Not only does Mag Silver have a strategic partnership with the largest silver producer, Penoles but Mag has more than half a dozen other prospects. For example, Mag's Batopilas, a 48 km2 property in Chihuahua has had excellent results and two rigs are turning. Mag is also on track on sourcing a potential carbonate replacement deposit (crd) at Cinco De Mayo, where an active program has begun. Dr. Peter McGaw, the author of numerous studies on CRDs is guiding Mag's quest at Cinco De Mayo (Mag also has 3 other potential crds). We like Mag Silver for its exploration prospects. The company recently issued 3 million shares, giving it sufficient cash to conduct its exploration prospects. We would buy the shares here.

Newmont Mining Corporation

Newmont mining reported a disappointing 3rd quarter due to increased costs. The 3rd quarter contained a number of extra-ordinary items and the Company will produce between 5.2 and 5.4 million ounces this year but at a cash cost $400+ and ounce. Richard O'Brien, Newmont's new man-in-charge, is sweeping the cupboard clean and is spinning out Newmont Capital through a $1 billion offering renaming it Franco-Nevada. Newmont has assembled a experienced Board with Pierre Lassonde and Dave Harquail managing a good part of the old Franco-Nevada assets, including an excellent royalty portfolio. The push-out however obscures Newmont's problem and that is a flat production profile. Newmont expects to spend between $170 and $175 million on exploration which is too small given its cash flow. We expect Newmont to remedy this and rather than tuck-in acquisitions, we think the company will look for a company builder. Most of its programs are centered around its operations and thus we think that Newmont will be an active shopper. Newmont's friendly $1.5 billion bid for Miramar is more of a tuck-in acquisition. While Newmont will likely fast-track the Doris North development, Hope Bay is a project for tomorrow and is not a panacea for Newmont's lack of growth. Newmont's difficulty of replacing of reserves at its aging mines is a common problem for the majors. However, O'Brien's new focus is likely to see a more aggressive Newmont, and thus we recommend the shares here.

Philex Gold Inc.

Philex continues to develop the Boyongon deposit in the Philippines led by joint venture partner Anglo-American. Three drill rigs are currently operating at the Boyongon project and Anglo-American is obligated to provide a prefeasibility study before the end of the year. We believe that this excellent huge tonnage gold/copper porphyry deposit discovered in 2000 is an excellent open pit operation and Anglo will want to consolidate its interest. Consequently we expect that the cash rich Philippine parent of Philex will buyout the minority shares and Philex Gold is an excellent buy since the resource picture to date just gets better. Buy this junior for the takeout.

Continental Minerals Corp.

We recently visited Continental Mineral's main asset is the Xietongmen copper/gold porphyry deposit in Tibet, China. The deposit remains open in three directions. Continental has filed a positive feasibility study and is waiting for permits. Xeitongmen has 180 million tonnes grading 0.45 percent copper, 0.62 gpt gold, 0.64 gpt silver. China's largest nickel company, the Jinchuan Group is strategic and major player will provided funding through to construction which expected to begin in the middle of next year. The project is well located as far as infrastructure and Jinchuan has opened a lot of doors. The feasibility study calls for almost 200,000 ounces and 1.75 million of silver and 1.16 million pounds of copper annually and a mining life in excess of 10 years. The shares have gone sideways due to the lengthy permitting and regulator process but much progress has bee made.

Continental has received all the necessary permits and the mining license and project application permits are only needed. We expect the mining license to be granted by yearend. Xietongmen is an excellent asset and with the backing of the Hunter Dickson Group. Continental will be a major producer in China. We believe the government is highly supportive of the project and will expedite Xietongmen into early production.

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Analyst Disclosure
Company Name Trading Symbol *Exchange Disclosure code
Barrick Gold ABX T 1
Kinross K T 1
Continental Minerals KMK V 1,5
Crystallex KRY T 1
Excellon EXN V 1
High River Gold HRG T 1,5
Philex PGI V 1
St. Andrew Goldfields SAS T 1,5
Unigold UGD V 1
Disclosure Key: 1=The Analyst, Associate or member of their household owns the securities of the subject issuer. 2=Maison Placements Canada Inc. and/or affiliated companies beneficially own more than 1% of any class of common equity of the issuers. 3=<Employee name> who is an officer or director of Maison Placements Canada Inc. or it's affiliated companies serves as a director or advisory Board Member of the issuer. 4=In the previous 12 months a Maison Analyst received compensation from the subject company. 5=Maison Placements Canada Inc. has managed co-managed or participated in an offering of securities by the issuer in the past 12 months. 6=Maison Placements Canada Inc. has received compensation for investment banking and related services from the issuer in the past 12 months. 7=Maison is making a market in an equity or equity related security of the subject issuer. 8=The analyst has recently paid a visit to review the material operations of the issuer. 9=The analyst has received payment or reimbursement from the issuer regarding a recent visit. T-Toronto; V-TSX Venture; NQ-NASDAQ; NY-New York Stock Exchange



John Ing

Author: John Ing

John R. Ing
Maison Placements Canada
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