TGR: Where are most of the gold streams they're acquiring? Are they focusing in on North and South America? Are they more international than that?

CP: Their first two deals were done in Mexico and Brazil.

TGR: Any other precious metals companies that you can share with us?

CP: Alexco Resource Corp. (TSX:AXR; AMEX:AXU) is another company that I own. It is about to begin production from the Keno Hill Silver district in the Yukon, one of the most prolific and highest grade silver districts in the world. They basically have the whole play. They'll make a lot of money from their current resource but the exciting part is that they have a decent chance of making a new, really big silver discovery. There is nothing in the current valuation for that..

I think Alexco's going to produce three million ounces of silver a year, and because of the by-products and the high-grade nature of their ore they will be producing silver at potentially zero dollars cash cost. At three million ounces a year and $18 silver, they are trading at three or four times my estimate of next year's cash flow. That is dirt cheap for any silver company, let alone one that has the potential to make a giant discovery.

TGR: Do they need any more financing to bring this mine into production?

CP: Silver Wheaton purchased 25% of Alexco's silver production, and that investment gave them almost all of the capital that they needed. They just did an equity financing a few weeks ago as well. So, yes, they're fully cashed up and have no need for any additional capital.

TGR: You mentioned focusing on Canadian-listed stocks, particularly small caps. As I understand it, you consider the Canadian market somewhat less efficient than the U.S. market, thus making it easier to uncover attractively valued companies. What do you think accounts for the discrepancy, and is it specific to small caps or also true of large caps?

CP: It's really true of both large caps and small but it's not a permanent discrepancy. It's more of a lag. What I mean is that U.S. investors take a lot longer to recognize and buy high quality Canadian companies than U.S. listed ones. I used to be concerned that this lag would somehow be arbitraged away, but I've been doing this now for 12 or 13 years, and it has not.

There are a lot of reasons behind that. For one thing, there seems to be an apathy or ignorance on the part of U.S. investors about almost everything Canadian. There's also a perception that the Canadian securities laws are lax, that its investment community is run by mining promoters, and that U.S. investors won't get a fair shake up there. While there are certainly landmines to look out for when investing in Canada, they are no more dangerous than those in the U.S

To characterize the entire Canadian investment scene as corrupt because of the Vancouver mining community and the Bre-X Scandal in the late '90s ignores the fact that the U.S. has had plenty of its own investment scandals such as Enron and a banking system that perpetrated the greatest financial fraud in history this past decade.

But I can't tell you all of the reasons for the valuation lag that I continue to see between U.S. and Canadian companies.

TGR: You just know it's there.

CP: Let me tell you about the greatest example of that in my experience—and the reason I started investing in Canada. Back in 1997, I stumbled across Research In Motion Limited (TSX:RIM; NASDAQ:RIMM) just by accident. Here was this little Canadian company trading at $4 a share. Split-adjusted that would probably be 50 cents today. It had $2 a share in cash and $2 a share in backlog. And it had a technology that was going to revolutionize the way people communicated.

TGR: Right.

CP: They gave us the Blackberry—and no one was paying attention. Here was this little company in Waterloo, Ontario, developing this unbelievable technology. Its market capitalization was miniscule. Had Research In Motion been in Silicon Valley, its valuation would have changed very, very rapidly, but we had six months to do our homework on it before anyone really cared.

TGR: Wow! That's really a great story, like finding a Rembrandt in your garage.

CP: Exactly.

By arrangement with: www.theaureport.com

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