TGR: What about the share structure? I remember there were a lot of shares outstanding.

PL: When we did the merger, we consolidated the Peak Gold shares so that New Gold has 220 million shares outstanding. They have $500 million in cash so half their capitalization is in cash. They have a real operating mine that will produce close to 300,000 ounces of gold this year— and up to 600,000 over the next three years. It also produces copper. This is just a real bargain.

TGR: Some other bargains?

PL: I love Franco Nevada Corp. (FNV.TO) because it has the perfect business model for the times. As a royalty company, it doesn’t suffer from cost hikes, but it benefits from gold price increases. So when gold goes up 10% or 20%, our revenue goes up 10% or 20%, but our costs don’t budge. With more than $300 million in cash, we are positioned to make acquisitions. I like cash-flow positive companies trading at less than their net asset value.

TGR: What else do you have in your book?

PL: Canadian Oil Sands (COSWF.PK) is absolutely the best in the oil space. At today’s production level— about 300,000 barrels a day—they have 50 to 65 years of reserves without drilling another well. The current dividend is $5 a share, so you’re getting a ten yield. The SEC does not currently classify oil sands reserves. If Shell or Exxon were to buy Canadian Oil Sands, the SEC cannot classify them. We think the SEC will change its definition of oil reserves by the end of this year. Then this company is very likely to become a hot takeover target. If you’re a big oil company that needs to replace reserves, you want a peaceful, law-abiding country. Canada is the best place in the world to be. That stock is going to disappear at much, much higher prices.

TGR: How do you factor in the energy costs to release the oil from the tar sands?

PL: Production costs about $24 to $25 a barrel using natural gas.

TGR: And they’ve got a ready supply of that?

PL: They've got tons of it in Alberta. They’ve got a pretty decent profit margin here.

TGR: A lot of people are talking about the U.S. entering a depression. You are convinced the Fed will keep printing money—and inflation will continue.

PL: Bernanke's mission is to keep the liquidity flowing. That’s why he rescued Bear Stearns, and will save Fannie Mae and Sallie. Ultimately, his actions will turn the economy around. Once the French and the German economies hit the skids, their interest rates are going to fall and they’re going to do the same darn thing. At that point you are going to see the world reflate. But we won't see the 12% to 15 % interest rates and inflation that we had in the '70s.

TGR: Why not?

PL: Back then we had structural inflation. The labor unions had more control then; now they have no power. Asia wasn't producing goods at cheaper and cheaper prices. When we talk about the 5.1% inflation we’ve had in the last 12 months, that's the peak for this half of the cycle. The second half will be the same or lower.

TGR: So we’re not going to see runaway inflation?

PL: No. I just don’t see it.

TGR: What are your thoughts on uranium? Do you think the world will turn to nuclear power?

PL: I do, but uranium producers have never been able to withstand prosperity. There is no shortage of uranium. You've seen peak uranium prices. New mines will open in Russia and Kazakhstan and all over the world. You’re not going to see that high price again. The long-term contract price will probably settle in the $40 range.

TGR: So that's it?

PL: Yes, but at $40, there’s enough resource worldwide to make money.

TGR: What about base metals?

PL: I like copper a lot because it's essential for building a nation's infrastructure. You need it in transformers, electrical substations, power distribution—everything. When you’ve got 2.5 billion people moving up the economic curve, the demand is just unbelievable. Every two years, China builds an electrical grid the equivalent of the UK and they’re going to continue to do that for decades. The coal China uses is terrible for the environment. They’re going to have to turn to nuclear power as will India. It takes 10 years to build a nuclear power plant and they’re finding the uranium a lot faster than they’re going to need it. But where is the big production of copper going to come from? When have you heard of a big new discovery with grades like Escondida, 2% for the first 500 million tons? They're not there.

TGR: So the price of copper will go up?

PL: Copper will still come down a bit more. But over the next five to ten years, it will have a better price profile than any of the commodities except for gold and oil.

TGR: So that would be your third basket if you will.

PL: Yes. I like New Gold Inc. (TSX:NGD, AMEX:NGD) because it’s a copper gold story and I like Franco Nevada because it’s oil, gold, and 10% of a basket of commodities.

TGR: Would you recommend bullion?

PL: Absolutely. If you don't want to take time to analyze companies and follow stocks but you want to play the commodity, it's a good way to go. We came out with the gold ETF (GLD) at the World Gold Council in November 2005. It's grown from zero to 750 tons in three years. It continues to be very popular. We launched the ETF as an alternative investment to the dollar. Now you can literally trade the ETF 24 hours a day, 7 days a week.

TGR: You haven't mentioned silver at all?

PL: It’s not a metal that I follow all that much. Of all of my mining companies and investments, silver represents only a very small portion of the revenue.

TGR: Do you have one more idea for our readers?

PL: How about a diamond stock? Olivut Resources Ltd. (OLV:TSX.V) has a real good shot at the moon for very little money. The company has $8 million in the bank and 30 million shares outstanding. So that's about $.25 a share in cash. Stock trades around $.80. They have 2 million acres of land in the Mackenzie River Delta in the Northwest Territories. In their first drilling season they found seven pipes, three of them had micro diamonds. They’re drilling another 20 to 25 anomalies this year, as well as redrilling others. This is a whole new diamond province—a completely new discovery.

TGR: Where is it located exactly?

PL: It’s to the west of the Mackenzie River. This new diamond province is far more accessible because the Alaska Highway runs through it. So it makes a very interesting play. Olivutt is well funded and has very tight management. I own about 13% of the company. I’ve been buying the stock at $.80 for the past four months.

TGR: Back in May 2007 it was trading around $2.50.

PL: It peaked at $2.50. They were smart and did a big financing around $1.75, and they've been saving their money.

TGR: So, to recap, you see this market as a repeat of the '70s; gold could be trading sideways—maybe dropping to $750; and the juniors trading sideways too?

PL: The juniors have been decimated. From here on it’s a matter of surviving for the next two years. The juniors that will get the attention will be those with discoveries or takeovers.

Courtesy: www.theaureport.com

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