GOLD

SILVER

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PLATINUM

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OIL & GAS

BASE METALSJuly 2014

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INSIDE...

Gold: Comedy of ErrorsIt is an immediate truth that timing is everything. And an almost immutable truth that no one gets it right.

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Why Triple Digit Oil Is the ‘New Normal’Last month, the five-year rolling average price of Brent crude topped $100 a barrel for the first time ever. The reason prices are bound to stay high is simple: geopolitics.

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Fewer New Discoveries, Slower Development Weigh on Gold IndustryThe number of major discoveries (any deposit with a minimum of 2 million oz of contained gold) have been trending downward over time. The length of time from discovery to production is trending higher.

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8 Major Miners Bull Market Peaks from 1957Ian McAvity, publisher of Deliberations on World Markets in a special Update includes a chart showing five phases since 1957 of the relative behavior of Gold Miners share prices relative to the Gold price. He points out the majors are finally back down to historic under-valuation levels vis-à-vis the Metal not seen since the 1975/82 period.

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Resource Investor’s Investment Newsletter DigestSolid investment advice from the world’s best performing market timers. Leading investment experts give their Top Stock Picks, Oil & Gas stocks, Trading Strategies, Gold, and Silver stocks and Trends.

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Strong Investor Interest & IndustrialUsage Lead to Sturdy Silver Demand in 2014Building on an impressive 2013, investors continued to boost silver holdings in the first half of 2014. Industrial demand strong.

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By Jens Erik GouldThe Financialist

When the idea of high oil prices comes to mind, one quickly recalls the hot months of 2008, when crude prices of nearly $150 a barrel had summer drivers rethinking the cost vs. benefit equation of road trips. But one silver lining of the global financial crisis and economic slowdown was that it brought prices back down below $50 a barrel in November of that same year. And here we are again: Last month, the five-year rolling average price of Brent crude topped $100 a barrel for the first time ever. Worse yet, Credit Suisse energy commodity analyst Jan Stuart doesn’t think another reprieve is in the cards. He calls the current price level “a new normal.”

How did we get back here so quickly and why are prices likely to stay put?

On the demand side, it’s quite simple. Both the global economy as well as global population continue to grow, and along with them demand for fossil fuels. Global oil demand has fallen only two times in the past two decades: the height of the global financial crisis in 2008 and 2009. Global consumption should increase by 1.4 million barrels a day, or 1.5 percent, to a record 92.7 billion a day in 2014, according to the International Energy Agency, which raised its forecast in March as the economic recovery gained momentum.

For its part, supply is not keep-ing up with demand. While U.S. production has grown substan-tially thanks to shale drilling, the U.S. is the only major non-OPEC nation posting significant produc-tion increases. All-in, last year’s oil consumption grew by 1.4 million barrels a day, while production only increased 560,000 barrels a day, according to the BP Statistical Review of Energy.

As has been the case since the start, the main threat to oil supply is geopolitics. Increasing sectarian violence in Iraq, for example, has once again put the 150 billion barrels of proven oil reserves of OPEC’s second-largest producer

into question, in the process helping to push the price of Brent to a high of $115.19 on June 19. Back in 2009, expectations were high: New investment by foreign oil companies was going to double Iraq’s output to 5 million barrels a day by 2013 and further increase it to 8 million by 2019. And that, in turn, would account for some 60 percent of OPEC’s overall production increase through decade’s end. Yet we’re nearly halfway through the decade and production remains at the same level it was in 2009 – 2.5 million barrels a day. Brent prices have dipped back below $110, and the current spasm of violence hasn’t reached the oil producing south, but companies including ExxonMobil and BP have begun evacuating employees, and investors are worried that continued violence could render even more modest production forecasts a pipe dream.

Iraq is just one example of many. The wave of political uprising exuberantly (and prematurely) coined the “Arab Spring” has left oil supply problems in its wake nearly everywhere it has rolled through. Protests that began last summer in Libya, which holds Africa’s largest reserves, cut output to around 350,000 barrels a day from the 1.4 million barrels a day the country was producing last year, although the country recently restarted production at its El Sharara field,

which will hopefully bring 340,000 barrels a day back online after a four-month strike by protesters. In South Sudan, fighting between the president and his former deputy has cut output by roughly one-third to around 160,000 barrels a day since December. Conflicts in Syria and Yemen have also cut output. “The instability in the Middle East and North Africa is so fundamental that it’s going to take a very long time for it to become a stable place for the oil industry,” says Stuart. In the meantime, production has fallen by a total of 3.5 million barrels a day, according to Credit Suisse.

So let’s get back to this ‘new normal.’ Last month, Credit Suisse raised its forecast for average Brent prices in 2014 and 2015 to $110.64 and $102.50 from $107.03 and $97.50, respectively. And these things do not happen in a vacuum. Every $10 a barrel increase in oil prices reduces real U.S. income growth by as much as 0.4 percent, according to Credit Suisse estimates. “We are worried about the political events in the Middle East,” says James Sweeney, chief economist for Credit Suisse’s investment bank. “A meaningful shock in oil could really disturb a lot of our cyclical outlook.”

Editor’s Note: From The Financial-ist – Presented by Credit Suisse. Visit www.thefinancialist.com.

Why Triple Digit Oil Is the ‘New Normal’

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By John IngPresident & CEOMaison Placements Canada Inc.

It is an immediate truth that timing is everything. And an almost immutable truth that no one gets it right.

In 2008, the US economy and financial system was brought to a precipice because of too much debt. Reality quickly set in and today a similar adjustment lies just ahead, as the market surges to historic record highs while gold struggles to maintain a trading range, between $1,180 and $1,400 an ounce. Low volatility (VIX) has also lulled the markets into a false sense of security. The consensus view is that we could just muddle along despite rising debt loads and we don’t need gold. Why the disconnect? We believe the performance of the bond market and equities suggest markets are being driven less by economic fundamentals and more by easy money, underscored by the recent dip of 10 year Treasuries to 2.6 percent.

While too few savvy investors insist on buying gold as a hedge, more seem to enjoy the inflation in asset prices and worry less about the need to rein in monetary policy. However tellingly, America’s largest debtor, the Chinese have voiced concerns that the excess supply of dollars has eroded the attraction of American money, which is a problem since over half of America’s debt is held by overseas investors. We believe that we have entered a new and likely terminal phase of the current cycle, when bond yields will soar and the global bubble economy will come to an end.

The European Central Bank’s (ECB) move to cut interest rates below zero follows the US and Japanese easy money policies because borrowing requirements are too large to be financed by private capital alone. The printing press is the only mechanism to ensure the financing of governments’ deficits without a dramatic spike in interest rates, necessary to maintain investor confidence at a

Gold: Comedy of Errors

time when fundamentals continue to deteriorate. We believe any catalyst such as an Iraqi civil war, the fall of Eric Cantor, another Argentine default or Gazprom cutting off gas to Ukraine could upset this complacency. The truth is nobody knows what the tea leaves say but in such unprecedented times, gold is an antidote for that uncertainty.

The Emperor Has No Clothes

Quantitative easing (QE) has resulted in a flood of dollars whose value is extremely vulnerable to any change in global sentiment. The complacent view is that as long as the US can finance its debts at attractive interest rates, no one really cares that the ratio of total US debt (public and private) to GDP is over 400 percent. Foreigners however are losing patience and by assuming America’s debt, there is a straight transfer of wealth that they no longer want. These transfers do not represent a productive use of capital and is not sustainable. US government borrowings have taken up more and more of the world’s savings leaving much less for the rest of the world. It is our view that the illusion of the United States as a good credit has ended.

The emperor simply has no clothes.Moreover, this lack of economic

leadership has countries pursuing a more independent approach.

The slowdown in China has accelerated America’s reckoning. The Chinese authorities are coping with slower growth but still have excess capacity at a time when final demand is a question mark. The renminbi has weakened in part to boost China’s trade with its Asian partners, a bigger market than the United States. China has also pursued a tighter monetary policy in the aftermath of an intentional deflation of their real estate and financial bubble, something that America and Europe should pursue.

Since the beginning of 2008, the Fed has used a variety of tools that in a very experimental way has no parallel in modern history. While, the Fed’s mandate is to promote maximum employment and lower inflation, instead the Fed became the chief architect of debt for money, creating vast sums of money. We believe this policy became a form of social engineering whereby the unintended consequence vastly restructured the world’s banking system making it more vulnerable and dollar-centric.

Quantitative easing was an experiment by central banks to create money to purchase financial assets. While the multi-trillion dol-lar quantitative easing programs saved the world economy from going over the abyss, the major economies are still mired in a recovery phase. The US economy shrank in the first quarter de-spite trillions of money printing. However, the Fed’s easy money injected financial steroids into the capital markets and the avalanche of dollars has chased too few assets in a financial inflation. The prime beneficiary was Wall Street and the banks became bigger and big-ger. Until 2008, central banks used money creation as a last resort because of its history of creating inflation. However, in one swoop, the US government changed the inflation calculator and increased the stock of money so that the Fed’s balance sheet quadrupled to

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some $5 trillion of assets (used to be called liabilities). The stock of money is now four times that in cir-culation. And, the Fed became the biggest buyer of their own paper.

Unintended Consequences

For some time, we have said that the central bankers’ exit would not be painless. The threat of tapering has already unleashed a currency war. We believe the exit will be difficult. So far politics has deterred the Fed from reducing a balance sheet which can only be achieved by selling assets and of course shrinking those all-important bank reserves. Balance sheets were never as large but how to shrink the Fed’s balance sheet which is choking on debt? Some believe that the Fed’s portfolio could simply shrink as they allow debt to mature. However, the Fed’s balance sheet of Treasuries, agency debts and mortgage backed securities are so large that they could swamp the existing market. It is an “owl market”. To who? We believe that when the Fed sells securities, normalized interest rates will ensue.

No one is listening. Global central banks have fostered another housing bubble through their money pumping and near zero interest rates. And now the world’s central banks are mulling how to prick their own man-made housing bubble to avoid the next crisis. The shadow banking system is bigger at more than a quarter of the world’s financial system. Collateralized loan obligations (CLOs) have now reached levels not seen since the height of the credit bubble in 2008. Junk debt is back. Bonds have enjoyed such a lengthy record boom that the spread between junk bonds and sovereign credit have narrowed. At the same time, global loans to finance leveraged buyouts rose 55 percent last year to $1.6 trillion which will be surpassed this year. Another unintended consequence is that savers have been punished while debtors are rewarded for stretching their balance sheets.

Meantime, the geopolitical climate has become murkier. The

problems get even worse. Russia has a big financing gap. Russia too has turned towards the East after becoming a pariah following the annexation of Crimea. Russia’s gas deal only cements the trend towards the East. American troops are returning only three years after they retreated from the Middle East. America hopes a former enemy, Iran will help them defuse a worsening sectarian war which has destabilized the Middle East.

In Europe, we have a monetary union in name only and that dated architecture has yet to be tested. Despite Mr. Draghi’s experiment of negative interest rates, the European Union is in trouble. Even Greece has been able to load up on bonds. Yet two years after the almost breakup of the EU, little has been done. Fiscal union is impossible with member countries failing to reach their growth targets. Deficits still grow. Still, there is no central euro budget. Political complacency and mounting debt are again the norm. That threat has created a currency war where each country weakens their currency in an effort to boost exports. In fact, there is an attack from within as the recent EU elections saw a surge in support for the anti-EU parties who want to make Europe more Europe. The probable outcome will be further frustration and dysfunction. A few years ago, Europeans were adept at kicking the can down the road and now with the next parliament, kicking the can will require less effort.

The End of US Dollar’s HegemonyAmerica’s seignorage of the

world’s currency gave it a financial weapon of mass destruction used infrequently in the past. The US controls the dollar which is the keystone to the international settlement financial systems and source of Washington’s power. However in the past few years, the United States has crippled Iraq and Iran with financial sanctions and now threatens Russia with sanctions. Also in the quest for revenues, America’s regulators have neutered the Swiss banking system, closed Cypress’ tax haven

and now threatens France’s largest bank with $10 billion of fines. In turn, Russia reduced its holdings of US treasuries in March and bought gold instead. China reduced its Treasury holdings for the third month in a row and still remains the largest foreign holder of US treasuries at $1.3 trillion. Japan is the second largest holder at $1.2 trillion. In recent years, one of the big holders of dollars were the Saudis, who swapped their oil for dollars. Today they accept euros and hold fewer dollars. China has swapped oil, not for dollars but for renminbi. China’s gas deal with Russia is for renminbi. The renminbi is being internationalised. Australia plans to put 5 percent of its reserves in renminbi. Nigeria’s central bank holds about 10 percent of its assets in renminbi joining Japan and Malaysia.

The move from dollars is the beginning of the end of US dollar’s hegemony, as the usage declines because nations are pursuing alternatives to protect their economies from US foreign policy swings, the greenback’s value and US monetary policy.

Risk has Been MispricedUnder the Basel rules, gov-

ernment securities are ranked “risk-free”, without the need for more capital. That Greece and Ar-gentina have reneged on their debt are lost on those Basel regulators. Banks are currently choking on sovereign debt and sky-high real estate exposure. Yet, the lesson of the last crisis was that the markets mispriced risk. Sovereign debt is not risk-free. The experiment with fiat money did not start in 2008. In less than 20 years there has been a Mexican financial crisis, Asian cri-sis and Russia and Argentina both defaulted. After years of monetary experimentation, the inflation-ary consequences are only now being felt. The seeds of inflation have been planted. We are in an environment that is eerily similar to 2007-2008, but with even more fundamental problems. Nothing has changed.

Meantime, the central banks’ surrogates are being kept on a short leash amid endless financial

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scandals. Regulators have charged and fined the big banks for rigging everything from LIBOR, to the $10 trillion foreign exchange market. Credit Suisse was fined $2.6 billion. The UK’s financial regulator fined Barclays Bank and one of its derivative traders $44 million for fixing the 95 year old London gold fix. Indeed we believe that this is just the tip of the iceberg because the massive precious metal derivative market also influences the London physical market. Government control over the banking sector has tightened as they investigate the litany of scandals. The industry has become the government’s favourite whipping boy. Ironically the big banks are still buying government bonds giving politicians a blank cheque, borrowing even more. Unfortunately the scandals reveal that the banks are in a cosy nexus of political and business interests. Crony capitalism is very much alive.

Everything is RiggedFor example, gold prices have

been manipulated in a coordinat-ed fashion. First, the five banks responsible for the near century old London Gold Fix are being investigated for alleged manipula-tion. In fact, Deutsche Bank has resigned as a member following the allegations of unusual price volatility during the twice daily conference call, a practice that has continued for years. Similarly, volume spikes on Comex coincided with expiries raising regulatory concerns that the paper price of gold was manipulated by bullion players. The swamp is finally be-ing drained.

Governments lie, bankers lie, accountants certainly do and traders sometimes lie. Gold tells the truth, it is the best reliable store of value. We continue to believe the gold price will reach $2,000 an ounce this year because the underlying problems that pushed gold to $1,950 remain in a world where monetary responsibility has been abandoned.

Currency DebasementThe dollar’s days of dominance

are over. Other countries are growing faster. The 2008 crash eliminated some Wall Street players, and measures taken to help recover from the crisis by keeping rates near zero and flooding the system with dollars, have caused the dollar to weaken, shifting the epicentre to the East. The growing demand for “safety” artificially buoyed the dollar but America owes half of its debt to foreigners. International trust in the US is very fragile. We believe gold provides protection against the government’s push to create more inflation to lighten the burden of debt.

The monetization of debt re-sulted in currency debasement and the revaluation of gold. Gold is an alternative to the central banks’ currencies and for that reason, Asian central banks and public have been buying gold. China al-ready has more dollars than they want and have been diverting their reserves. Given the economic problems in Europe, the euro is no longer an attractive alternative. Gold is simply a rational solution to the excessive accumulation of dollars created by a profligate country that continues to live be-yond its means. The cure will not be easy, but it is coming. Gold will be a good thing to have.

RecommendationsThe mining sector has long relied

on capital to finance exploration or development plays. However, the major suppliers of capital have moved on. In fact, some of the industry specific funds have seen outflows and they themselves are suffering from a capital shortage. Only the major gold miners have funds. B2Gold’s acquisition was not only opportunistic but a reflection of the bargains that are out there and a preference to buy versus build. While the mining industry is dealing with a number of cross-currents, such capital; nationalism in foreign jurisdictions; rising costs and declining reserves, we believe that the risk reward parameters are finally favourable. The bell is ringing

for gold stocks. Timing is everything.A modern gold rush is underway

as mining companies buy each other, suggesting to us that ounces in the ground are decidedly low at under $250 an in-situ market cap per ounce valuation. Gold miners’ forward price earnings (PE) ratio is at a low 10 times versus the 30-35 times in 2005-2008. Investors take heed. Not only was there a bidding war for Osisko but the proposed merger between Newmont and Barrick would have generated multiple deals and created a behemoth rivaling the big mining giants. We believe that these deals will continue, reflecting the industry’s cheap in situ ounces. One of the most interesting deals is the B2Gold acquisition of Papillion Resources for almost $600 million of shares at less than $140 an ounce. Deposits of 3 million ounces plus are rare and less than a dozen or so exist on a world-wide basis. China already the number one gold producer is expected to be on the hunt for new deposits because of its insatiable appetite for ounces. We believe gold stocks have bottomed and with many companies repeating the mantra of cutting costs and returning capital to shareholders, mining stocks are poised to show increases in line with improving gold prices. Gold miners are a leveraged bet on gold prices. We thus continue to emphasize big liquid Barrick Gold and the midcap producers such as Agnico Eagle, Eldorado and B2Gold which have little geopolitical risk. Without a merger, Newmont Mining is dead money since it is in harvest mode. We would also sell Iamgold because of its high cost structure and weak outlook.

Agnico Eagle Mines (AEM) is an intermediate producer with mines in Canada, Finland and Mexico. Agnico had a record quarter and its shares have rebounded after the successful acquisition of Osisko’s Canadian Malartic Mines for less than 18 percent of Agnico. Agnico’s flagship mine LaRonde continues to a major contributor with better grades and favourable cost profile. Goldex’s low grade deposit contrib-uted a full quarter of production. Commercial production from la

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The Bell is Ringing for Gold Stocks

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India in Mexico came on stream and higher grades were mined at Meadowbank. Total cash costs fell from $740 an ounce to $537 an ounce (all-in at $990 per ounce). Canadian Malaric is in Agnico’s backyard and we expect the Kirkland Lake ground to hold Agnico’s next mine. We like the shares here.

Allied Nevada Gold (ANV) has released a prefeasibility update at its flagship Hycroft mine in Nevada which is difficult in a capital short world because the capex is still too large. Allied needs money to make it happen. Allied will produce 240,000 ounces of gold and 2 million ounces of silver. Allied has a resource of 23 million ounces but the key is that much of the resource is refractory. Currently, Allied is a conventional open pit heap leach operation which accounts for its production but M3 Engineering’s prefeasibility study is in place to mine the sulphides with an on-site oxidation circuit. Unfortunately, the billion dollar capital cost is too large for this one and we think a joint venture to finance phase one is more likely. Allied shares have weakened recently on concerns about the big capex but we still find the shares attractive down here.

B2Gold Corp’s (BTO) Masbate mine was a contributor and La Libertad mine in Nicaragua was a surprise. B2Gold will have Otjikoto in Namibia in production by the end of the year so the Papillon acquisition in Mali could help B2Gold’s goal to produce 900,000 ounces by 2017. Papillon’s Fekola mine is a high grade open pit heap leach operation that will cost less than $300 million, producing 200,000 - 300,000 ounces a year for an all-in cost of $725 an ounce. B2 Gold has been successful in execution and Otjikoto is coming on time and on budget. The strong performance from Masbate, La Libertad and Limon mines will see B2Gold producing 420,000 ounces this year. Next year B2Gold should produce 550,000 ounces as the Namibia mine comes on stream. We like the growing production profile and portfolio of development project. The shares are a buy down here.

Detour Gold Corporation (DGC) has turned the corner at its

100 percent owned flagship mine in northeastern Ontario with a handle on dilution and controls at the Campbell open pit. The company expects to boost output to 61,000 tonnes per day with production expected to rise next year to roughly 540,000 ounces and close to 600,000 ounces in 2016. With more than 15 million in-situ ounces, Detour only has 20 percent of its property explored and recent drill results suggests that there are some higher grade deposits nearby which could be processed at the company’s mill. Detour also has reduced its operating costs. Detour is an emerging mid-tier producer and is on track to be Canada’s largest gold mine with a life of mine in excess of 15 years. We like the shares here.

We continue to recommend Excellon Resources (EXN) for its richest silver mine, 100 percent owned La Platosa in Mexico. Ex-cellon continues to prove up more ounces and rather than chase ounc-es, the Company has been tweaking and developing its underground mine growing production and cash flow. Peter Megaw has returned and we expect that his guidance will help develop La Platosa into one of Mexico’s bigger entities. While the quest for the large tonnage source continues, Excellon has better results by mining the high grade near surface mantos. Reserves are replaced every year. We like the balance sheet and we continue to recommend purchase.

Kinross Gold (K) produced 2.6 million ounces last year with a strong first quarter due to a big contribution from its Russian Dvoinoye mine. Kinross has focused on reducing its costs but almost 30 percent of production comes from Russia, making Kinross vulnerable to any surprise. Still, total capex is expected at $675 million, down from $1.2 billion due to revised plans for Tasiast in Mauritania. A final decision on Tasiast is not expected until 2015. Kinross’ net debt stands at $1.3 billion with no material maturities prior to 2016. Kinross however has little on the horizon and its Russian exposure makes it vulnerable to a surprise. Sell.

Lake Shore Gold (LSG) has put their problems behind them at Timmins West and Bell Creek

mine in Timmins. Lake Shore’s results in the quarter were impres-sive and costs are coming under control. Lake Shore has been building up its cash and has retired debt and under the Sprott agree-ment is poised to make monthly installments. Lake Shore has given guidance of between 160,000 to 180,000 ounces a year at a cash cost less than $700 an ounce. The mill has surpassed 3,000 tpd capacity. We expect the company will now be able to spend money on exploration. Lake Shore has turned the corner and the key is they have a couple potential com-pany builders (Bell Creek complex, Gold River and Fenn-Gib) but will need a higher price to make that happen. We like Fenn-Gib which could be joint ventured. We like the shares here.

We like McEwen Mining (MUX) which outperformed its peers due in part to a solid balance sheet and improvements at the El Gallo silver mine in Mexico. Rob McEwen owns 25 percent and has retaken the reins from Ian Ball. We expect Rob to maintain El Gallo’s development which is to show 25 percent production growth next year. A resource update is expected in the next quarter. Surprisingly, the huge Los Azules copper product in Argentina is moving along with additional metallurgical testing but the project could be smaller. The 49 percent owned San Jose mine in Argentina contributed to earnings. We like McEwen Mining here.

Yamana Gold Inc (YRI) was successful with Agnico Eagle in jointly acquiring Osisko Mining. We believe that the Malartic acquisition is a positive step and diversifies Yamana away from its heavily weighted Latin American (Brazil, Argentina, Chile and Mexico) exposure. Yamana’s Brazilian operations remain problem prone at Pilar, CI and Ernesto. However flagship, El Penon in Chile is still the crown jewel contributing over a third to results but lower grades as part of mine sequencing are expected for the next little while. Yamana shares have been weaker but with nine operating mines, management has been tested. We prefer B2Gold at current levels.

Editor’s Note: John Ing is President, CEO and gold analyst at Maison Placements Canada Inc., www.maisonplacements.com.

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Our 5:1 Ratio forecast is a conservative target

Alan Newman: “In our view, the long move down in bullion since the August 2011 price high of $1920 per ounce and the subsequent consolidation phase finally concluded with the Thursday, June 19th breakout that witnessed a huge 3% surge, a move equivalent to a 500 point one day gain in the Dow Jones Industrials. If we are correct in our analysis of a super bull market in progress, prices have a very long way to go. At Friday’s close, the Dow/Gold Ratio was 12.81 to 1, after peaking at 13.76 to 1 in December. The sideways consolidation in recent months was a constructive sign, precisely the kind we would expect within the framework of a super bull market. But is our 5:1 target for the Dow/Gold ratio a reasonable expectation? The ratio remained below 5:1 from January 1978 through January 1986 and flirted below 5:1 through September 1988, so history clearly supports a much lower ratio. As our featured front page chart shows, a 5:1 ratio implies potential for bullion to $3370 per ounce if the Dow remains exactly where it closed on Friday. If we are too optimistic on gold’s prospects, then we would expect at least the 5.67:1 ratio target, representing the average for the 20 years from 1975 through 1994. That would still take bullion to $2972 per ounce. Of course, higher or lower prices for the Dow would have similar effects for bullion. If a lengthy phase of high inflation lies ahead and the Dow rises modestly, gold will trade higher. If we assume 6% inflation per year for five years and the Dow gaining only 3% per annum, a 5:1 ratio would have gold approaching $4000 per ounce. Finally, we should stress that the Dow/Gold ratio was as low as 1.3:1 in 1980, thus our forecast of a return to a Dow/Gold ratio of 5:1 is likely a conservative view.

Could there be even higher targets for gold bullion than those mentioned above? At right below, over a century, the average annualized return for the Dow over all 20-year periods is roughly 5%. It was only 4% from 1917 to 1995 but then the super bull market for stocks happened and drove average returns far higher. However, we have always believed the concept of regression to the long-term mean is too powerful to ignore. At some point, annualized 20-year returns will decline once again to 5%. They declined as low as 5.57% at the March 2009 bottom and another trip to 5% need not be accompanied by much lower stock prices. All we need is time. If a return to the 5% level is achieved in exactly five years, the Dow will be at 28,017, 66.2% higher than today. While that might seems fantastic for stock fanatics, consider that our Dow/Gold ratio targets would then see bullion somewhere between $4941 and $5603 per ounce, 275% to 326% higher. However we might extrapolate future prices, a lower

Dow/Gold ratio favors gold by a wide margin and implies vastly higher prices for gold stocks.

A resumption of the super bull market for gold will mean enormous profits for miners, especially those with proved reserves and low cost mines. Our two core positions of Newmont Mining (NEM) and Goldcorp (GG) have treated us well, as both have been traded in and out profitably several times in the past. In the case of Eldorado Gold (EGO), costs are roughly 25% lower than today’s price of bullion which affords protection if gold happens to slump a bit further before resuming the bull run. Cash on hand exceeds long-term debt, so the financial position is solid and even suggests room for acquisition of depressed assets. We have mentioned a few much smaller miners in past issues, such as Asanko Gold (AKG) and IAMGOLD (IAG) and reiterate they are still favored but would stress again their very speculative nature. We do not expect instant gratification. The nature of this secular will likely takes years to play out.

Eldorado Gold (EGO) is one of the best gold miner charts at this point. Resistance established by the February and March peaks has now been broken as EGO closed above the line recently with decent volume. While there could easily be a pullback, we believe $6.91 should hold and a pullback would be a good time to add to holdings. If bullion makes a new high, EGO will be poIsed to attack its 2011 high of $21.46.”

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Wisconsin Energy Corp. A rare value in the utility sector

Roger Conrad: “Rarely will you find a sector’s top-quality stocks on sale more than five years into a bull market. But that’s the case with new Conservative

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Income Portfolio holding Wisconsin Energy Corp (NYSE: WEC).

Record demand enabled the utility to grow its first-quarter earnings by 19.7 percent year over year.

The frigid weather played a large role in this strong performance, but the electricity and gas provider also added customers and benefited from growing industrial demand.

Wisconsin Energy also shaved its interest expenses by 4.2 percent despite hefty capital spending.

Continued execution, coupled with the recently announced acquisition of fellow utility Integrys Energy Group (NYSE: TEG), will support the company’s guidance for annual dividend increases of 7 percent to 8 percent.

The deal adds to Wisconsin Energy’s scale in the Badger State and includes assets in Minnesota, Michigan and northern Illinois. All told, the combined company will boast 1.5 million electric and 2.8 million gas customers, 60 percent ownership of the American Transmission Company utility, 71,000 miles of electric distribution wires and 44,000 miles of gas distribution.

The utility giant’s $16.8 billion rate base is set to grow by $1.4 billion per annum for the next five years. Major projects include replacing Chicago’s gas mains and pipelines and expansions to the upper Midwest’s largest transmission group.

At the same time, management expects the new Wisconsin Energy to generate positive free cash flow and grow its earnings by 5 percent to 7 percent annually. Shareholders will get an immediate dividend boost when the deal closes in mid-2015.

The deal still needs from the approval of regulators in Illinois, Michigan, Minnesota and Wisconsin. At the federal level, Wisconsin Energy and Integrys Energy await the approval of the Federal Energy Regulatory Commission, the Federal Communications Commission and the Federal Trade Commission.

The only challenge so far is in Illinois, where Attorney General Lisa Madigan is notorious for utility bashing. Madigan recently described Integrys Energy’s Peoples Gas unit as “inefficiently run” – a clear warning that she’ll demand her pound of flesh before approving the deal.

Until the merger closes, there will be uncertainty surrounding how much Wisconsin Energy must give away to get the deal done. That’s one reason short interest has risen to 6.59 % of outstanding shares.

But Illinois accounts will account for about 13 percent of Wisconsin Energy’s revenue after the merger, limiting the state’s ability to damage the firm’s bottom line. And if Illinois limits the utility’s return on investment, the firm can shift its spending elsewhere.

After the acquisition of Integrys Energy closes, Wisconsin Energy looks set accelerate its earnings growth – all with less risk. Meanwhile, the stock’s modest valuation limits downside risk and increases the likelihood that the company will surprise to the upside.

New Conservative Income Portfolio holding Wisconsin Energy Corp. is a buy up to $48 per share.”

Editor’s Note: Roger Conrad has provided in-depth analysis of the utility sector to individual and institutional investors for more than 20 years. Conrad’s Utility Investor is your complete guide to building a lifelong income stream from stocks that provide essential services. www.ConradsUtilityInvestor.com.

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DOW THEORY FORECASTS, 7412 Calumet Ave., Hammond, IN 46324. 1 year, 52 issues, $279. www.dowtheory.com.

Halliburton taps well of growthRichard Moroney: ”Halliburton (NYSE: HAL;

$70) is the second-largest company in the energy equipment & services group, with a stock-market value above $58 billion. The firm operates in 80 countries and employs more than 80,000 people.

Despite its size, Halliburton is light on its feet, adapting well to the ever-more-technical world of energy production. The increasing popularity of horizontal drilling (63% of U.S. rigs operating in 2013 versus 42% in 2009) should benefit experienced operators such as Halliburton, which was the first company to use hydraulic fracturing in the U.S. more than 60 years ago.

Global demand for energy services continues to rise, driven by economic growth in developing markets. Overseas revenue and profits rose in 2013, and the company expects continued growth this year. Last year Halliburton generated 51% of its revenue outside the U.S., up from 45% in 2011.

Halliburton grows like a much smaller company,

boosting per-share profits 11% and operating cash flow 55% over the last four quarters. During that period, Halliburton generated free cash flow of $1.68 billion versus a negative $566 million for the year-earlier period. The consensus projects per-share-profit growth of 26% this year and 29% in 2015, with estimates trending higher. Halliburton trades at 17 times that 2014 estimate, a 9% discount to the industry median. Halliburton is a Buy and a Long-Term Buy.

Business breakdownHalliburton operates in two segments. Completion

and production (60% of sales, 62% of operating income in the year ended March) provides cementing, well stimulation, pressure-control, and completion services, as well as specialty chemicals. Drilling and evaluation (40%, 38%) models fields and reservoirs, drills and evaluates wells, and helps set up and operate drilling systems. Last year services accounted for 76% of company sales, with the rest coming from products.

Halliburton collects revenue throughout the production cycle, from locating new deposits of oil and natural gas to well construction to optimizing production at mature fields. The company’s broad geographical and industry presence limits risks from political unrest or economic weakness in a single region. No single customer, or any country other than the U.S., accounts for more than 10% of Halliburton’s revenue.

ConclusionThe worldwide rig count rose 6% in the 12 months

ended May, and Halliburton expects continued growth this year. Pricing pressures and a declining rig count weighed on Halliburton’s U.S. operations last year, but the company projects a modest increase in rigs nationwide this year. A combination of high oil prices and increasingly efficient drilling should drive energy companies to keep investing in new production – creating business for Halliburton, which sees North American operating profit margins rising near 20% this year from about 16% last year. In the longer term, recent signs of an easing of the ban on U.S. exports of crude oil bode well for oilfield services providers.

You can acquire an annual report for Halliburton Co. at www.halliburton.com.”

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LOOKING FORWARD, published for clients of Friess Associates and Brandywine Funds share-holders, P.O. Box 576, Jackson, WY 83001.

EnerSys world’s largest manufacturer of lead-acid batteries

Chris Aregood: “As its industrial customers responded to the global slowdown by scaling back, EnerSys Inc. (NYSE: ENS) restructured facilities and focused on main taining its financial health. Improved profitability, market share gains and new products continue to bolster the company’s earnings prospects as global industrial activity recovers.

EnerSys Inc. is the world’s largest manufacturer

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© Copyright 2014 The Resource Investor. Reproduction in whole or in part without written permission is strictly prohibited. The Resource Investor publishes investment news and comments of investment advisory newsletters whose thoughts are deemed of interest to subscribers. Neither the information, nor any opinion which may be expressed constitute a solicitation for the purchase or sale of any securities or investment referred herein.

of lead-acid batteries for the industrial industry. The company’s mo tive batteries are used to power industrial forklifts and other mate rials handling equipment. Its reserve power batteries are used in telecommunications, utility and military applications that call for an uninterrupted power supply. Revenue grew 9 percent to $2.5 bil lion in the 12 months through March.

March-quarter earnings grew 48 percent. Revenue rose 16 percent. Results reflected increased order volumes driven by restarted production capacity among customers and higher demand for electric forklifts.

More companies in developing countries, where combustion engines represent a relatively high proportion of the to tal, are converting to more environmentally friendly electric fleets. At the same time, telecommunications providers in the U.S., Europe and China are building out next generation infrastructure to accommodate growth in mobile devices, creating greater need for reserve power systems.

Your team met with Chief Executive John Craig and discussed how efforts to reduce operating costs and roll out new products could help expand profitability. Following a series of lean manufacturing initiatives, EnerSys’s current success comes at the expense of competitors with higher cost structures. At the same time, new products, such as the company’s OptiGrid system for electric grids, have helped enhance profit margins as demand grows.

Your team bought EnerSys at 15 times earnings estimates for the fiscal year ending March 2015.”

Editor’s Note: Founded in 1974, Friess Associates, a research driven firm, serves as sub-advisor to the Brandywine Fund, Brandywine Blue Fund and Brandywine Advisors Midcap Growth Fund and a wide range of separate portfolios. www.bfunds.com.

Sy Harding’s STREET SMART REPORTpublished by Asset Management Corp.505 East New York Ave., Ste. 3, DeLand, FL 32724. 1 year, 17 issues, $275. Includes Hotline Updates.

Remains neutral for goldSy Harding: “In June, as expected, gold rallied

some off a short-term oversold condition beneath its 30-day m.a. The rally paused at the potential resistance at the m.a., which had been overhead resistance on gold’s previous rally attempts.

But it then quickly spiked up $41 an ounce on the military actions in Iraq, which broke it up through its 30-day m.a. on the short-term charts, (and through its 30-week m.a. on the intermediate-term charts).

The continuing positive momentum there-after was enough to take us off our sell signal, but only to neutral due to the suddenly spiked up short-term overbought condition above the 30-day m.a.

That had us expecting a pullback to at least test the potential support at either the short-term 30-day m.a., or the intermediate-term 30-week m.a. And with the sharp plunges recently, that pullback seems to be underway.

We remain neutral for the moment, watching to see if the support levels will hold or break again to the downside.”

Editor’s Note: Sy Harding is president of Asset Management Research Corp, and editor of StreetSmartReport.com and the free market blog StreetSmartPost.com. For over 27 years, Sy Harding has provided research to serious investors. Readers can follow him on Twitter @streetsmartpost.

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NATES NOTESP.O. Box 667, Healdsburg, CA 95448. Monthly, 1 year, $289. www.NotWallStreet.com

Gold bucking the trendNate Pile: “Based on the recent price action,

commodity prices are not finding the support I would have expected them to find at this stage of the game..but I don’t. Gold is managing to buck the trend we are seeing in the more broadly based commodity ETFs of DBA and DBC. At some point, inflation is going to raise its ugly head with a vengeance, and I’m looking at the solid relative strength of gold over the past several weeks as a reason to add to our positions in both Portfolios this month. Given the tax implications of being involved with gold, try and make your GLD investments in an IRA-like account if at all possible. GLD is considered a buy under $132.”

— Online —The Bull & Bear Financial Report

TheBullandBear.com

12

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THE COMPLETE INVESTOR, P.O. Box 248, Williamsport, PA 17703. Monthly, 1 year, $199, www.completeinvestor.com

Still seeing the shine on New GoldGregory Dorsey: “Precious metals prices and

mining stocks could languish a while longer. But we remain unwavering bulls on the sector’s future, particularly for select companies like our old friend New Gold Inc. (TSX: NGD).

Thanks to copper byproduct sales, New Gold’s cash cost of production will average below $320 per ounce of gold this year. It’s all-in sustaining cost, a more accurate measure of profitability, is also extremely attractive at below $835 per ounce. As a result, even in these lean times the company is making money, unlike most small- and mid-cap miners.

The company expects to produce 380,000 to 420,000 ounces of gold this year and will ramp up output in 2015 via expansion of its New Afton mine.

Its acquisition of Ontario’s Rainy River project should boost production to more than 700,000 ounces annually by 2017. Additional growth will come from its wholly owned Blackwater gold project in British Columbia and 30 percent-owned El Moro copper/gold project in Chile, both slated to come online in 2020.

Blackwater contain about 7.5 million ounces of gold and should yield close to 500,000 ounces annually in the five years of operation. El Moro, delayed by legal challenges, doesn’t even figure in the company’s current valuation, but in April a Chilean appeals court rejected the latest attempt to stop it, paving the way for project manager Goldcorp to proceed. New Gold’s share is an estimated 8.8 million ounces of gold and nearly 6.5 billion pounds of copper.

Based on current metals prices and valuations on its peer, New Gold is underpriced by about 50 percent. When Metal prices rebound, the shares should soar.

After rallying strongly early this year, Endeavour Silver (EXK) surrendered those gains as silver prices again slipped below $20 an ounce. But even at these levels the company is profitable and with a P/E of 11 is reasonably priced.

Management has done a terrific job of raising production while cutting costs. In 2014’s first quarter, Endeavour’s silver production climbed 27 percent and gold production 23 percent from year-earlier levels, while its cash cost declined by more than 50 percent, to $4.87 per ounce net of gold credits. While in the current climate the company is unlikely to purchase new properties, output from its three producing mines should climb modestly in coming years. And with its costs relatively fixed, Endeavour offers considerable leverage to changes in the price of silver.

Although production from our other small-cap miners, NovaGold Resources (NG), and NovaCopper Inc. (NCQ), remains several years off, they also remain attractive.”

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The Peter Dag PORTFOLIO STRATEGY & MAN-AGEMENT, 65 Lakefront Dr., Akron, OH 44319. 1 year, 24 issues, $389. www.peterdag.com

CRB, DBC are flat and weakeningGeorge Dagnino: “CRB is tanking. Agriculturals

are very weak. Copper is soaring. Lumber is at the end of a brief rally. Crude oil is correcting but remains in a mild uptrend. XLB, the ETF representing companies trading materials, remains in an uptrend, reflecting an expanding economy. Its trend, however, is not as robust as that of the S&P 500.

The action of the commodity complex is uneven like the performance of the economy. There are pockets of strength but there are also pockets of weakness. The action of CRB or DBC, the commodity indices, reflects the overall performance of the economy. These indices are flat and are weakening as of this writing (7/13). They reflect the lukewarm growth of the economy.

Gold and the dollar are trying to find a bottom at current levels.”

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The Morgan ReportMetals, Minerals & Mining Silver Analysis & Research

13

Over the past 24 years, mining companies discovered 1.66 billion ounces of gold in 217 major gold discoveries, SNL Metals & Mining’s 2014 edition of Strategies for Gold Reserves Replacement shows.

While that sounds l ike a significant amount of gold, it falls short of the 1.84 billion ounces produced over the same period. In addition, the amount of gold discovered and the number of major discoveries (defined as any deposit with a minimum of 2 million ounces of contained gold) have been trending downward over time, from 1.1 billion ounces in 124 deposits discovered during the 1990s to only 605 million ounces in 93 deposits discovered since 2000.

The amount o f potent ia l production from these major discoveries is particularly con-cerning when looking at the discoveries made in the past 15 years. Assuming a 75% rate for converting resources to economic reserves and a 90% recovery rate during ore pro-cessing, the 674 million ounces of gold discovered since 1999 could eventually replace just 50% of the gold produced during the same period.

However, considering that only a third of the discovered

gold has been upgraded to re-serves or already been produced, and that many of these deposits face significant political, envi-ronmental, or economic hurdles, the amount of gold becoming available for production in the near term is certainly much less.

The time it takes to bring a deposit into production is also increasing significantly, slowing the rate at which production is replaced. Between 1985 and 1995, 27 mines with confirmed discovery dates began production an average of eight years from the time of discovery. The time from discovery to production increased to 11 years for 57 new mines between 1996 and 2005, and to 18 years for 111 new mines between 2006 and 2013. (For this analysis, expansions and mine redevelopments are not included as they are not comparable with new mine developments.)

The length of time from discov-ery to production is expected to continue trending higher: 63 proj-ects currently in the pipeline and scheduled to begin production be-tween 2014 and 2019 are expected to take a weighted-average 19.5 years from the date of discovery to first production.

There are many reasons for the longer development times,

including the need for increased and more detailed feasibility work, hurdles imposed by greater social and environmental awareness, longer and more demanding permitting processes, increased need for infrastructure and processing capacity due to lower ore grades and/or more remote locations, limited availability of capital, and scarcity of experienced personnel.

As it can take several years of exploration for a new discovery to be defined, it is too early to tell whether the surge in discovery-oriented exploration since 2010 has moderated the downward trend in the number and richness of new discoveries. The tough financial environment for junior explorers over the past two years suggests that the longer-term downward trend in discoveries will likely continue for at least the next few years.

Editor’s Note: SNL Financial is the premier provider of breaking news, financial data and expert analysis on business sectors critical to the global economy: banking, financial services, insurance, real estate, energy, media/communications and metals & mining industries. SNL’s business intelligence service provides investment professionals with access to an in-depth electronic database, available online and updated 24/7. For additional information visit www.snl.com.

Fewer New Discoveries, Slower Development Weigh on Gold Industry

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LIBERTY’S OUTLOOKpublished by Liberty Coin Service400 Frandor Ave., Lansing, MI 48912. 1 year, 12 issues, $159www.libertycoinservice.com.

Economic World War 3 Has StartedPatrick Heller: “Signed on May 21, the 30-year

$400 billion agreement for Russia to supply natural gas to China without using US dollars for payment is just one of the opening salvos by these two nations to destroy the US dollar.

There are a number of other attacks on the US dollar and US economy in the works that are getting almost no coverage by the US media:

• The Chinese government has ordered all state -owned computers to stop using Microsoft Windows 8 software.

• Just days after the US government indicted five Chinese military officials on May 19 for criminal hacking, the Chinese government ordered all state-owned businesses to sever all relations with US consulting firms.

• The US firm Cisco has acknowledged that it has not received any new Chinese orders in over a month.

• IBM supercomputers in China are being taken out of service.

• For more than a year, China has stopped adding to its holding of US currency and Treasury debt holdings and is slowly decreasing this position.

• In the past few months, Russia has dumped so many tens of billions of US Treasury debt onto the market, supposedly absorbed by Belgium but in reality almost certainly by the Federal Reserve, that the Federal Reserve’s claim to be “tapering” its quantitative easing program is a flat out lie.

• Russia and China are now making financial inroads with supposed US allies such as Germany, Saudi Arabia, and several nations in Africa and South America.

Foreigners can clearly see this economic war. Too many Americans don’t see it because they don’t want to. These Americans desperately hope that our politicians are telling us the truth when they say we are a free nation and undergoing an economic recovery.

The timing is not coincidental. While the economic and political strength of China and Russia have been growing internationally, the United States has been declining. All that was needed was for the United States to be caught being the international bad guy for the major push of the economic war to begin.

That pretext happened last year with the revelations that the US National Security Agency (NSA) engaged in extensive domestic and foreign surveillance of telephone calls and emails.

As commodity investment guru James Rogers said in a recent interview, decades ago China’s economy was about 80% controlled by the government while only about 20% of the US economy was government-controlled. Today, China’s economy is only about 20%

controlled by government while America is up to at least 40%. Therefore, it should be no surprise that, because of the expansion of economic and political liberty, China’s economy is growing while the US stagnates.

Because the United States is the world’s largest debtor nation run by a government that operates with huge annual budget deficits, there is little that the federal government can do to stop the development of Economic World War 3. The only practical beneficial step would be for the US government to remove the shackles on the private sector.

I just don’t see America’s politicians willing to return political power to the citizens of America. For that reason, the US dollar is almost certain to be crippled, if not destroyed, by the Economic World War 3. For self-preservation, every American should look at establishing, at a minimum, an insurance position of physical gold and silver.

While owning physical gold and silver under your direct control will be a good start, it will not be enough to survive the turmoil as the US dollar crashes.

What You Need To DoEven as the dollar declines in value, it is still the

medium of exchange in America. Therefore, it makes sense to keep some supply of coins and currency in your immediate custody rather than in a bank account or safe deposit box.

However, if things get really ugly for the dollar, and in my opinion the prospects are scarier than I wish, you may not be able to use them for purchases. In such circumstances, physical gold and silver will almost certainly prove to be acceptable for payment. It is possible that other things may also be used for transactions, but gold and silver have a multi-thousand year track record of never failing.

The most practical precious metals would to own be the widely recognized forms that can be broken down into the smallest value. That gives silver a huge edge over gold.

Among popular silver products, US 90% Silver Dimes contain about 1/14 of an ounce of silver. Today, three silver dimes would buy a gallon of gasoline, just like they could in much of the 1960s. US 90% Silver Quarters and Half Dollars would also be useful. At a lower cost per ounce, you could hold some 1 Ounce Silver rounds or rectangles. Three ounces of silver would be enough to fill most vehicle gas tanks today.

For gold, I would recommend paying a somewhat higher premium to acquire gold coins and bars of less than 1 ounce size. I wouldn’t necessarily go for issues with less than 1/10 Oz of gold content, because then the premiums would get too high. If you have the wherewithal to own significant quantities of precious metals, then consider owning a number of 1 Ounce size gold coins or bars of popular issues.

Having said all this, gold and silver cannot be eaten. I suggest going to the Red Cross Emergency Preparedness Checklist posted online at http:// www.redcross.org/imagesMEDIA_CustomProductCatalog/m9440096_EmergencyPreparednessChecklist.pdf.

Continued on page 16

15

Investor and industrial con-sumption of silver has advanced at a healthy pace in 2014, reflected in the silver price increasing 5 percent as of July 15 from the be-ginning of the year.

Building on an impressive 2013, investors continued to boost silver holdings in the first half of 2014. Silver exchange traded funds (ETF) backed by physical silver added 7.0 million ounces (Moz) of silver bullion through June; in contrast, gold ETF holdings dipped by 1.4 Moz ounces over the same time period. Globally, silver bullion coin sales are up 4.5 percent through the 1st quarter of 2014, according to precious metals consultancy Thomson Reuters GFMS. U.S. Mint sales of American Eagle Silver Bullion coins maintained near record level sales, totaling 24.1 Moz for the first six months of 2014, just shy of the 25.0 Moz sold in the first half of 2013, threatening to overtake the record sales of 42.7 million American Eagle coins acquired by investors last year. Other silver investment products, such as silver bar consumption, appear to be easing so far this year after a strong showing in 2013.

Industrial demand for sil-ver in critical sectors, such as ethylene oxide production, has increased significantly in the first half of the year and is ex-pected to increase 23 percent this year to 8.0 Moz, according to Thomson Reuters GFMS. Ethyl-ene oxide is a vital building block chemical, critical to production of detergents, solvents, plastics and a broad range of organic chemicals, and is an example of the unmatched importance of silver in industry.

Demand for s i lver in the photovoltaic industry has been driven by a global increase in renewable energy over the past decade, leading to a proliferation of solar module production. Metals Focus, the precious metals consultancy, forecasts that silver demand in photovoltaics will rise

by close to 10 percent in 2014.Another positive for silver is

growing global semiconductor sales. According to the Semi-conductor Industry Association, semiconductor sales were up 8.8 percent in May from a year ago. This increase is encouraging for silver demand because silver is used extensively in electronic prod-ucts that contain semiconductors. Semiconductor sales in the first quarter of the year totaled $78.5

Strong Investor Interest and IndustrialUsage Lead to Sturdy Silver Demand in 2014

million globally, the highest first quarter total on record.

These two categories, invest-ment and industrial demand, are important to the strength of the silver market and last year ac-counted for a combined 77 percent of total silver demand.

Editor’s Note: The Silver Institute is a nonprofit international industry association headquartered in Washington, D.C. For more information on the Silver Institute, or silver in general, please visit: www.silverinstitute.org.

Hot WheelsResearchers at Georgia Tech, the Ford Motor Co. and San Jose, CA-

based SunPower Corp. are working together to re-invent the electric car. In a category by itself, the Ford C-MAX Solar Energi Concept Car is a sun-powered vehicle with the potential to deliver the advantages of a plug-in hybrid without depending on the electric grid for fuel.

Devel¬opers believe eight hours of sunlight would give the C-MAX enough power to drive about 20 miles on electric power, which should cover about 75-percent of trips made by the average hybrid driver. Instead of powering its battery from an electrical outlet, the C-MAX channels the sun’s power by using a special concentrator that acts like a magnifying glass by directing intense rays to the solar panels on the car’s roof.

Source: Friess Associates, Looking Forward.

16

ResouRce stocks: Gold, silveR & oil & Gas shaRes

Continued from page 14

This 4-page document includes an extensive list of what would be useful to have on hand for a wide range of disasters and emergencies, including many where you will not have available electricity, water, natural gas, or even telephone service. I learned more than I expected even though I have already made some advance preparations.

Recently, I reported on a survey which identified how poorly a high percentage of the population are to be ready to handle even a three-day emergency or disaster.

In my mind, there is a high risk of civil disorder if the dollar (and the US government) goes down the drain. Don’t count on being able to dial 911 for assistance. Instead, assume that you will be fully responsible for the survival and well-being of you and your family.

It would probably be a good idea to incorporate into your planning the fact that your neighbors and relatives will be ill-prepared. If you stock up provisions to help them out, that will encourage friendly cooperation rather than risking a confrontation. In emergencies and disasters, the more we help each other, the better will be the outcome.

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KITCO NEWS, Market Nuggets, a daily column providing up to the minute coverage on the pre-cious metals sector at www.kitco.com.

Copper ‘Most Compelling Metal’ In Second Half

Allen Sykora: “Morgan Stanley characterizes copper as the “most compelling metal” for the second half of 2014. The firm says the outlook has improved in recent weeks, with demand in Europe and the U.S. picking up pace against a backdrop of re-accelerating industrial activity. State Grid Corp. of China’s consumption may be back-ended, as year-to-date spending is about flat compared to last year, well below Beijing’s 20% year-on-year 20% target, Morgan Stanley says. Meanwhile, the firm says commercial inventory is at a two-year low and dropping amid a global scrap shortage that encourages refined production. “Miners are struggling to bring adequate supply to market, with (year-to-date) disruptions totaling 3% of annual capacity,” Morgan Stanley says. “This total is likely to climb following Newmont’s force majeure declaration at Batu Hijau,, and notable excludes reduced output at two other major operations in Indonesia that have halted exports since mid-January.” Morgan Stanley says it looks for copper to average $7,055 a metric ton in the second half of 2014 and $7,400 in 2015.

Chinese Palladium Imports Up In First Half, May Rise More ln Second Half

Chinese palladium imports rose to 428,000

ounces in the first six months of the year, up from 329,000 during the same period last year and 256,000 in the same part of 2012, says Standard Bank. Analysts say they look for vehicle production in China of 20.5 million units this year, implying China might consume 1.73 million ounces of palladium in auto catalysts, up from 1.51 million in 2013. The current pace of palladium imports would put them at 856,000 ounces for 2014, Standard says. “Given that we believe that autocat-recycling per annum in China is not much higher than 300Kozs at this stage, China needs either to import more palladium or to draw down some inventory,” Standard says. “We estimate that China probably has little inventory; therefore, although the import anomaly with respect to China vehicle production vs. palladium imports is likely to persist – i.e. imports are too low relative to vehicle production – on balance we expect China’s palladium imports to pick up in H2:14, which should support the price on pullbacks.”

Auto-Catalyst Demand For Palladium Growing

Auto-catalyst demand likely will continue to underpin high-flying palladium, says ETF Securities. The metal ended last week with a 23% year-to-date gain, with the one of the most recent impetuses being worries that possible sanctions over the Ukraine crisis could disrupt supplies from No. 1 producer Russia. Since February 2011, global vehicle sales have increased about 20%, ETF Securities points out. Historically, diesel-powered vehicles relied mainly on sister metal platinum for catalytic converters, while gasoline-powered ones could use palladium. However, ETF Securities says, “in many cases palladium can now be used in diesel catalytic converters at close to a 50-50 combination with platinum compared to near a 30-70 ratio in 2011. Palladium is the primary source for gasoline catalytic converters and the largest market in the world is China. With an average per vehicle PGM (platinum group metals) load near two grams, compared to about four in the U.S., China is increasing its auto PGM loadings, notably due to severe pollution problems.” Palladium is widely expected to be in a supply deficit in 2014. “Although palladium has had a strong run and may be vulnerable to some near-term profit taking, the longer-term fundamentals remain favorable in our view, with escalating risk of further sanctions on Russia a potential catalyst for further price gains,” ETF Securities concludes.

Base Metals Stronger; Aluminum, Zinc Hit Longtime Highs

Chinese equities and base metals rose overnight, with aluminum hitting a high of $2,043 per metric ton that was its strongest level since February 2013, zinc hitting a $2,373 high that was its most muscular

Continued on page 18

17

Barkerville Gold Mines Ltd. is focused on exploration and development of gold projects in the Cariboo Mining District in central B.C. The company’s mineral tenures cover 1,164 km2 along a strike length of 60 km and approximate width of 20 km, including the Cariboo Gold Project, the Bonanza Ledge Gold Project, the Barkerville Mountain and Island Mountain exploration targets and seven past producing hard rock mines. The QR Property was acquired in February 2010 and includes a 900 tonne/day gold milling facility and

a permitted gold mine located approximately 110 km by highway and all-weather road from the Barkerville Gold Camp. In November 2010, the Company acquired a second permitted mill currently on care and maintenance in Revelstoke, B.C. The company initiated mining operations in February 2010 at the QR West Zone which culminated in Barkerville Gold pouring its first gold dore bar in September 2010. The QR Mine is now on seasonal maintenance. Barkerville Gold’s objective is to process ore from the recently permitted Bonanza Ledge open pit mine on Barkerville Mountain at the QR mill once all conditions under the necessary permits are in place. Another major ongoing project includes the Gold Quartz Mine located on Cow Mountain. Barkerville Gold is now focused on the permitting process and necessary prefeasibility and feasibility studies for two proposed open pit mines; The Bonanza Ledge deposit and the Gold Quartz deposit on Cow Mountain. The company will continue its exploration campaigns that encompass four areas identified by Barkerville Gold as prime exploration targets, including in, around, and underneath the current 43-101 compliant resources on Barkerville and Cow Mountains. To the North and South of these primary targets, Island Mountain, and Grouse Creek will also be explored. Further blue-sky campaigns will be conducted over the remaining 9/10ths of the highly prospective 65 kilometer gold bearing belt assembled by the Company over the past 18 years. Barkerville Gold recently announced the completion of an infill and reject assaying program of the diamond drill hole database on Cow Mountain. With the completion of this program, the company intends to commission an update to its 2012 NI 43-101 Technical Report, which will include an update to the Cow Mountain mineral resource estimate.

BARKERVILLE GOLD MINES, LTD.

TSX.V: BGM OTC BB Pink Sheets:

BGMZF Germany: IWUB

Contact: Investor Relations

610 - 1100 Melville St.

Vancouver, BC V6E 4A6 Canada

Toll-Free: 800-663-9688 Phone: (604) 669-6463

Fax: (604) 669-3041

info@barkervillegold.com

www.barkervillegold.com

Barkerville Gold Mines: Canadian Gold Exploration & Production

DTS8 Coffee Company Ltd is a growing purveyor of fresh artisan roasted, gourmet coffee. DTS8 roasts, markets and sells superior quality roasted coffee in China, one of the world’s fastest growing coffee markets – and where DTS8 is well positioned to participate in the growth of the Chinese coffee market. DTS8 Coffee Company engages in roasting, marketing and selling gourmet roasted coffee to its customers in Shanghai and other parts of China. It sells

gourmet roasted coffee under the DTS8 Coffee label through distribution channels that reach consumers at restaurants, multi-location coffee shops, and offices. The company’s office and coffee storage facility is located in Shanghai, China, and its coffee roasting facility is located in Nanxun Town, Huzhou, Zhejiang Province, China. DTS8 coffees are well regarded by Chinese consumers for their uniqueness, consistency and special flavor characteristics. Don Manuel® coffee is artisan roasted by DTS8 under strict standards, ensuring that every cup offers a rich, full bodied coffee with chocolate flavours, sweet-toned syrupy notes, and a smooth, clean finish. This has resulted in year-over-year revenue increases. Revenues for the nine months ended January 31, 2014 were $232,562 vs. $185,256 in the prior year, advancing 26% year over year and representing four consecutive years of growth. Gross margin widened 18%, on higher revenues. In June 2014, DTS8 announced that it owns a 19% equity interest in a joint venture company, established in the Shanghai Tax free Zone. The company will own and operate Cafe De La Don Manuel’ branded coffee shops throughout China. The joint venture expects opening its first coffee shop in Shanghai by September 2014. Earlier in 2014, DTS8 entered the online coffee market by introducing its artisan roasted coffees for sale on a number of Chinese e-commerce websites; Amazon China, Yihaodian (owned by Walmart), Tmall and Taobao (owned by Alibaba). All these web sites are high traffic destinations for the increasing number of Chinese online shoppers. DTS8 also is expanding coffee sales beyond the current markets of Shanghai and Beijing into second tier cities such as Xian, Hangzhou, Suzhou, Chengdu, Xiamen, and Wuhan. This expansion strategy is designed to connect directly with Chinese online consumers – a market currently estimated at about half a billion shoppers. DTS8 Coffee’s management team, all experienced Canadian businessmen with extensive business relationships in China, gives DTS8 an advantage in reaching new coffee consumers in other parts of China as well as in other targeted geographic areas.

DTS8 COFFEE COMPANY, LTD.

OTC QB: BKCTContact: Peter Baxter

Investor Relations

1685 H Street, Suite 405 Blaine, WA, 98230-5110

Phone: 775-360-3031

info@dts8coffee.com

www.dts8coffee.com

DTS8 Coffee Co. Ltd. Roasting and Selling Coffee in China Market

18

ResouRce stocks: Gold, silveR & oil & Gas shaRes

Continued from page 16

since August 2011 and a $2,235 high in lead the strongest since January. “China-linked markets led the move, with the China Enterprise Index closing in on positive territory for the first time in 2014,” says Barcalys. “The broad industrial metals index is trading at the highest level since March 2013. Evidence of a H2 recovery in China growth has been mounting – overnight the June leading index was reported up 1.3%, its largest rise in 2013.” Janet Mirasola, managing director for metals with Wells Fargo Securities, says traders put geopolitical risk “in the rear-view mirror,” pinning hopes instead on support from central banks and the possibility of fresh stimulus from China. She cites strength in Asia-Pacific equity indexes, with the standout stock performer being Aluminum Corp of China jumping more than 4% as the base metal rose above $2,000 per ton Monday. Mirasola saying this reached a 16-month on speculation that the housing market will rebound after a news report that the government had granted a 1 trillion yuan ($161 billion) loan to China Development Bank to help fund subsidized housing.

Gold Smuggling Into India Likely To Continue In Near Term

Gold smuggling into India continues as import restrictions, meant to combat the current account deficit, remain in place, Barclays says. The bank cites news that the Directorate of Revenue Intelligence has been given the task of investigating smuggling through select airports. “We do not think that smuggling will slow down in the near term, as the Indian government chose to keep import restrictions unchanged in the recent fiscal budget,” Barclays says. “That said, restrictions could be eased later this year, but this is not likely until a concrete improvement in the current account deficit becomes evident.” Meanwhile, Chinese demand – as reflected by trading volume on the Shanghai Gold Exchange – has been steady, with the rolling monthly average remaining stable, Barclays adds.

Chinese Platinum Imports Fall Year-On-Year In First Half

China’s platinum imports are down so far this year, says Standard Bank. Jewelry accounts for about 30% of global platinum demand, and almost 80% of this is from China. First-half platinum imports were 1.18 million ounces, down from 1.416 million in the first half of 2013, Standard points out. The first-half imports are also below the comparable period for 2012, 2011 and 2010, Standard says. “Of course, China’s platinum imports could pick up in H2:14, as in 2013,” the bank says. “However, it is unlikely to improve substantially – over and above the usual seasonal demand – unless the price moves substantially lower. We also believe that relative to China’s consumption of platinum, the country imported too much metal last year.”

Palladium ‘Preferred Metal’ But ‘Overbought’ For Now

Deutsche Bank favors palladium yet worries the metal may be “overbought” in the short term. The bank offers this assessment of the precious-metals complex in its latest weekly commodities report: “Geopolitical events have been the key influencing factor on both gold and palladium, once again highlighting the surprise support for these markets. We expect a more hawkish Fed to emerge in H2, which will ultimately outweigh any geopolitical support for gold. Although palladium remains our preferred metal due to favorable supply-demand fundamentals, we see current levels as ‘overbought.”

Palladium Gains May Become Harder; Decline Would Attract Buyers

Speculators are already heavily long in palladium, making further gains harder to come by, although any pullbacks are also likely to attract buying, says UBS. The metal hit a 13-year high this week, with the latest impetus being new sanctions against Russia, leading to ideas that any further ones could somehow curtail palladium supplies out of the country. Thursday’s shooting down of a Malaysian jetliner could mean concerns about more potential sanctions, which would help palladium, although much of this risk is already built into prices, UBS says. “Palladium remains the darling of the precious metals world, and that’s unlikely to change anytime soon,” the bank says. “But near-term investors need to bear in mind that spec length sits at 90% of the all-time high, and with its 22% appreciation year-to-date, gains going forward are likely (to) be harder won. Saying that, the downside looks quite contained - a spec sell-off, more likely a result of external factors rather than anything palladium specific, should attract many opportune buyers.”

Aluminum Momentum-Driven Gains Likely To Be Short-Lived

TD Securities favors positioning for lower aluminum prices, saying momentum-driven gains are likely to be short-lived. Three-month London aluminum peaked Thursday at $1,994 a metric ton, its strongest level since March 2013. “Recent chatter about supply-side disappointment and good consumption growth has some market participants contemplating (supply) deficits in 2014,” TDS says. “However, TD Securities sees the recent price increases, along with persistently high premiums and electricity rate cuts in China as incentivizing more output to meet increased demand. A surplus of metal should remain this year, and elevated inventory levels should keep prices contained.” TDS says “we would look for opportunities to sell rather than jump on the trend.”

Editor’s Note: Sign up for the weekly Kitco newsletter featuring precious metals news, commentaries and events at https://connect.kitco.com/subscription/subscribe.html

19

After 42 years of publishing Deliberations on World Markets, Ian McAvity ceased publishing the newsletter earlier this year. As he is developing a new web based medium, McAvity is providing Updates in the interim. His latest Update includes Five phases since 1957 of the relative behavior of Gold Miners share prices relative to the Gold price which are demonstrated by the Miners/Metal Ratio at the bottom of the chart.

1956-1968 – Phase A: US in-vestors could not own gold… they bought Gold Miners as a gold proxy because the Bretton Woods Mon-etary Agreements fixed the gold price at $35/oz.

1968-1980 – Phase B: The Central Bank Gold Pool blew up in March 1968 liberating the gold market for non-US investors in April 1968. I’ve often said the big-gest and most important gold run I’ve lived through was the run from $35 to $45 in 1968/69… market forces won that battle with Central Bankers. Gold fell back into 1971 when the next run forced Nixon to undo Bretton Woods by refusing the exchange of US$ for Gold at $35, then 1975 saw US investors right to own gold restored. From 1968 to 1980 the Major Gold Min-ers Index could never keep up with the rising gold price!

1983-1996 – Phases C&D: The great run for Miners was set off by the ABX Goldstrike discovery that transformed Nevada, and an industry-wide trend towards

8 Major Miners Bull Market Peaks from 1957

consolidation and promotion to institutional investors. By the time of the Bre-X scandal in 1996, the industry had transformed from government subsidized survivors to flying around in corporate jets, with a surge in financial engineering that looked attractive while gold was declining, but led to massive dilution of their shareholder base later.

2000 to date – Phases D & E: When gold turned up as the 2000 Bear market hit the S&P, the miners shares had a great run that attracted the investment bankers and an orgy of M&A Activity &

share issuance that capped Miners Shares superior performance vs. the Metal in Dec’03 before the $450 gold breakout. The investment banker harvesting of the Industry with ill-advised M&A in pursuit of “SIZE” rather than profits and huge costs of undoing the hedging further destroyed Major Miner credibility. In spite of themselves, the majors are finally back down to historic under-valuation levels vis-à-vis the Metal not seen since the 1975/82 period. But I prefer the smaller miners that the majors will have to acquire at premiums in future to replace reserves they’re now running down.

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