progress of deep hole, page-40

Hi Mchawe,

I’m neither a mining engineer nor a geologist and even worse I’m under 40, which in the JORC code classifies me as young and gullible (much worse than "inferred resource"). So I spread my risk across the gold juniors and you shouldn’t listen to me. I spend much of my time talking to company directors and learning as much as I can however (I’ve found Hotcopper better than brokers in this regard). I think CTO is a good bet and they are close to delivering when the power upgrade finally happens (delayed for 12+ months and is the excuse given to me by their MD). I’m eagerly awaiting their reserve upgrade and continued production ramp-up in 08.

I’m a gold bug and keep track of things like yield spread, interest rates and inflation data versus gold price. For me the biggest factor affecting gold is real interest rates. They became negative in Nov07. The last time this happened was in Oct02 and rates remained negative for three yrs. The gold price chopped around a lot but ran from $320 to $725 in that time. Real rates bottomed at minus ~2%. We’re now in another period of negative interest rates, which I reckon will last for several yrs. So far the gold price has run from $650 but it will chop around a bit. The good news is that real rates are now a lot lower than last time (minus ~3.5%) so the gold price should eventually run harder (probably when the yield spread widens again when the US Fed has to lower rates).

First we have to get through this deflationary period of investor debt de-leveraging and unwinding of positions by hedge funds etc before gold and gold stocks fly. It doesn’t help that CAPEX and operating costs are rising in the meantime, hosing away all the crap so only the strongest companies survive.

That’s an exhaustive list Jim Sinclair has produced! For me cash flow by production at low cash cost, good management, significant director ownership of the companies they manage are important, and / or that special X factor to provide lots of growth and meaning the company will be hanging around awhile (e.g. with KCN it was the granting of the mining leases, with RSG it’s Syama etc). In the case of CTO, it’s the cash-flow, growing production, monster inferred resource and coming reserve upgrades I like, together with the MD holding 15% of the stock. These offset the (as yet) unfulfilled promises made by CTO this decade, which does reflect badly on management I openly admit (see MickyDuncan's post a week or so ago).

Rowingboat.