The Mining Report: When we last spoke in June 2014, you said that gold at $1,250 per ounce ($1,250/oz) was a reasonable baseline price going forward. Do you still believe that?
Lawrence Roulston: Yes. Actually, the fact that gold has remained at this level while the U.S. dollar has become so strong is very significant.
My preference is to pay less attention to the gold price per se and more attention to specific gold and silver companies that are good investments in their own right. This means companies with smart management teams that are expanding resources, advancing projects toward production, increasing production or doing other things that add value. As the gold price eventually moves higher, such companies will realize bonuses on top of what should already be an attractive return.
TMR: In the last two years, two independent phenomena have occurred simultaneously: companies have greatly reduced costs, and, as you mentioned, pretty much all currencies have lost value against the U.S. dollar. Taken together, how much has this improved the condition of miners outside the U.S.?
LR: In particular, Canadian and Australian miners have benefitted greatly: a 20% boost on the revenue line, which has led to an even larger boost of operating margins. As a result, many companies that were struggling two years ago are now much healthier.
TMR: We hear often that it is difficult to impossible for mining companies to raise financing in the current climate. Is this an excuse used by companies with poor management?
LR: I wouldn’t be quite so judgmental, but certainly, in spite of all the complaining about moribund financial markets, a truly enormous amount of new money is coming into the junior mining industry. From Oct. 1, 2014, to …read more