Last Updated : 20 January 2010 at 10:50 IST

'Real interest rates are the prime driver of gold price'

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TGR: Can you comment on some of the holdings in Pinetree's precious metals portfolio?

CS: The three largest positions as of September 30, 2009 were Queenston Mining Inc. (TSX:QMI), Colossus Minerals Inc. (TSX:CSI) and Evolving Gold (TSX.V:EVG).

Queenston Mining is a gold explorer focused on the Kirkland Lake camp in northern Ontario. On the west end of the camp it has a joint venture with Kirkland Lake Gold Inc. (TSX:KGI) as well as 100%-owned ground. KGI is in production and has had great exploration success with the discovery of the high-grade South Mine Complex, which trends onto QMI's ground. On the eastern side of the camp, QMI is advancing four gold deposits towards production: Upper Beaver, McBean, Upper Canada and Anoki.

Colossus Minerals has a 75% interest in the high-grade gold-platinum-palladium Serra Pelada project in Brazil. It's a very unique project that was mined in the 1980s by garimpeiros. Colossus has reported phenomenal grades and widths, such as 70.7 metres of 53.59 g/t gold, 20.77 g/t platinum and 31.30 g/t palladium.

Evolving Gold is a gold explorer focused on the Rattlesnake Hills project in Wyoming. It's still relatively early but they've produced intercepts that indicate the rocks were subjected to a large gold mineralizing event similar to the Cripple Creek mine in Colorado. Quinton Hennigh, EVG's president and chief geologist, previously worked at Newmont and is a great geologist.

All three companies have healthy cash positions and provide great gold price and exploration leverage.

TGR: Pinetree is bullish on base metals (copper, nickel and zinc) because of the growth in China and India. On your website you comment on copper's supply issues related to outages and strikes spiking the price of copper. If the supply issues are choppy, doesn't it make investing in this sector choppy as well and if so, are you trading in and out of this sector to maximize the spikes in copper prices? Any base metal company in your portfolio you care to comment on?

CS: Pinetree's mission is to identify long-term trends then invest in small-cap companies that can benefit from such trends. We're a long-term buy and hold investor.

In regards to copper, we're focused more on companies exploring for copper, not producing it. The biggest factor driving the share price of a copper explorer is exploration results. Short-term fluctuations in the copper price don't generally have a correlation to the share price of an exploration company.

Also, you can miss out on the potential gains from investing in the long-term trend by getting cute and trying to time short-term reversals. That's not our objective.

Pinetree has been involved in Noront (NOT-TSXV) for a while. The company is advancing its Eagle Nest nickel, copper, and platinum group metals (PGE) and Blackbird chromite projects in northern Ontario. A big challenge to mining these deposits is infrastructure as they are located in a very remote region.

Noront recently failed in its hostile takeover of Freewest Resources and its nearby Black Thor chromite project to Cliffs Natural Resources. However, we think it's positive for Noront and all the other companies active in the McFaulds Lake region that a large company like Cliffs, with its deep pockets, is moving into the camp as it could help address the infrastructure challenges.

However Noront's Eagle Nest project is the lynchpin in developing the camp as it will likely be the first deposit to be mined, due to its higher rock value than the chromite deposits, and hence will drive and fund the camp's initial infrastructure. Also, Noront is much farther along in working and consulting with the First Nations communities in the region, who will be very important in getting these deposits developed.

TGR: In your view, where are we in the base metals cycle? Does your answer depend on the particular base metal?

CS: We're in a very long-term cycle whereby metal prices are supported by factors that have become well known over past few years: demand from emerging markets, especially China; limited exploration and resulting discoveries of large deposits over the past few decades; and the secular downtrend of the U.S. dollar.

We focus more on a company's management and its projects, only taking the outlook for the commodity into consideration after this.

TGR: Craig, thanks for your time. Much appreciated.

Other holdings in Pinetree's Precious Metals portfolio, as of Sept. 30, 2009:

By arrangement with: www.theaureport.com