By Ed Bugos
I dropped in on the Cambridge House gold show in Vancouver this weekend. It was busy. People were generally upbeat and felt smart about the bargains they loaded up on during the recent rout.

The analysts were confident about valuations going forward, especially long term. Company execs swore their deals didn't need any money, while brokers and bankers alike had a gleam in their eye about the financing opportunities amid the debris - even a sense of urgency. One broker - my former business partner, actually - wondered whether the fundamentals for gold have ever been as bullish in our lives. The answer was unambiguous. The market has answered too.

Newmont and Freeport this week filed documents in conjunction with potential underwritings by J.P. Morgan and Citigroup, in the amounts of $1.2 billion and $750 million, respectively, totaling just under $2 billion. Kinross sold UBS about $400 million worth of stock last week. Lundin's Red Back also negotiated a bought deal worth about $150 million with a group of underwriters led by Cormark Securities and BMO last week. Earlier this month, Yamana closed a $135 million share offer and borrowed $200 million, while in December, Agnico-Eagle raised some $300 million from stock issuances after borrowing $300 million a few months earlier (in September). Where's the deflation?!
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The money is coming into the gold sector. The Canadian National Post reported last week that gold miners are "raising cash with ease... many generalist funds have jumped onto the precious metals bandwagon." Many juniors have also reported financings where needed. Some are turning them away. Share issues are just too dilutive down here, and any company that doesn't need money to survive 2009 is prudent to refuse.

Asked about the ability of miners to raise cash in this environment, the analysts at the podium at the Cambridge House investment conference in Vancouver all agreed there is always funding for assets that have sound economic fundamentals.

They finance themselves. In fact, in my experience, it is often better to buy the shares of companies with good assets that need cash than companies with cash and no assets, even if the latter are trading at a discount to cash breakup, and even if funding is relatively scarce. Companies with a lot of cash can sometimes get lazy and put up their feet, or insiders waste it - or even steal it, if they lack integrity. Cash itself yields nothing. It's a depreciating good, as you know. It's one thing to buy a company at below cash breakup and then break it up and keep the extra cash. It is another thing to invest in a company at cash breakup or less. We invest to earn profits.

If you want to buy cash at a discount, buy a T-bill or term deposit. Or else, you're just sharing in potential losses due to debasement, negligence, debauchery or theft. That doesn't mean you should avoid the deals that have a lot of cash - just that's not what you're investing in. You are investing either in the underlying asset, which yields profit (i.e., more cash in the future) or management's abilities.

Ultimately, sound "assets" will hold their value better than idle cash in an inflationary environment. It is obvious that through this crisis, despite some turbulence, gold prices have held up better than just about any other asset, commodity or currency (other than dollars and yen) we may imagine. From the point of view of a gold miner, this is a very good thing. Even better is that the price of oil, a significant cost input for miners, has fallen a lot relative to gold. This is bullish for margins. Also bullish for gold miners is that the slump may have freed up capital and labor for the development of gold assets, where previous scarcity drove up capex estimates so much that some projects had to be abandoned.

The combination of strong investment demand for gold and lower input costs makes gold stocks one of the only sectors poised for any growth in operating results (i.e., earnings and cash flows) in 2009.
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