How do you explain the sell of in the gold price?
Mark Lackey: I think the biggest single problem has been jewellery demand for gold jewelry in India. It’s down about 20% this year, and as probably you’re aware of, there’s been an import tax on gold in India and clearly that’s had a negative impact. We think with the new government, that tax will come off within the next couple of years, so we think there’ll be some bounce back from demand in India, but it’s really been…in our view, that’s been the single biggest issue, is a 20% decline in jewelry demand for gold in India.
What are some of the warnings signs investors should look for prior to buying junior resource stocks?
Mark Lackey: So I think that the first thing we always look at is, first of all, we look at the management, we look at the jurisdiction, but the key is milestones. If people say they’re going to get permits in a given year, then they better get the permits. If they say they’re going to have production in a given year, there better be production. And I think, once you start to see people that over promise and under perform, that should be a red flag to individuals that you should be seriously considering either exiting the stock or cutting your position.
Where do you see the gold price at the end of 2014?
Mark Lackey: We’ll actually see it recovering in the next few months up to $1,300 for a couple of reasons. One, the central banks are still buying gold. And number two, we’re seeing less and less gold coming out of some of the ETFs, so that’s been positive. So I do see at least a move up of about $80 here in the next three months.
Why have small caps underperformed large caps this year?
Mark Lackey: You know, it’s interesting. If we go back between 2002 and 2007, small caps outperform big caps dramatically. Then everybody sold off in ’08, ’09 to ’11 we had a good bounce back in small caps, and then Greece, of course, was bankrupt. Then everything went down, big caps and small caps. So it’s been the last three years that we really trailed, and it looks like a lot of people still are not comfortable being the small cap environment. I would say the mistake with that is there’s still some great opportunities within the small cap environment, so that don’t lump everybody in the same basket. There are people that have no money and have a problem, but there are a number of other people that are actually performing quite well, and they’re not necessarily getting the support in the market that they deserve.
What are some of your favourite companies right now?
Mark Lackey: Well, I’ll give you a couple. My favourite stock right now is actually Primeline Energy Holdings Inc. (TSXV: PEH), PEH, on the Venture. This is a natural gas, near term natural gas producer. Right now it’s in the East China Sea. They have linked up their production right now to CNOOC. They’re doing the testing as we speak, and we would anticipate that they’ll be flowing gas in the next month. And I point out, for disclosure purposes, I own the stock in the 40 cent range. It’s currently trading around 55 cents. And the analysts that follow this, they do have over a $2 target next fiscal year. That’s based upon, obviously, the gas flowing and the cash flow and the earnings that should come forward, but I anticipate that this is a stock that has some significant upside. You do get anywhere between $13 and $16 at MCF in China for gas, but of course, in North America right now it’s around $4 at MCF, so you can see the margins are pretty significant.
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