The Gold Report: You've written that the China-led Asian Infrastructure Investment Bank (AIIB) could lead to a boom in commodities. We recently saw that South Korea is joining a number of European countries and signing on, despite U.S. reservations. Do you see this as a threat to U.S. fiscal dominance?
Chen Lin: I think this is a first step for China. The country has a huge reserve, $4 trillion, much more than it needs on the balance sheet to stabilize its currency. The rest is wasted, collecting no interest. China made some huge mistakes in the past through poor acquisition decisions because of faulty lending standards. This is a sign that it has learned from its mistakes and wants to make the most of the trillions it has to loan out right now. The bank will operate close to international standards, and because it has many nations involved already, defaulting loans will include less risk.
This is a test. If it is successful, it can expand to Africa, South America, even Europe and North America. China has trillions of dollars sitting, doing nothing. It wants to find a way to lend money it can almost guarantee to get back and then put the money to use in the form of development. China has a huge infrastructure network capacity, requiring steel and cement. This creates jobs, which is good for the economy. That was the thinking behind the announcement.
If the AIIB is successful, it will be a big boon for base metals, energy, platinum and palladium sectors. It may even boost silver demand and prices because of its industrial use. I don't think it will have too much impact on gold, though.
TGR: Does that include copper? It has been below $3 per pound ($3/lb) all year.
CL: Yes. Copper is integral to electric railroads and power lines, so copper prices could be positively impacted.
I have been watching copper closely for quite some time. Last year I was telling every gold company I invest in to hedge copper when it was over $3/lb. I think China's growth is slowing down. Copper is very much related to Chinese housing. China has a law that every new house has to use new copper for water pipes instead of recycled copper for safety reasons. So all this copper has been going into new buildings in China, many of which are sitting empty. When housing construction slows down, copper demand goes down. I saw that coming for a while. I have not been very bullish on copper and am still not very bullish on copper going forward. This Asian development bank could change that potentially, but we have to watch.
TGR: What commodities are you buying and selling to prepare for the rest of 2015?
CL: Right now, I'm still more focused on energy. If my calculation is right, then 2015 will be the bargain year for energy. For gold, the year to buy may be 2016 or 2017. It may be sooner, but you need to watch closely. Sometimes, the bottom is hard to tell exactly.
TGR: It sounds as if you are watching gold companies very closely. You recently visited a couple of projects. What did you find?
CL: As I told my subscribers last year, I see the bottom of gold coming. So I wish to spend more time investigating which companies will be the next winners. I spent a lot of time visiting gold companies since last year. I recently visited OceanaGold Corp. (OGC:TSX; OGC:ASX), at both its New Zealand operations and its Philippines operations. OceanaGold is one of the lowest-cost gold producers. It is generating a lot of cash. If it wanted, it could pay off all its debt by the end of 2015. But it may do an acquisition instead. Right now, the weak New Zealand dollar and the lower oil price are helping it a lot as well. OceanaGold is one of the acquirers in the industry. It is bargain hunting. Last year, it gave a proposal to Alacer Gold Corp. (ASR:TSX; AQG:ASX), but it was rejected. We'll see what it buys this year.
TGR: What about the resources that OceanaGold has now? Is it still looking to expand the Frasers underground project and the Didipio project?
CL: Yes. In New Zealand, OceanaGold has been mining with a full three-year reserve for 25 years. So it's very likely it will expand its reserve again. Right now, it's set to close by the end of 2017. I talked to management and saw the potential exploration site and it seems pretty open. I think OceanaGold will find new resources and new reserves and then continue to mine after 2017. It is a mining tenement with many targets on the trend; OceanaGold has been mining this way for the past 25 years and I am sure that will continue. In the Philippines, Didipio is the first mine in the region and there are many exciting targets in the area.
TGR: What are some other companies that you visited?
CL: In the Philippines, I also visited B2Gold Corp.'s (BTG:NYSE; BTO:TSX; B2G:NSX) Masbate mine. I visited the project three years ago when it was owned by CGA Mining Ltd. Then B2Gold bought it, and I was a very happy CGA shareholder. It has been well run. B2Gold actually continues investing in the mine, putting in a new mill. The mine is going pretty smoothly. There is also a plan to expand the mine going forward. So I was pleased.
Compared with OceanaGold, B2Gold has been a very aggressive acquirer. It just bought the Otjikoto mine in Namibia, on time and on schedule, which is a very rare thing these days in the gold mining industry. It is also looking at its next mine. It's a mine in Mali, Fekola. I would watch the performance of Otjikoto closely to ensure the company can continue to perform and build out the next mine. Management's plan is to become a 900,000 ounce (900,000 oz) annual producer by 2018.
TGR: Are there other projects that you've been visiting?
CL: Last year, I visited many projects in the Yukon and in British Columbia. One of the very exciting upcoming projects is Pretium Resources Inc.'s (PVG:TSX; PVG:NYSE) Brucejack. It just got provincial approval. It probably will get the final approval very soon. Then we'll see the financing and buildout of the mine. It's a very high-grade, low-cost, exciting story.
TGR: Do you feel that the Yukon government has become more mining friendly recently?
CL: Last year, I met with Yukon Premier Darrell Pasloski. He told me, "Look, Chen, in the Yukon, there are only two industries—tourism and mining." So I say, yes, the Yukon government is trying to work as hard as it can to create jobs, and that will benefit the mining industry.
TGR: Is there one mining story that people will be talking about 5 or 10 years from now because they wish they had seen it coming?
CL: With every recession, every crash, there are always a few winners that come out of it. If companies like OceanaGold or B2Gold play their cards well, they will have the chance to become winners after this downturn.
Investors remember Goldcorp Inc. (G:TSX; GG:NYSE) when it was still run by Rob McEwen in the early days. We want to invest in the next Goldcorp. That is what we have to find.
TGR: You called this the opportunity of a lifetime in the energy investment environment right now. Do you feel the same way about gold or are we at a different stage in the gold price life cycle?
CL: I'm in a wait-and-see mode. Since Goldman Sachs made the statement that gold will reach $1,000/oz by the end of 2016, it has created some buying opportunities for us. So for now, I'm studying companies.
The Chinese government is trying to buy as much gold as it can without impacting the gold price. It probably is very happy with our friend Goldman. Eventually, the tide will turn. The timing of gold's rebound will depend on a lot of factors, which I'm watching carefully. Right now, my best guess is probably 2016–2017.
TGR: Thank you for your time, Chen.
Click here to see the investments Chen Lin thinks are the opportunities of a lifetime.
Chen Lin writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling?, published and distributed by Taylor Hard Money Advisors, Inc. While a doctoral candidate in aeronautical engineering at Princeton, Lin found his investment strategies were so profitable that he put his Ph.D. on the back burner. He employs a value-oriented approach and often demonstrates excellent market timing due to his exceptional technical analysis.
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1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
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3) Chen Lin: I own, or my family owns, shares of the following companies mentioned in this interview: OceanaGold Corp., B2Gold Corp. and Pretium Resources Inc. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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