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

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.

Markets. You have to look at whether the emerging world story is over when deciding if commodity prices will continue to increase. It is not over. But the Gold mining sector is making new lows. M&A is the way we are going to get growth going forward. The stocks will get punished if they over pay.

Bond ETFs that hold to maturity. “Target date ETFs”. No interest rate risk.

Educational Segment. Look at gold price as a percentage compared to gold mining equities over the last 7 years. Equities are flat while gold has gone up 200-300%. The costs of production are going up at a significant clip. When they find new reserves, the quality of the reserves are declining. They are going after gold dust. The gold industry needs something like Fracking. Or it could be more disciplined in capital spending. A lot of cost inflation in gold mining is related to oil prices. All the central banks have been buying but gold has not broken out.

Markets. Nobody wants these stocks. It is a very tough environment. Budgets are tight. He is seeing some acquisitions but the biggest issue is that investors are just not buying.

Oil. Trading right around the low end of where it should be. The range in the course of the year will be $92-$105. Key for improving prices in oil and all commodities is global growth resuming. In general, resource stocks are challenged, commodity prices are challenged and there are a handful of commodities that look attractive presently, with oil probably being one of them.

Metals. Tin is primarily used as a solder. There has been a very strong uptake in the shipments of electronics, out of Asia in particular, and as well you have the major producing regions rolling over so supply is very tight. Tin is even tighter than copper. There is an ETF on the London exchange, but other than that he can’t think of any pure plays in tin.