Laurentian Securities Analyst Eric Lemieux was headed out into the field a few days after this interview to check out the latest progress on some of his favorite exploration plays in the James Bay area of eastern Canada. In this exclusive interview with The Gold Report, he shared his latest insights on the gold market, and his current thinking on some of his favorite plays in the vast untapped areas of Quebec and Ontario now being opened up to expanded exploration efforts by both juniors and majors.
Companies Mentioned: Adventure Gold Inc. - Balmoral Resources Ltd. - Detour Gold Corp. - Eastmain Resources Inc. - Goldcorp Inc. - Midland Exploration Inc. - PC Gold Inc. - Premier Gold Mines Ltd. - Virginia Mines Inc.
The Gold Report: When you last spoke with The Gold Report in May of 2010, you gave Laurentian Securities' price forecasts for gold that turned out to be pretty conservative pretty quickly. What are you predicting for gold prices now?
Eric Lemieux: I was quite conservative, and obviously, I underestimated gold's momentum. I think right now the price of $1,600/oz. is set to go even higher in light of the increasing global economic turmoil. The U.S. debt ceiling and credit rating will fuel gold's price rise to even greater heights.
Add in the European bankruptcy threats and you have the catalysts to justify gold's further appreciation. Demand is largely based upon the view that gold is effectively a monetary instrument and a "valeur refuge" (store of value). Together, I think they explain the gold price action in the last year, which has been quite remarkable, but based on good fundamentals.
TGR: So, you must have higher target prices for gold now?
EL: Yes, those have been revised and our range is now between $1,650 and $1,750/oz. until 2015. I set a very long-term price of $1,000/oz., which I think is still conservative, but I think it's justifiable since this is probably the marginal cost for producers. Gold still has some great upside, but I may not be the one who says it's going to go up to $5,000/oz. I see price stability, less downside risk and I think the $1,500/oz. range is probably something that we can envision in the long term.
TGR: Is gold in a bubble?
EL: I think not at all. Right now, if you look at the fundamentals, there are reasons for the precious metals' strength. On the supply side, there are still some challenges. Mine production has pretty much stayed constant, and the best deposits have been mined. We're now going to lower grade deposits. There are more jurisdiction and social challenges to mine gold. So, from the supply side, these are elements that provide some support to the price of gold.
TGR: Laurentian is based in Quebec and your focus is mainly on opportunities in Eastern Canada, from where most of the gold produced in Canada has come. As far as the recent changes in Quebec's tax regulations, what effect do you envision that might have on exploration and the mining industry in general, especially for the junior companies that rely on certain tax benefits?
EL: Obviously, I think there has been an impact. The government has made some questionable changes to mine legislation in line with the "resource nationalism" going on in the world. Governments have been pressed to increase royalties and tariffs on mining operations. The legislation in Quebec has tried to address this and an increase is probably acceptable to a certain measure.
However, one thing that is really frightening in Quebec now is that some municipalities can have a say on claims and project status. That explains in part why Quebec has gone down in the Fraser Institute ranking because of the uncertainty that has been created in some aspects of the mining legislation.
The fact that they're increasing the royalties is perhaps fair in light of the strong commodity prices. There's a bit of give and take and the industry eventually has to give a little. At the same time, I think the government has perhaps been very aggressive about raking in even more profits and caving into special interest groups. What is really dangerous right now in Quebec is this trend of wanting to control the claims and what can be done in terms of development and even exploration.
TGR: Do you think there might be any re-thought or reversal here if they end up seeing opposition from the mining industry?
EL: I think so. The metaphor we use is "Balkanization" of the mining resources, which is very dangerous. Once people are aware of the adverse impact that is having on the economy, I think they will realize that perhaps the government has gone too far, resulting in a readjustment. The pendulum swings from one side to the other, and now that we're really going to one end, hopefully we'll be able to eventually find a balance.
TGR: Historically, most mining in Eastern Canada has been underground mining when gold prices were relatively low and you had to have fairly high grades to justify the costs of doing so. With $1,500/oz. gold, we seem to be seeing a lot more talk about companies doing open-pit mining in much lower grade areas with much larger tonnages. Is this something that is going to be happening more in the future?
EL: This is definitely the wave of the future. Improvements in mining methods and economies of scale allow for bigger open-pit operations. The other thing that I think we will probably see also is bigger underground bulk mining scenarios such as Agnico-Eagle Mines Ltd. (TSX:AEM; NYSE:AEM) Goldex mine near Val d'Or. So, I think that will be another wave of the future where you will have these bulk mining operations.
In the Abitibi Greenstone Belt, open-pit operations are fully justifiable. I think the fact that you saw Osisko Mining Corporation's (TSX:OSK) Canadian Malartic project go ahead and perhaps be a success story is a catalyst for more of these operations.
We will see these done in a sustainable manner in the sense that they will have to get community and First Nations acceptance with minimal impact on the environment. When you say an open pit, people think of an eyesore, but once they see the benefits that can be reaped for the local population in general, I think people will be more open to this sort of operation. In the long term, these big open pits can actually be transformed into lakes and it's not necessarily a big eyesore after operations end.
TGR: When you talked with us last year, you discussed a number of companies you liked, and Premier Gold Mines Ltd. (TSX:PG) was one of them. They just announced this deal to acquire Goldstone Resources Inc. Can you update us on what's going on with Premier?
EL: Premier has been very active on several fronts. The company has four key sector area plays located in safe jurisdictions and offering excellent infrastructures. In Nevada, the company acquired the Saddle gold project in 2010. In the Beardmore-Geraldton area, it is owns the Hardrock project and has reported a new, growing 3.6 million ounce (Moz.) global gold resource. Premier also has two projects in the Red Lake District, and the PQ North project in the Musselwhite District of Ontario.
Premier just acquired Goldstone Resources and expanded its land package considerably in the Beardmore-Geraldton area. It now controls a strike of about 50 km., consolidating a mining camp district—which could be interesting for any major that wants to position itself there. So Premier has set itself up for discovery and it is ready to do some very good project development.
TGR: Another one you talked about was PC Gold Inc. (TSX:PKL) and it is still quite active up there. What's going on with that situation?
EL: I have to say I don't follow PC Gold closely; it's not a company that I have actually covered, but I think the company just provided an update to its mineral resource, which now stands at 1.26 Moz. This, again, is a recipe of revisiting old mining camps with a new set of eyes and advanced geological concepts. It's one that is interesting because it has an open-pit scenario with an underground component that, with time, may allow the company to play with different mining methods.
