Eric Sprott Cautions Investors to Fear the Financial System

Source: JT Long of The Gold Report  (8/27/12)

The dire economic situation that persists globally despite the best efforts of central planners to make things seem normal leads Sprott Inc.'s legendary Chairman Eric Sprott to broadcast a loud message of caution: "Fear the financial system." In this exclusive interview with The Gold Report, Sprott says it's time for people to take matters into their own hands and that means pushing further and further into precious metals equities as well as physical gold and silver. With 80% of his own portfolio in that arena, he certainly puts his money where his mouth is.

The Gold Report: You've stated before that the price of gold should be above $3,200/ounce (oz) and the price of silver above $200/oz but market manipulation keeps both metals artificially low. Who is manipulating it?

Eric Sprott: I suspect the G6 central banks have a hand in subverting the gold price because as the canary in the coal mine, high gold prices might tip everyone off to the severity of the ongoing financial crisis. I don't think anyone can doubt that we're in the middle of a financial crisis, primarily in the banking system, when month after month one program after another is rolled out to save somebody, whether it's Long-Term Refinancing Operations (LTROs), quantitative easings (QEs), bank bailouts in Spain or rollovers of debt in Greece.

TGR: Are you saying that the gold price manipulation is a new phenomenon?

ES: In the 1960s, the London Gold Pool was trying to suppress the price of gold but lost that battle, and the price rocketed up. My own analysis of the physical supply and demand for gold suggests a dramatic increase in demand over the last 12 years—a 2,500 ton net change at a minimum. This is in the 4,000 ton/year gold market, which hasn't increased in the past 12 years. The supply has basically been static. Yet we have exchange traded funds and central banks buying. You have to ask yourself where all the gold's coming from with all these new sources of demand, because mine supply over that period is negligible.

"I can only conclude that acting in concert, the G6 central banks are supplying gold from their reserves by leasing the central bank gold into the gold market."

I can only conclude that acting in concert, the G6 central banks are supplying that gold from their reserves by leasing the central bank gold into the gold market. Of course, they pretend they still own it, because the item on their balance sheet is now called "gold and gold receivables." The receivable is what they've loaned to a bullion bank, but it's actually been sold into the market and consumed and won't be coming back again. To buy it back physically would drive the price absolutely crazy.

That's why I think the price of gold should be considerably higher than it is, and why I believe, much as anyone in the Gold Anti-Trust Action (GATA) organization, that there's been continual pressure from the central banks in cooperation with bullion banks to keep the price down.

TGR: Does the fact that the silver market is so much smaller than the gold market make it easier to manipulate?

ES: I think it's more easily manipulated; it doesn't take as many dollars in the paper silver market because it doesn't trade as many dollars as the gold market would. For example, when silver hit $49.50/oz in the Q2/11, on some days silver traded a billion ounces of paper a day where the mine supply on a yearly basis is 900 million ounces (Moz) and probably the amount available for investment is about 200 Moz.

TGR: Those numbers don't add up.

ES: No, they don't. How can we trade a billion ounces of paper silver on a single day with 200 Moz available for investment for a whole year? I always ask people to think about what the seller was thinking. I'm going to sell a billion ounces of silver today and one-fifth of that is available for investment on a yearly basis. As a result, the paper was determining the price of the physical commodity.

TGR: You recently raised another $200 million (M) for the Sprott Physical Silver Trust with the goal of buying 7 Moz of silver.

ES: We've had a number of issues in that trust. We raised $250M in July, including over-allotment, and $350M back in Q1/12.

TGR: Could that affect supply and demand and therefore manipulate the market?

ES: The silver we buy theoretically stays off the market, so it does have some impact—but had we not bought it someone might have tried to move the price a little lower. Actually, I think the silver price exhibited more stability than it would have otherwise experienced.

TGR: You also operate Sprott Money, a service for buying physical gold and silver. Is that because you view precious metals as a store of value and therefore a hedge against inflation?

ES: I've been a believer in gold and silver for the last 12 years and I guess a disbeliever in paper assets. I'm quite surprised that things—such as currency debasements by central banks getting involved in supporting their bond markets and banking systems—have evolved to make the case for owning gold and silver since 2000 way stronger than anything I might have imagined.

"Between the stocks and bullion, I have about 80% of my money in precious metals. "

I basically got into gold because I anticipated a physical shortage, but I didn't expect the headwinds of the level of financial irresponsibility shown at either the fiscal level of governments with all their deficits or at the involvement of the financial markets by way of QEs, LTROs, operation twists and unlimited swap lines. In my mind, all of this ultimately will further debase the currencies, which gives us an even more powerful reason to own gold and silver.

TGR: How does Sprott Money work?

ES: It's basically a mechanism for people to own what I think will be the thing that saves them, which is hard assets. Over the last 12 years, I've been a strong proponent that people should have a sizeable piece of their investments in gold and silver. Sprott Money, operating now for over three years, was set up to make that easier.

TGR: How sizeable should a portion of a portfolio be in physical metals?

ES: That's a great question, and the answer I always give is what I do with my own portfolio. Between the stocks and bullion, I have about 80% of my money in precious metals. I think that's the only sound investment there is. Around the world, on average people have less than 1% of their portfolios in precious metals, and there's a long distance between 1% and 80%. Nevertheless, I certainly believe it should be well north of 1%.

That being said, no way can everyone have 10% of his or her portfolios in gold and silver because there isn't enough gold and silver in the world to do that. There's already a physical shortage of gold and undoubtedly a very tight situation in the silver market. If people and institutions put even 5% of their money into gold and silver, there's no way to accomplish that without driving the prices up dramatically.

TGR: When you suggest investing in the commodities, are you talking about taking delivery of physical bars, bullion and coins? What's the best way?

ES: The best thing is either to take physical delivery and store it somewhere safe or to buy a fund where you know the metal is there. Just looking at the short position in the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV), I can tell you there can't possibly be one ounce of gold for every ounce of certificates that people own because some of the paper was sold short. I have reservations about SPDR Gold Trust and iShares Silver Trust for that reason.

But with other funds, I know the gold and silver are there, so they can give you way more assurance that your precious metal is in safe hands rather than buying something on the commodity exchange, for example. A piece of paper may say you might get it, but what if a force majeure results in too many people claiming what turns out to be not enough physical gold and silver? You have to pick your spots.

TGR: Such as?

ES: Central Fund of Canada is one, as well as Sprott's own physical gold trust or physical silver trust, and funds in other countries that have the physical products, such as GoldMoney, which is actually a competitor of Sprott Money.

TGR: Going back to the manipulation issue, you're cosponsoring the conference, "Navigating the Politicized Economy" with Casey Research. Is currency manipulation really worse than it was 10, 20 or 30 years ago?

ES: As things get more desperate in the economy, the moves politicians make become more desperate. It's because the economy is in such dire shape that the people in charge turn to more and more unconventional methods to make it look as if everything's normal. In reality, everything is quite abnormal.

TGR: You've said that we don't need more regulation to protect us from this manipulation. What can individual investors do to protect themselves from market manipulation?

ES: We have more regulations than you can imagine, but most of them are either not enforced or the problems escape the sight of the regulators, whether it's MF Global or Bernie Madoff. These things went on for years and years, when it would seem that the regulators could identify it. Even when they're tipped off, they can't seem to reconcile it.

Based on experience, a blanket case that more regulation will solve a problem is naive. People have to take matters into their own hands, whether they think they're being ripped off in the stock market because of high-frequency trading or that they're being hurt by rule changes on the commodity exchange. They have to assess their own situations and ask, "What kind of risk am I prepared to take?" The system has failed a lot of people.

That's why I pointblank say gold and silver are the only things you should own. They're the safest things I can possibly recommend. If you own gold and silver and you're 100% certain that it's where you think it is, you should be okay. That's the way I approach it.

TGR: Turning to the equities, in a previous interview you said that when gold prices go up, equities move three times faster. That didn't happen when gold went to $1,900/oz. Was that a fluke, or is the ratio you told us about still relevant?

ES: I think it is. For instance, in 2000 the NYSE Arca Gold BUGS Index (HUI) went as low as 35. Today it's 420, so it's gone up by 1,100%, 2.1 times the increase in the price of gold. At the margin, the increase in the price of gold is all profit, so another sustained rally would dramatically change the profit picture for all these companies. Assume the average miner makes $800/oz. At that rate, a $400/oz increase in the price of gold would push the stock up by 50%.

Looking at that another way, a $400/oz move in the price of gold is today a 25% gain, whereas the miner's profits go up by twice that—an automatic 2:1 in the equities outperforming gold. And because further increases in the gold price would be all profit and because the equity prices have been so incredibly depressed, it's not illogical to assume that the precious metal stocks would outperform gold by a 3:1 ratio.

TGR: What will it take to move this market higher?

ES: I see huge macro changes that in the physical sense alone should cause the price to go up. The biggest thing now is the buying out of China, which has grown by about 600% over the last 12 months. China is buying almost 50 tons of gold a month—600 tons a year of brand-new buying and no increase in supply in a 4,000-ton market. Then bring into the picture central bank buying, which has changed dramatically, particularly from 2010 to 2011. It increased by about 800 tons, again with no increase in supply. You have to wonder where all this gold is coming from.

"In this environment, the well-funded company that has ongoing operations should do just perfectly."

The central bank buying includes obvious moves by some non-G6 countries, not only China but also Turkey, Mexico, Kazakhstan and Russia. Even South Korea has been a recent buyer. These non-G6 central banks see what's going on in the G6 and have decided to step up their allocations to gold. I think ultimately this will have a dramatic impact on the price of physical gold.

Gold equities will go up when the price of gold goes up. And, as I've said, the G6 central banks are already surreptitiously supplying a considerable shortfall in the physical gold market.

I can assure you that based on Frank Veneroso's work, which got me interested in gold back in 1998, there was already a shortage of gold then. The central banks had been selling it for 15 or so years. Combining that with what's been happening in the last 12 years, not much gold can be left in those vaults. Sooner or later, the rubber will meet the road in terms of the physical market for gold.

TGR: And that will increase demand, which will in turn increase equity prices?

ES: We don't even need to increase demand. We need the central banks to stop selling gold surreptitiously, but that's not going to happen.

TGR: John Doody recently told us that the coming bottom of the market will offer a great opportunity to buy some great companies at a discount. Do you agree? If so, how do you determine what is a great company hit unfairly by the market and what's a company that just may not survive to see the upside?

ES: I totally agree, because all precious metal equities have been mauled. I can make a very strong case for companies that are trading at incredibly low cash flow multiples in what is almost a negative interest rate environment.

The fundamentals have improved dramatically for a lot of these companies because their stocks have gone down. That would argue that the upside is quite stunning, particularly if you factor in increases in the prices of precious metals along the way.

TGR: How can you tell which companies will be able to make it to the upside? It's been a tough market for raising capital and staying in business.

ES: Producers shouldn't have a problem because most of them are making money selling gold. They shouldn't have a problem surviving as long as they don't overexpand and stretch capital needs if the market won't supply. The very difficult time in capital markets isn't just in precious metals, but in all capital markets. The IPO market has been badly hurt, and the average investor is taking money out of the stock market, so it's not as though mutual funds have more money to throw into new equities.

In this environment, the well-funded company that has ongoing operations should do just perfectly. And, of course, some of these smaller to middle size companies are trading at probably lower multiples relative to the gold price than ever. I see company after company saying that they'll be trading at four times cash flow next year or two years from now. Where else will investors get that in a zero interest rate world? It's almost impossible.

The problem is the price of gold hasn't rallied. (Editor's Note: this interview was conducted before the gold rally of the past week to 1672.) We need that to give people some comfort that we're not going to $1,200/oz but to $2,000/oz.

TGR: You've been in the eye of a mergers and acquisitions flurry as nine recent takeover bids have involved stocks in your portfolio, including a controversial one with U.S. Silver Corp. (USA:TSX). Are the premiums as good as they would've been if these companies had other options, such as access to capital? Or are these fire sales?

ES: I'd call them all fire sales. Companies are up against the wall, and maybe their production hasn't come on as well as it should have. Typically, it's someone being opportune. Obviously, the price of precious metals hasn't helped, because everyone is worried. I think the average analyst is suggesting the price of gold will be $1,275/oz in a few years.

I don't believe that for one second, but that's what the analysts conventionally believe, so people think it will get worse before it gets better. I happen to be of the opposite view, that it will get better going forward than it has been in the last little while. Gold was up every year for the last 11 years. It's up again this year and the year's not over. As we get toward the end of the year, I think if we can push back toward the old highs, the valuations given to all of the precious metal producers will be dramatically different.

TGR: Finally, What is the best piece of investing advice you have ever received?

ES: I think the best piece of advice I have received was always try to buy a company with a low price-to-earnings multiple or a low price-to-cash-flow multiple, particularly one that's a little out of favor because ultimately if it's sustainable, it will attain the valuation that's appropriate in the market. That's why we typically look at small to midsize companies that are under-followed where we can see opportunities that maybe others haven't. I think that's the place where people should focus.

TGR: And any last bits of advice you would like to share with our readers?

ES: The biggest thing is they should fear the financial system. It's very, very volatile. We see what's happening on a day-to-day basis. It's staggering the things the central planners have to do to hold it together. I think people have to push further and further into the precious metals area. It's the one thing that will survive the financial fiasco that we're in. The safest thing is to own gold and silver, and don't buy some paper saying you own it unless you know the people behind it are trustworthy.

TGR: Thank you so much for taking the time to talk to us today.

Click here for information on Sprott Money.

With 40-plus years of experience in the investment industry, Eric Sprott is chairman of Sprott Inc., CEO, CIO and senior portfolio manager of Sprott Asset Management LP and chairman of Sprott Money Ltd. After earning his designation as a chartered accountant, Sprott entered the investment industry as a research analyst at Merrill Lynch and founded Sprott Securities in 1981. After establishing Sprott Asset Management Inc. as a separate entity in December 2001, he divested his entire ownership of Sprott Securities to its employees. Stunningly accurate in his predictions, including foreseeing the current financial crisis, Sprott chronicled the dangers of excessive leverage and the bubbles the Fed was creating, while also correctly forecasting the collapse of the housing and financial markets in 2008. For more information on buying physical gold and silver bullion through Sprott Money Ltd., go towww.sprottmoney.com or email sales@sprottmoney.com.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

Disclosure: 
1) JT Long of The Gold Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: None. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.

 

August 16, 2012
Northern Vertex Intersects 9.14 Meters of 10.83 gpt Gold Equivalent Grade within a 24 Meters Intersection Averaging 4.9 gpt Gold Equivalent in Underground Channel Sampling Program at Moss Gold-Silver Project

Northern Vertex Mining Corp. (TSX.V:NEE) (OTCQX:NHVCF) is pleased to announce additional underground channel sample results from the Moss Gold-Silver project in Mohave County, Northwestern Arizona. Channel samples were taken at 5-foot intervals across the 'back' (roof) of the 1921 Hill No 2 X-Cut located 250 meters east of the Allen Shaft-Office X-Cut workings.

States Northern Vertex Chief Geologist Dr. Bob Thompson, "These exceptional results demonstrate the potential for high-grade ore at Moss. A 24 m intersection of 4.9 gpt material provides excellent potential for higher grade averages and enhanced future profitability. When combined with results from the Allen Shaft-Office X-cut workings located 250 metres west, along strike of the deposit (NRs June26th and July 17th, 2012), an increasingly clear picture of grade consistency and continuity emerges."

Metric								Imperial
Underground Sampling Area	Intvl	AuEq1	From	To	Au	Ag		Intvl	AuEq1
	(m)	(gpt)	(m)	(m)	(gpt)	(gpt)		(ft)	(opt)
1921 Hill #2 X-Cut	24.38	4.93	7.62	32.00	4.42	20.40		80.00	0.144
incl.	9.14	10.83	13.72	22.86	9.72	44.40		30.00	0.316

¹ AuEq (gpt) = Au (gpt) + 1/40 x Ag (gpt)
opt = troy ounces / short ton (2000 lbs)
gpt = grams / metric tonne (1000 kg)

The Company reports underground sampling is continuing at the Moss Gold-Silver Project and additional results from the program are expected in the near future.

The geological disclosure in this press release has been reviewed and verified by Northern Vertex's Chief Geologist, Dr. Bob Thompson, PhD P Eng (a qualified person for the purpose of National Instrument 43-101, Standards of Disclosure for Mineral Projects).

All analyses were performed by Inspectorate America, Reno, using industry standard protocols. For full QC/QA procedures please visit www.northernvertex.com/QCQA.html

Northern Vertex has the right to earn a 70% interest in the historic Moss Gold-Silver Property located in Mohave County, Arizona from Patriot Gold Corp. Subsequent to the Northern Vertex earn-in, financing of the project will be on a proportional basis.

About Northern Vertex: Northern Vertex is a gold exploration and development company operating principally in the United States and Canada. The Company comprises an experienced management group with a strong background in all aspects of acquisition, exploration, development, operating and financing of precious metal mining projects. The Company's stated mandate is to acquire, develop and advance gold projects that demonstrate near term production potential and long-term sustainable growth.

ON BEHALF OF THE BOARD OF NORTHERN VERTEX

"Joseph Bardswich"

Director

For further information, please visit www.northernvertex.com

or contact Investor Relations at: 604-601-3656

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or the accuracy of this release.

Cautionary Note to US Investors: This news release may contain information about adjacent properties on which we have no right to explore or mine. We advise U.S. investors that the SEC's mining guidelines strictly prohibit information of this type in documents filed with the SEC. U.S. investors are cautioned that mineral deposits on adjacent properties are not indicative of mineral deposits on our properties. This news release may contain forward-looking statements including but not limited to comments regarding the timing and content of upcoming work programs, geological interpretations, receipt of property titles, potential mineral recovery processes, etc. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in
such statements.
2012 number 14

Kootenay Silver Mentioned in "The Gold Report" Interview with Philip Ker of of Union Securities

Junior Miners Still Giving the Street Something to Talk About: Philip Ker

TICKERS: ATN, GIX; GIXEF, KTN, NGC; NGPHF, RPM; RPMGF, TMM; TGD

Source: Brian Sylvester of The Gold Report   (7/30/12)

Which junior miners are giving the Street something to talk about? Some shining examples of promising companies with good balance sheets do exist despite what seems like a market dominated by bad news. In this exclusive interview with The Gold Report, Philip Ker, an analyst with Vancouver-based Union Securities, shares the good news his latest site visits have revealed about projects in Nevada and Mexico.

COMPANIES MENTIONED: ATNA RESOURCES LTD. -GEOLOGIX EXPLORATIONS INC. - KOOTENAY SILVER INC. - NORTHERN GRAPHITE CORPORATION - RYE PATCH GOLD CORP. -TIMMINS GOLD CORP.

The Gold Report: Kitco reports that gold-specific exchange-traded products (ETPs) attracted $570 million (M) in net new funds, and holdings of gold ETPs hit an all-time high of around 77 million ounces (Moz) during the second quarter. There were also inflows into silver ETPs of $269M. Will this impact mining equities?

Philip Ker: We're in a period of extremely tight liquidity within capital markets. Any capital that's not being deployed into equities and transformed into ETPs will definitely impact equity valuations going forward. Keep in mind that exchange-traded funds do offer variable perks, such as diversification and lower management fees versus other managed investment options, which is why a lot of investors are beginning to favor them.

Related Articles:
Is It Time to Get into Gold Junior Mining Plays?: Philip Ker 

Equities the Way to Benefit from Gold's Strength: Henk Krasenberg

Mexico's Silver Mines Shine: 'Mexico Mike' Kachanovsky

TGR: On a macro level, the problems of the euro continue to plague the U.S. dollar-denominated gold price. The International Monetary Fund recently said that there was "a sizeable risk" of deflation in the Eurozone. What is Union Securities' view of what's happening in Europe and the possible effect on the gold price?

PK: We believe that this is just a temporary shift out of the Eurozone, which is ultimately strengthening the U.S. dollar while consequently weakening the gold price. In the longer term, we see the gold price going much, much higher. The substantial leverage created by the U.S.' escalating debt will cause investors to shift away from these temporary investment vehicles and back into the safety of gold.

TGR: When we talked to you in February you were predicting an average 2012 gold price of $1,725/ounce (oz) and $34.50/oz for silver. Have those numbers been revised since?

PK: We're maintaining those targets until some macroeconomic things evolve and answers begin to be known, particularly concerning the skepticism within the market about the Eurozone and U.S. debt issues. There are also several significant elections globally, including the U.S. presidential election in November.

TGR: You must think that gold's going to have a strong finish this year then?

PK: That's correct. We are pretty optimistic for a strong run later this year and view the current lull in precious metals and relative equities as only a temporary phase of market sentiment.

TGR: Small-cap resource equities are down an average of roughly 40% since September 2011. Why should investors continue to hold these companies?

PK: The overall perspective of the investment community is that we are in a fairly bearish cycle. Fortunately for investors, markets are never static and there's always an upside. I prefer the view to buy and accumulate when no one else believes there is money to be made. Buying at opportune times such as now positions one ahead of the herd and can churn much more profitable investments. If investors are well positioned and ready to take advantage of the market, they can be very prosperous in the long run.

TGR: You like sizeable and growing mining-friendly jurisdictions. What are some of the companies you're following that fit those terms?

PK: Geologix Explorations Inc. (GIX:TSX; GIXEF:OTCQX) has a great gold-copper resource base in Mexico. In addition to its huge 187 million ton resource containing 4.5 Moz of gold equivalent, the company recently identified additional targets about 1.5 kilometers north of its resource boundary. Several of these anomalies are looking quite interesting from their geophysical signatures and preliminary sample results. The exploration team is currently taking additional prospecting and chip samples on the targets and will continue sampling and delineating them through an upcoming 5,000-meter (m) program.

"Buying at opportune times such as now positions one ahead of the herd."

TGR: When should we know how much this new mineralized zone could add to its Tepal project's resource?

PK: The company is aiming to start its shallow drill hole program later in August. I expect to see assay results in late September or October and that will give us a good indication of grades and potential. A secondary program would follow up on successful results.

TGR: Geologix has a prefeasibility study due in the third quarter. What does that study need to show in order to move the needle at the company?

PK: The study should confirm that the economics of Tepal are robust. The project has a strong net present value, a long mine life and good production numbers at low operating costs. Unfortunately, Geologix has a lower market cap of about $30M at this time and capital expenditure (capex) requirements pushing $400M. It could be a severe challenge to get project financing. However, it should be able to use the prefeasibility study to its advantage in negotiating its financing options.

TGR: Do you believe that it will have to fully delineate that new mineralized zone before this project gets green-lighted?

PK: I don't think so, but it definitely adds upside. What's been indicated in the chip samples thus far is that grades are 2–3 times higher than what is in the current resource. It only gets better from here if there are additional grades and economic tonnage to be added.

TGR: What are some other companies you're following?

PK: Northern Graphite Corporation (NGC:TSX.V; NGPHF:OTCQX) recently put out a bankable feasibility study and the market had mixed reactions. This was due to slightly higher than anticipated capex requirements and any potential dilution that may come into play as it raises capital to start the groundwork at Bissett Creek in Northern Ontario.

TGR: Northern Graphite is looking at possibly selling battery-grade graphite at a substantial premium to concentrate. The economics of that idea were not included in the recent feasibility study. Have you developed any models on how that could change the economics of Bissett Creek?

PK: My target actually includes the production of battery-grade graphite. I changed my model and increased my target substantially when Northern Graphite confirmed that spherical high purity graphite could be made from its large flake deposit. Currently, the company is investigating what parameters and infrastructure would be needed for upgrading a recovered flake concentrate to high-purity battery-grade material. Management is indicating that it would need approximately $10M in addition to the current capex requirements for the required processing facilities. An engineering study into the upgrading scenario is under way and we can expect the results of that later this year. Adding this circuit provides a substantial premium for spherical graphite of approximately $5,000/ton.

TGR: Right now, the company has about 60M shares outstanding. Considering those new capex requirements, how high do you think that float could go?

PK: It all comes down to an offtake agreement. I know management is keen on having some skin in the game from an offtake suitor. I believe the company will be working diligently on this over the next few months to solidify its financing options.

TGR: You regularly conduct site visits. Tell us about some of your recent trips.

PK: A few months back I toured Rye Patch Gold Corp. (RPM:TSX.V; RPMGF:OTCQX) in Nevada. The company is in an interesting scenario because of its current litigation with Coeur d'Alene Mines Corp. (CDE:NYSE; CDM:TSX) over some lapsed property claims that Rye Patch picked up. If Coeur d'Alene is continuing to mine the Rochester pit and is damaging Rye Patch's claims, under current mining laws in Nevada, damages done to another's claims requires three times the gross metal value taken out of the ground to be paid to the injured party. I believe Rye Patch is in a situation where it will either be taken out or awarded a substantial settlement.

TGR: You think the companies are likely to settle out of court for cash?

PK: To avoid the court battle and have the litigation result in favor of Rye Patch, I believe it's in Coeur d'Alene's best interest to settle out of court through a lump sum or just purchase the company outright. If the latter occurs, Coeur would add over 2.5 Moz gold and 32 Moz silver to its asset base plus upside from its exploration prospects in the Cortez Trend.

TGR: Rye Patch has the Wilco deposit in Nevada that it's proving up. After seeing some of the core first hand, what were your thoughts?

PK: The site visit was a great learning tool to see the size potential of not only Wilco, but the entire Oreana Trend. It's definitely in a good jurisdiction to be in for developing gold and silver projects. Wilco is a small past-producing pit, but there still remains a lot of upside and recent drilling targeted mineralized zones down dip along structurally controlled contacts. The recently updated resource proved the beauty of the beast and although low grade, an abundance of these deposits in Nevada get mined because of the simple fundamentals, infrastructure and quality personnel located in Nevada. I can see this is going to a mine someday with continued work on the property.

TGR: You recently launched coverage of Atna Resources Ltd. (ATN:TSX), which increased its gold production by 30% in 2011 and almost doubled its total Measured and Indicated gold resources, which are spread over several projects in the western U.S. What catalysts lie ahead for Atna?

PK: This is a great story and my current top pick. Last year, Atna picked up 100% ownership of the previously producing Pinson Mine just 30 miles north of Winnemucca, Nevada. The company is currently working underground with plans of commencing full production in Q4/12. Management plans on going from a small miner's permit, which allows only 36,500 tons per year, to a full production permit of 400,000 tons per year in 2013. It should more than double its production in 2013 and beyond based on the addition of Pinson production alone.

" It's an ugly time in the market but it's a great time to be a value shopper for cheap mining stocks."

The company is also poised for internal growth by using internal cash flows from its Briggs and Pinson mines to fund development at the Reward Mine. The Reward mine is also in Nevada, has easy access to infrastructure and will provide low operating costs under a heap-leach mining method. I believe Atna will have this project pouring gold in 2014 and would be the third producing mine under Atna's asset portfolio.

TGR: Atna is developing quite the following. Joe Mazumdar, an analyst at Haywood Securities, follows the company, as does Rahul Paul at Canaccord. Pinetree Capital CEO Sheldon Inwentash and his holding company own almost 10% of Atna. Why does this junior have such a strong institutional following?

PK: Atna has a great pipeline of projects and an experienced management team to bring them into production. Acquiring the Pinson Mine at such a near-term production phase definitely gives the Street something to consider. The scale and ramp-up of its production from Briggs, and with the addition of Pinson, and shortly thereafter Reward, Atna has created a substantial growth trajectory for the company and for investors to look forward to.

TGR: Are there other companies under coverage that you'd like to tell us about today?

PK: I toured Kootenay Silver Inc.'s (KTN:TSX.V) Promontorio deposit in Sonora, Mexico, earlier this year. I came away quite impressed with the core and the layout of the land there. Management is extremely knowledgeable in hydrothermal-type deposits. I am currently anticipating a resource estimate to come out sometime in August and am targeting approximately 100 Moz silver equivalent, which is five times its historical resource. Management now thinks a substantial gold credit may be worked into the resource and would add additional value to the project valuation.

The stock has performed quite well during this market turmoil. I believe a lot of investors are keeping a close eye on it and it will be a good growth story moving forward.

TGR: You had a $2.50 target price on Kootenay around Christmas 2011. What's your target now?

PK: It's $1.75. It was cut based on lower comparable in-situ valuations for other silver explorers and developers.

TGR: The Promontorio deposit is quite promising and reasonably high grade. What about its mineability? Is the geological structure set in a way that's going to make this easy to mine?

PK: The deposit is a hydrothermal breccia and the structure could be easily mined with a combination of open-pit and underground mining to target the various zonations and concentrations of higher-grade mineralization. The deposit has only undergone one good round of drilling and management is planning additional exploration within the center of the zone in order to further prove continuity between the northeast and the southwest zones where the historic pit is located.

"The substantial leverage created by the U.S.' escalating debt will cause investors to shift away from these temporary investment vehicles and back into the safety of gold."

TGR: Then we don't really know yet if there's no pit wall drilling. Can you tell us about some recent results that keep you optimistic about Kootenay?

PK: It's definitely had some bonanza-grade intercepts, especially up in the northeast zone. It's had exceptional numbers of about 18m of 873 grams/ton (g/t) silver equivalent within an intercept of 71m of 297 g/t silver equivalent. The strong metal credits from lead and zinc (and now possibly gold) lead to a good indication of metal credits should the project become a mine one day.

TGR: Of the companies you cover, which one is best positioned for a takeover?

PK: I'd say Timmins Gold Corp. (TMM:TSX.V; TGD:NYSE.A) is positioning itself nicely for M&A activity. Its San Francisco mine is located in a mining-friendly jurisdiction of Sonora, Mexico, and it has the infrastructure in place with considerable mine life remaining. Last year the company added over 1 Moz to the deposit through drilling and is currently expanding its throughput at the mine in order to achieve 32,000 tonnes per day, which will help the company exceed 130,000 ounces of production annually. A complete takeover or a merger of equals could be a likely outcome in the future.

TGR: When adding positions to a portfolio would you suggest dollar-cost averaging or looking for value in this market?

PK: At this time I would first look at companies with strong balance sheets and growth profiles. You know these companies won't have to go to the market and end up with any equity dilution, especially at depressed prices. Then, if investors already hold those equities, I'd definitely take a look at the dollar-cost average if their portfolios are down. It could make the timing of the break-even point come faster and they could dissolve the position and look at other investment opportunities.

TGR: Could you please provide our readers with a bit of a pep talk to raise their spirits before you go?

PK: It's an ugly time in the market but it's a great time to be a value shopper for cheap mining stocks. I suggest taking advantage of this market to perform due diligence in order to pick the next winners, because there is always an upside to the market and there will always be more profits to be made. We've seen several good spikes out there, with parabolic-looking charts for some explorers, even in these tough markets. Investors should prepare and not be last on the train when the next upward ride in the market comes.

TGR: Thanks, Phil.

Philip Ker is a mining analyst for Union Securities Ltd., a company formed in 1963 that is now one of the largest independent brokerage firms in Canada. The company has offices all across Canada, as well as one in London. He has field experience as an exploration geologist working across Canada on gold, diamond and base metal projects. He joined Union Securities in June 2011 after completing a Master of Business Administration degree in finance at the University of Alberta. He holds a Bachelor of Science degree in geology.

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Disclosure: 
1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Geologix Explorations Inc., Northern Graphite Corp., Rye Patch Gold Corp. and Timmins Gold Corp. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Philip Ker: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.