TGR: Any other favorites?

JT: There are quite a few of these emerging companies. Another gold producer I like an awful lot is Hawthorne Gold Corp. (TSX.V:HGC). Always, you know, you go with the people. Hawthorne's management team is headed up by two individuals who were involved with the development of Eldorado Gold Corporation (NYSE:EGO; TSX-ELD) and Bema Gold Corporation, two well-known and successful gold mining companies. (Kinross Gold Corp. [K.TO; NYSE:KGC] acquired Bema in 2007.) I think they're going to have their third success story in Hawthorne.

They should be producing gold on a small scale at Table Mountain in British Columbia, where they have a fully permitted mine and mill. They also are finding some lower grade open pit gold, with pockets of very high grade, which they probably can combine with very high grade underground material from Table Mountain along with the resource from the Taurus deposit, which is next door, to feed the mill. So Hawthorne is another favorite, another penny stock that could evolve into a big growth story.

TGR: Any others?

JT: San Gold Corporation (TSX-V:SGR) is another favorite of mine. Stock's come off its highs here. We could see some more weakness in all gold shares in the near term, but that's going to pave a fantastic buying opportunity. San Gold is producing in Manitoba from the Rice Lake property.

Right next to it they've got the Hinge deposit and assays from parallel zones there are looking like extremely high grade material. They should be feeding in this higher grade material, blending it with the lower grade deposit from Rice Lake. Underground in the Rice Lake Mine they've recently come up with some very high grades, too, so that's the story I think is going to be very, very much in the market. People are going to start paying more and more attention to San Gold.

Another one I like enormously is Allied Nevada Gold Corp. (TSX:ANV) (ANV). It has a large scale open pit resource, but huge underground potential. Many, many millions of ounces of gold and huge exploration potential. There's a metallurgical issue in terms of how much silver is in that property, but if they're able to extract more than 10% or 20% silver recoveries, their costs go way down and this becomes hugely profitable. But enormously prospective, huge exploration potential. Another company that should be producing north of 100,000 ounces a year. So those are some ideas.

TGR: Great list. Any more?

JT: Romarco Minerals (TSX.V:R), which is based in South Carolina, has just come out with a new resource. I think they're above 4 million ounces among the various categories of resources. Romarco's open pit deposit in the Haile Gold Mine is probably at least a couple of years away from production, but it's a world-class deposit. The company's stock has risen very dramatically, and I think it has a long way to go on the upside.

If we see a general equity market pullback, I think you're going to have a grand buying opportunity with these companies. I'm watching them very carefully, watching the fundamentals. Companies like this—developing viable deposits in the ground—are in a position to provide huge upside gains for savvy investors.

TGR: Terrific.

JT: AuEx Ventures Inc. (TSX:XAU) in Nevada is another one I like a lot. AuEx is what you call a prospect or a project generator. It has some really smart geologists, has staked some highly prospective claims, did some initial work on those claims, and now has other companies spending their money to drill in and gain a percentage of the deposits and of the joint venture projects. AuEx is on to at least one, possibly two, very major discoveries in Nevada and also has a host of other properties, mostly in Nevada, with good longer-term prospects.

In a way, AuEx is sort of the lowest-risk way for individuals to play the gold shares. The risks are lower because AuEx is not spending huge amounts to explore and develop, so they don't have to dilute shareholders' interests by going out to raise huge amounts of capital. I like the management, too. It's an extremely strong management team there, headed by Ron Parratt.

TGR: Are you scoping any silver plays in particular?

JT: I'm not as bullish on silver, generally speaking. I just think it's harder for silver companies to make money, in part because silver has not kept up with gold. If we go into an inflationary environment and this deflationary notion is wrong, then you could see silver outperforming gold. In that case, there is one company on my list that I like quite a bit.

It's Great Panther Resources (TSX:GPR) and it's in production in an old historical mine in Mexico—the Guanajuato Mine—which has huge amounts of silver left to be mined. I visited the property, was in the mine, saw the community a couple of years back. Bob Archer, who heads up Great Panther, is doing a remarkable job of cutting costs and lowering the cost of production. If you're going to buy a silver stock, that one is worth a serious look.

TGR: Any last thoughts you'd like to share with our readers?

JT: Just that I think we're approaching some very difficult times in the equity markets now. I could be wrong, but I just sense that we could have a severe pullback. The bear market for stocks began last fall and it is not over. Maybe you can make a case using government numbers that we're technically out of the recession, but I don't buy it. In reality, unfortunately. I wish that weren't the case.

I really look back at the 1930s—the first leg down in 1929, when the equity market was the one getting all the media attention. After a big wave up, everybody thought it was all over, the worst was past. People got suckered back into the stock market and there was lots of optimism, just as we're seeing now in this equity market. Then the big one came. Why did it come? Because there was no growth in the economy. There was nothing to support the equity prices and there was lots and lots of debt that could not be repaid. I see a replay of that in many ways.

There is increasing tension among trading partners now, but a lot of it is more subtle through this beggar-thy-neighbor currency devaluation. Countries cheapen their currency, hoping to be able to export more and get an advantage over their trading partners. When everybody starts playing that game, you have a real problem and prices keep falling.

I think today's parallels with the 1930s are much closer than people recognize and that's partly by design. Policymakers don't want people to think in those terms because if they do, it becomes a self-fulfilling prophecy. If people think we're heading into a deflationary depression, why would they buy anything today? They want people buying things. But consumers can't buy because they're broke. The government can buy because it can print money, but how long can that continue if the rest of the world doesn't want your money anymore?

These are questions that are in my mind. But I do think we have some very turbulent times in store and this debt is really strangling the American economy. I remain tipped toward the deflationary side, but I want to be nimble and ready to change my thinking. For that reason, I put out my Inflation/Deflation Watch (IDW) and look at it every day to try to get a sense of it. We shall see.

By arrangement with: www.theaureport.com

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