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As we say goodbye to 2012, Mining Markets sought the advice of one of the mining industry’s most seasoned investors to find out what 2013 and beyond might have in store. Toronto-based journalist Susan Kirwin sat down with Ned Goodman, president, CEO, and founder of Dundee Corp., in a boardroom on the 21st floor of the Dundee Place tower in downtown Toronto on Nov. 19.
With 50 years of experience in the mining industry, the geologist and financier still visits the odd mining project to “kick the tires,” and was in Sierra Leone just a few months ago. Goodman, a self-described optimist, explains why commodity prices will keep rising, why a return to the gold standard makes sense, and offers some tough-love advice for would-be investors.
Mining Markets : What’s your outlook for the mining industry in 2013 — what commodities do you think will do well and where will you invest your money?
Ned Goodman : My commodity would be gold. My view is that the world is basically in a pretty desperate situation except that the world population is increasing and the population of the world is far more knowledgeable about what is going on in the world so people are asking for more. Clearly, something’s got to happen that will take Europe out of the mess that it’s in and something that would take the United States out of the mess that it’s in.
One of the things that I see is that the commodity markets will be a lot better than most people think. There are forecasts that say the middle class of the world will grow, they will all want to drive cars on highways and have houses with flush toilets. So I have a long-term perspective that the mining industry will be fine: it’s not easy to raise the money to do it but the demand will be there for commodity products.
MM: Would you say you are more positive longer-term, but that 2013 could be similar to 2012?
NG: You can never predict what’s going to happen the next day or week or month or year, but you can say that the industry has reason to be hopeful, especially since major companies are all pulling back, saying, “It’s tough times, therefore we aren’t going to do any exploration.” When that happens, if you bet against these guys, you usually win, because they are just scared for their jobs more than anything else. They will ramp up again when the time comes. It’s an opportunity, it’s a buying time and we’ll come out of this quite comfortably, I think. It’s not stopping me from providing funding to junior mining companies around the world who have major discoveries because the product is going to be required just to keep the world in one piece.
MM: Are there any other metals that you prefer to invest in?
NG: My biggest interest is gold. Precious metals. I do think that gold will take on a monetization, probably a lot sooner than most of my competitors or anyone else you are going to talk to. I think it’s
happening even while we talk. Gold is money and will become money, and all inflationary paths in the world lead to gold. We are going to have an inflationary problem and we also have problems with wars and stuff like that, and gold is not going to fix that, we are still going to have problems but I’m an optimistic person, I’m not a negative person.
MM: I hear the positivity … but it is very negative out there.
NG: Everybody’s negative, and it’s not hard to be negative, just read the newspaper, watch TV, talk to anybody in the brokerage industry. It’s negative and I say that’s not a bad time to think about things being positive because we are not going to let the world go to hell. I think that all the financial crises, all the financial problems of Europe, United States, the fiscal cliff and all that kind of nonsense will get better if the major currencies of the world are properly backed so that people have confidence in them. The dollar is the reserve currency of the world, the euro is the wannabe and the remninbi is the one that deserves it the most. China is the smartest country in the world, it’s the largest producer of gold and will end up being the largest holder of gold.
MM: Are you worried about growth inChina slowing down?
NG: China is not stopping to grow, they can’t afford to. If China stops growing, they are going to have a revolution. They’ve got to keep moving people from the farms to the cities. If they do that, they are going to be building places for people to live and they are going to be building highways for their bicycles and cars so I don’t see China slowing at all.
MM: Are we still in the commodities supercycle?
NG: We are still in it, we are just in a slowdown in a major cycle. The major cycle came into existence because of the emerging markets of the world. They are the ones that are still growing and that hasn’t stopped; if anything, it’s built up.
MM: Why is gold is your commodity of choice?
NG: It’s my commodity of choice because it’s the only thing that can really turn the world around. All roads today are leading to deleveraging of debt. . . therefore we either have to print money, which the world does not like to do because that is an inflationary event, or fix the U.S. dollar or any currency so that it has a stable value. To me, the easiest thing is to go back on the gold standard and I think we are not too far away from that occurring.
When that occurs, if the banks that are in trouble get the gold from the countries they live in, and the price of gold goes up, then the banks will be put on side without having to do equity issues. It will be like magic money; more magic than the money that gets printed.
MM: If we went back on the gold standard, how high would the price of gold go?
NG: I don’t know, it’s a dart-throwing contest. It’s going to have to go much higher. The inflation-adjusted number is at a minimum US$2,500 an ounce and more likely US$10,000-13,000 an ounce. It doesn’t really matter when it goes on the gold standard; the higher it goes the better off it is. If the United States, which holds the majority of the world’s gold, (not all of it is theirs), and suddenly has this gold at US$10,000 an ounce instead of US$1,700 an ounce, they are no longer worried about the fiscal cliff, they’ve got all the collateral they need. That’s the only solution I see short of going into a very devastating deflationary period.
MM: Who do you see initiating a return to the gold standard?
NG: The International Monetary Fund — it’s an organization of which every country in the world is a member and the United States has a super vote and they can make whatever they want to happen, happen.
MM: Do you think there will be a drastic fix like that?
NG: Well, a drastic fix would be to go back on the gold standard with a very big number yes, because nobody gets hurt. Will you get hurt if the price of gold goes to US$10,000 an ounce? Do you know anybody who will be hurt? Most of the gold in the world today is owned by central bankers and the odd nut that puts it away in his basement.
MM: Do you own physical gold?
NG: I buy gold stocks, I don’t own gold. I don’t even have a ring. This is not a prediction. My prediction is that something has to happen. There are many doors to go through; we can do what the United States is doing, continue to print money, but that’s very inflationary. The easiest way out is to inflate the system with a currency that has some value.
MM: Junior mining companies have had a tough time raising money over the last year. Is that going to continue?
NG: It’s been a little tougher but there have been a lot of nice discoveries made by the junior companies. We fund them, the world has opened up for them because all of the senior companies have chickened out and don’t want to spend money anymore, which means there is room for junior companies to make discoveries. It’s harder to find money to make it happen, but they are out there working and things are happening.
MM: Is having a huge slowdown in exploration slowing down the process for finding new deposits?
NG: That is constantly happening because it’s been more difficult to find money. You’ve got BHP Billiton (BHP-N, BLT-L), it’s come out saying it’s not spending money. You’ve got Rio Tinto (RIO-N, RIO-L) not spendingmoney. You’ve got all these big, big mining companies pulling back and that means two things: Increased productivity is not going to be there, which means prices should go higher; and junior companies should have a better opportunity. With what’s going on in the world, commodities are going to cost more, not less. They are harder to find, it’s harder to raise the money to find them. Prices of commodities are going up so commodities in the ground, already found and ready to go, are very valuable.
MM: Is it a good time for investors, then?
NG: I never know when it’s a good time for investors. It’s a good time for investors whenever you make a discovery. If you don’t look, you don’t find.
MM: Are investors too cautious these days?
NG: You can never be too cautious. Investors for the most part don’t know what they are doing, so they should be cautious all the time. They should be cautious about what they read in the newspaper, your article, on TV, all that nonsense. They should do their own work and figure things out.
The author is an associate producer at Business News Network and a former staff writer for the Northern Miner.