Equities and Economics Report writer Victor Gonçalves, in this exclusive interview with The Gold Report, says the yellow metal is in its typical summer lull and will generally see more strength than weakness this year. He's enthusiastic about some undervalued juniors, saying good management is what makes or breaks these companies.

The Gold Report: The price of gold has dipped to below $1,175 this morning; do you see this as a sign that the general economy is improving and that inflation is not on the horizon? Or perhaps it's just a summer lull?

Victor Gonçalves: This is basically the traditional summer lull, so I'm not overly concerned. In fact, I talked about this very thing in one of our previous interviews. There are certainly other factors involved. Typically when we have mid-term elections with a democratic president and what could be a republican house, this will be good for gold and the markets, but until that happens, the markets and the price of gold will be at a standstill.

TGR: In terms of investing in gold, do you advise your readers to have a certain percentage of gold bullion along with gold equities?

VG: In terms of bullion, I always say to have some, but the definition of "some" is a little ambiguous. I like gold, but I also like the moves that occur in the junior mining sector. One of the issues with gold bullion is the spread between the buy and sell side; the built-in "lose" in the spread between the buy and sell prices. That is to say, for those who want to trade gold, I don't recommend trading it frequently. For somebody who wants to buy it now, in the summer, I think they will strongly benefit as the price is probably at one of lowest points we will see going forward. So to answer the question, for conservative investors I recommend 10%–20%, and for aggressive traders, 0%, as they would have more opportunities with gold equities.

TGR: If an investor were building a gold portfolio today, would you recommend they start with a base of seniors, juniors and ETFs?

VG: Juniors and emerging producers hands down. This is probably the best piece of advice that anybody can take from this article. If there is one asset class that will outperform, it is the emerging producers. Basically, these companies trade with the multiple of a junior, which is basically none, but will more than likely have a producer's asset base and earnings in a reasonably short period of time. That, in my opinion, is a very sweet deal.

Having said that, however, I believe having one or two solid seniors is not a terrible thing. They will hold their value and perform according to the price of gold. Right now, with most equities prices being depressed, the best "bang for your buck" will be in the emerging mid-tier producers. There are some juniors that will be a great value eventually, but as a solid base, I don't recommend them as they carry much higher risk when compared to a company that has a mine, mill and production.

TGR: In terms of gold equities, I know you're partial to select juniors. What are the most important criteria to you? Management, project, jurisdiction, drill results or other factors?

VG: There are several factors, but I can never stress the most important one enough. . .management. Management is the root of all that is good for any company. Good management will know (or have a reasonably good idea) where to drill and get the good results. Good management will do the right deals to acquire the right projects; proper management will know which jurisdiction to be in, and if the jurisdiction is poor, then they will know how to mitigate the risks. All the good news we hope to see on the newswires stems from the management team's calculated decisions. This is why this is the quintessential element of a company; the rest will follow naturally.

TGR: What are a few of your favorite gold juniors going into the fall? Why?

VG: I have a few companies that I like right now. One of them is Century Mining Corporation (TSX.V:CMM). A month ago, Century Mining brought some low-profile scooptrams and jumbo drills from South Africa to its Lamaque Gold Mine in Val d'Or, Quebec. No other North American mining company has used this type of equipment before. These vehicles are only five feet high. Even I tower over them. The small size of these machines allows them to operate in smaller spaces, thus moving less dirt and waste, which means getting a higher grade out of the mine.

When underground, I watched this new equipment in action. Talk about productivity. The company is training their team on how to use this new equipment to increase productivity. They are now focused on adjusting blasting patterns and loading of the holes, to ensure minimal over-breakage on the blasted round. They have started to see positive results over the last month, and higher grades are coming out of the mine and into the mill. This type of operation requires time, as more stopes are opened, and room and pillar flats production increases.

I understand they have a couple more low-profile pieces of equipment on order. This seems like a logical purchase decision from what I have seen. This addition of modern technology, combined with rethinking the operation, should increase efficiencies by a very nice factor. Of the three zones to be mined and operated in 2010, the room and pillar flats are just the beginning and will provide the lowest production of the three zones. Next in line is the Bedard Dyke Gold Zone, which was opened up the same day I arrived at the mine site, and finally, they are moving on to the North Wall zone.

The Bedard Dyke will be a very welcome addition to the mill, as it will be a long-hole, open-stope complex, and is expected to grade higher than the flats. The face of the Bedard Dyke portal, prior to its first blast, graded 37 grams per ton gold (g/t Au), and recent drilling showed intersections close to 100 g/t Au. The daily tonnage expected from the Bedard Dyke will be significantly higher than the flats, as it is the meat and gravy of the operation's future. The Goldex Mine (Agnico-Eagle Mines Ltd. (NYSE:AEM; TSX:AEM), down the road a few kilometers, is mining below 5,500 feet with a head grade of only 2.8 g/t Au, but is moving a lot of ore via their long-hole stopes, and at a low mining cost. I can see the Bedard Dyke lowering their operating costs at Lamaque going forward.

An interesting point is that the development work required to access the Bedard Dyke will be right through this high-grade vein before they access the underground to extract their 20,000 ton bulk sample. Obviously, this material will be crushed and sent to the mill, as it has plenty of visible gold, as well as massive chalcopyrite widely disseminated all through the veins. Once the sample is removed and tested, the company will look to receiving its next permit to mine the zone.

In terms of the current mill operation, it is operational and processing about 700 tons per day (tpd), with tonnage from underground reaching peaks of 700 to 750 tpd. The mill can be cranked up to adjust for higher tonnage on any given day, as they have put through 1,100 tpd on certain days during the ramp-up of the facility. As in any normal startup and commissioning of an operation, this number is progressively increasing and will do so until they hit their daily tonnage requirements. A good thing is their 2010 requirement is only needed to average 1,200 tpd, and in 2011 just over 2,000 tpd. With a facility that can process 3,000–3,400 tpd, they have lots of extra capacity to ensure they don't operate too close and max out.

NioGold Mining Corp. (TSX.V:NOX; OTC:NOXGF.pk) is another company that I'm currently following. This company has been around for several years and has enjoyed a large degree of success in the field. The most recent of these successes was the release of their NI 43-101, which showed a total of 959,000 ounces of gold in the indicated, as well as the inferred categories on their Marban Block and Norlartic-Kierens deposits, located in the Malartic gold camp, Abitibi region, Quebec. This is just about the 1 million mark, but Chairman Mike Iverson and President Rock Lefrancois have something much bigger in mind.

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