MINING strategist with Hallgarten & Co. in London,
Chris Ecclestone founded the Argentina-based equity research firm Buenos
Aires Trust Company, which he ran for nearly 10 years. In this
interview with The Gold Report, Ecclestone details the potential and pitfalls of different provinces for Gold Mining firms.
Chris Ecclestone: The chief trend I see is a change
in the nature of this gold market recovery. Production is going to be
king. In 2009, cash was king after the economic crash. Now it's
production. If a company doesn't have a preliminary economic assessment
(PEA), it is going to wallow for a fair while. The main focus is going
to be if these companies can become real miners or if they are just
going to be forever out there with their project generator models.
There
are a lot more companies on the "For Sale" side then there are
companies out there to buy them. A lot of them are going to be left
standing alone at the wall. The only companies that are going to get the
attention of majors are those that are along the continuum between PEA
and production.
If they're not, who's really interested in
exploration at the moment? There's no shortage of producers that have
been pretty well proved up so that we don't need to have yet another
80,000 ounce (oz) resource in the mountains of Peru.
The Gold Report: The Hallgarten website says, "Over the
years, the team has successfully picked trends using our macroeconomic
underpinnings to guide investors through the treacherous waters of the
markets." Could you give us a couple of trends that retail investors
could take advantage of?
TGR: The price of gold got very close to $1,800/oz
early in October, but has slipped to the low $1,700/oz range since then.
Is the effect of quantitative easing (QE) wearing off?
Chris Ecclestone: That's up to the investor. They
have to assess which areas they are most comfortable with. There was
recently a coup in Mali. Peru's government is considering reforms after
anti-mining protests. The Democratic Republic of Congo (DRC) increased
taxes under its mining code. Yet, there are great companies and great
new zones.
It's up to investors to know what they personally feel
most comfortable with. Some of these countries are in the dog house,
but these things can happen anywhere and investors have to assess their
own tolerance for complications. Any miner in Venezuela can unexpectedly
be run out of the country. It can be a total bust. You never know.
TGR: For example, things can vary drastically depending on which province you're in inside Argentina.
Chris Ecclestone: Part of the problem is that Europe
has not blown up on schedule. A lot of goldbugs were looking for the
perfect storm if QE3 happened at the same time that one or more European
countries went over Niagara Falls, but it just hasn't happened. Even
now, the Greek stock market is up 65% off its lows. Quite clearly people
are more positive about what's likely to happen there. If it can pull
through, then it looks less likely that we're going to be having the
chaotic collapse that goldbugs have been looking for.
TGR:
Your thesis sounds very intriguing: Since there are few majors and a
lot of projects, only the prettiest girls are going to the dance, so to
speak. With literally hundreds of projects between PEA and production,
how do you narrow that field down?
Chris Ecclestone: Mining has had problems in Mendoza
province. There was a lot of protesting about what seemed like the
environmental impact of mining, but in fact it was more about the
Argentine wine trade not wanting competition for cheap labor. Mines were
offering all-year employment to the type of people that the growers
were only hiring on a seasonal basis to pick grapes.
You have to
look at the real reasons behind things happening in certain countries
rather than the ostensible reason, which might be some sort of
environmental complaint. If they came out and said, "Well, we don't want
to have your mine because it's going to be paying better wages and
paying more consistently," they wouldn't get much attraction. They've
got to come out and make up some sort of plausible argument. One of the
mines that was being proposed was miles away from anywhere so it wasn't
likely to contaminate any water, but it was potentially going to draw
away labor.
TGR: Certain jurisdictions, like
Latin America, can be drastically changed by different forms of resource
nationalism. Do you start to develop other specialties or is your
knowledge of Latin America still useful?
Chris Ecclestone: It's absolutely still useful because
the more one wanders through these emerging markets, and frankly that's
what they all are, the more one sees the same problems repeated. It is a
challenge to cover emerging markets and then go look at a jurisdiction
where everything is written in stone, like Canada or Australia, where
there are fewer surprises. In jurisdictions like Canada, there's not as
much latitude for willfulness on the part of politicians, approving one
project and then denying another next door. That tends to not happen as
much in the developed mining jurisdictions.
Sunday 11 November 2012
Saturday 16 June 2012
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