A Comment -- General Comments From an Expert (A Commentary)

What is your view on US banks versus Canadian and do you have a favourite U.S. Bank? On valuations, clearly the US banks are a lot cheaper, but for good reasons. Our economy had performed better and regulations had been more stringent. Canadian banks continue to be good plays. However, for better upside, you probably want to be in some of the US banks. J.P. Morgan (JPM-N) and Wells Fargo (WFC-N) would be 2 of the names that he would go to.

Markets. Dow is moving to all time highs due to corporate earnings and Asian markets. We are seeing more flows into the equity markets. Rallies should continue and corporate earnings are higher now than when the highs were set two years ago. Can’t understand why the resource sector is not participating in this rally. China needs both energy and base metals. He cut back his gold projection from $2013 in 2013. He paired it back to the $1850 level. $1525 is the support and once it hits that it will trade up to $1850.

When do we see the turnaround for the juniors? Start first with the seniors. $60 billion in write downs and firing of 20 CEOs. There is pressure for companies as to carefully decide which projects they invest in. Short term there will be a cleansing of the juniors. Those that can generate cash flows will survive.

PDAC. Hubbub was about juniors’ inability to raise capital. They resorted to high yield debt, royalties, and joint ventures. TSX venture was down 50% from two years ago. They are hanging in.

Venture Stocks. Feels about 30% of these stocks will disappear and it will turn into a slaughter unless there is a major shift in sentiment. People are not putting money into this risky sector. About 70% of companies trading on the Venture Exchange have only $1 million or less in the bank. If they account for 30% of the total valuation of the venture exchange, which is $40 billion, companies with $1 million or less cannot survive very long. Right now, the opportunity exists to acquire some really quality companies, quality management and quality deposits at a discount to what they are worth. You have to be very, very careful and do your due diligence because there is no more dumb money to bail us out. As a potential investor, one of the first things he’d be looking for is, do they have enough money to not only survive but to do some meaningful work. Secondly he’d be looking at the projects that offer potential of a major economic deposit that would interest somebody else as an acquisition. Thirdly he would look at management. There are a lot of quality people in this industry. If you get these 3 things right, you will do fantastic in this market.

Is it true that market sentiment is not very positive towards the Yukon and, if so, why not? 2-3 years ago, the Yukon was the place to be. There was something like 160 companies that were picking up projects and doing stuff up there. Out of this, there was one discovery that kicked it off that was followed up by another major discovery. Yukon has too much gold, which is a problem. The geology is such that most of the gold that is being shed into streams is coming from small structures, small veins. Difficult to find a large deposit, and if you do you face the problem of infrastructure CapX costs to develop it.

Wouldn’t it be a more prudent use of money for companies to acquire companies than trying to grow by the drill bit? A lot of the majors did some big acquisitions over the past 5 years or so and paid way too much for things and are getting burned terribly. Management is scared and they’re pulling in. New fad is now cash flow and earnings. To do that they are going to tweak their mines which have already been tweaked and they are not going to get much profit or savings out of that. They’re going to add to their mines by drilling around existing mines but 9 out of 10 times the grade is lower and deeper so costs are not really going to go down. Also, there are not that many good deposits out there.

Rare Earths? This all comes down to metallurgy. They are combined in all sorts of odd ways. Very difficult to get the element that you want out. His understanding is that there are a lot of rare earths sitting in China and there is no shortage of them.

Resources. We are starting to see a washout, especially in Junior mining names. For the rest of 2013, he feels they are looking for survival. There was destruction in gas 3 years ago and now you have seen that flow into small-cap and mid-cap oil companies. It’s a lack of investment dollars. Big-cap dividend paying stocks that were felt to be expensive are still going up and the money is just washing out of the resource sector.

What are some of the constraints on opening mines in northern Canada? We have had the permitting issues as well as the native issues. Federal government has now said they are going to try to have one permitting process instead of a provincial as well as a federal permit, which should simplify things very much. Now the challenge is money.

Gold. We are in a low interest-rate environment. Bernanke really wants to raise interest rates. US housing market has recovered and the US is growing. You cannot have interest rates this low but the government has too much debt and the government will be contracting for the next decade so low interest rates will continue so you could have gold going up in the very near term. Right now we are going through that consolidation trade in gold.

Junior Resources. Natural resource business is deeply cyclical and capital intensive. There are too many juniors and there is too much general and administrative expense in the system. Too many listing fees, too many audit fees, too many salaries and too much rent relative to the money that is spent on exploration. We need to cut out some of the penny dreadfuls that got created in the last 10 years in the resource bull market. Market response to excesses is normal and healthy in the exploration business and investment returns from exploration will be much, much, much better after we have this washout.

Precious metals. There are a couple of reasons why the conditions are right for gold and silver and yet the story is not playing out. For one, retrenchments are normal in a bull market. This is the 7^th or 8^th retrenchment for gold since 2000. A 10%-15% cyclical decline in a secular bull market is very common. He wouldn’t be surprised to see gold softness continue because people have some confidence in the economy but he personally wants to own things that can’t be printed.

How are 1^st Nations relations affecting mine development in Canada? Thinks mining industry should look at this as a corporate social opportunity. 1^st Nations have “in place labour” in northern communities and have local knowledge. Relationship between these 2 needs to go another step. They not only have obligations to each other but they have absolutely concurrent interests. We are getting there. The dialogue that has been taking place in the last 5-6 years has been very, very constructive. Need to take it to the next level including partnership.

Graphite and Graphene? Thinks the stories are great. They are wonderful for selling news letters and in better markets they are good for selling stocks. But the truth is, they are fairly small markets and are not markets that are underserved. Right now he has absolutely no use for the stuff.