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Part 2, ROB-TV interview with John Embry of Sprott Asset Management
11:53p ET Friday, June 20, 2003
Dear Friend of GATA and Gold:
Thanks to GATA's great friend Mark E. Webber, B.F.A.,
there's a great treat for you tonight -- a transcript
of the interview with Sprott Asset Management President
John Embry on the June 11 quot;Market Callquot; program on
ROB-TV in Canada, hosted by Jim O'Connell.
Preparing the transcript took enormous effort but it was
more than worthwhile (especially since the effort was
mostly Mark's), since, in addition to providing some gold
share recommendations, Embry proclaimed once again to all
of Canada that the gold price is being quot;actively managedquot;
by bullion banks and their allies but that they are going
Last year Embry managed RBC Global Investment
Management's gold fund, the best-performing mutual
fund in the world for 2002, but that fund was a division of
Royal Bank of Canada, and Royal Bank couldn't bear to
be doing so well with gold, and so Embry left for Sprott.
Information about Sprott funds can be found here:
Unfortunately, Sprott's gold and precious metals fund is
open only to Canadians, but information about applying
for Canadian citizenship can be obtained at the Canadian
visa offices listed here:
The first part of ROB-TV's interview with Embry is
appended. The second part will be dispatched to you
separately. Enjoy and profit.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
ROB-TV's quot;MARKET CALLquot; PROGRAM
JUNE 11, 2003
INTERVIEW WITH JOHN EMBRY,
PRESIDENT, SPROTT ASSET MANAGEMENT
Host (Jim O'Connell): Welcome to quot;Market Call.quot; I'm Jim
O'Connell and we are going to focus on precious metals
today. We have as our guest John Embry to answer your
questions for the next hour. John, of course, is president
of Sprott Asset Management, and we're always glad to
see you. Welcome back.
Embry: Jim, it's always nice to be here.
Host: Getting a little bit of a correction with gold. Does
this have much further to run, and why is it happening?
Embry: Well, you know, basically gold is a volatile
commodity. We sort of had it go from up to almost
(U.S.) $390 earlier this year. They pushed it back to $320.
This time it has come back to $370. Now they've pushed
it back to sort of the mid-.... It got close to $350. Uh, no,
I think it's just to-ing and fro-ing. It's just the accumulation
phase. It doesn't bother me in the least. I mean, if it goes
to $340 it doesn't bother me. I'd be a little disappointed if it
went back and tested $320 again. But I don't think that's
going to happen.
Host: When you say quot;they're pushing it,quot; are you talking
about the speculators jumping out here?
Embry: No. I think that they ... some of the speculators
that got caught long ... But it's the cartel -- the Gold Cabal,
shall we say -- the bullion banks, etc. -- that start this thing
on the downside and they scare a few people out and then
eventually physical demand comes in. Physical demand's
really good. I mean, India, Far East and what have you. So
I'm not terribly concerned.Just look at what's going on in
the U.S. financial situation. I think gold's going to turn out
to be a really good asset in the next few years.
Host: The depreciation of the dollar. Given that, shouldn't the
price of gold be higher?
Embry: It should. If you correlated the two since the
beginning of the year as of yesterday or the day before, gold
should have been $382. That tells you that there is an outside
influence on the market.
Host: So what happens? Will that burn through eventually?
Embry: Oh, for sure. I'm not terribly concerned. It's just one
of these things that takes a little longer than you'd like. But
if people want to buy the stuff, you get a better price.
Host: What if the U.S. dollar does bottom here? First of all,
do you think that that is the case?
Embry: I don't think it will bottom. I think it may rally
short-term here becauseit has been oversold very hard in
a short time. I think the fundamentals behind the U.S. dollar
are just abysmal. But if the U.S. dollar starts to decline for
good fundamental reasons it's going to be interesting to
see the reaction in places like Canada, Europe, Australia
-- all the places. They don't really need a higher currency.
I mean, the one place on earth whose currency should
be revalued sharply upward is China. The Chinese remnimbi
is ridiculously underpriced. And the only possible good in
all of this currency to-ing and fro-ing would be to up-value
their currency. But they don't seem too much in a hurry to
Host: OK. We'll open the lines and be back in just a
moment.John Embry is with us for the hour. We're talking
about gold and other precious metals. And Lou Schizas will
join us. Our phone number is 1-877-667-6288 toll-free
anywhere in the country.
Host: Let's get the show on the road. Our first caller is
James from Toronto. Hello, James.
Caller: Hello, good afternoon. Jim, on Monday you had
Brian Acker on your show. Mr. Acker indicated that the
U.S. dollar will fall another 10 or 15 percent. And you said
this must be good for gold then. Mr. Acker was quite
adamant in saying: No, this is a revaluation, not a
devaluation. Now Mr. Acker has never met a gold stock
he didn't hate. But in this context, could he be right? Can
the U.S. dollar fall this far and be bad for gold?
Host: Interesting question. John?
Embry: Given that the gold market is actively managed,
it's not necessarily axiomatic that the gold price would go
up if the U.S. dollar fell. I had gold matched with the U.S.
dollar's decline this year -- gold should be trading around
$382 right now and it's obviously not. But I disagree violently
with Mr. Acker. Eventually people are going to realize that
this is a severe debasement of the U.S. currency that we're
in the early stages of. And that gold will respond dramatically
at some point. The timing is somewhat imprecise because,
as I said, the market is actively managed.
Host: When you say quot;dramatically,quot; what are your targets?
Embry: Well, I haven't changed. I really do think that within
18 months we're probably looking at $500 gold and then by
the end of this decade I have no problem with $800-$1,000.
I go back to my experience in the 1970s and at the beginning
of the bull market in gold, nobody on earth thought this thing
would double, let alone go up 20-fold. So I hear the same
rhetoric today that I heard then and it's wrong.
Host: You're convinced of that?
Host: We've got Jim on the line from Hamilton. Hello, Jim.
Caller: Good afternoon, gentlemen. Concurring with the
$500 gold price in 18 months, I wonder if you had to select one
particular company between Eldorado Gold and Wheaton River
-- realizing that you like both of them -- if you had to select one,
which one would you prefer?
Embry: I think I'd probably opt for Eldorado on the premise that
it is a pure gold company, whereas Wheaton River still has a
considerable copper content. But I think that both of them in
that environmentwould perform spectacularly.
Host: We have an e-mail from George on junior gold stocks.
quot;Some analysts suggest that junior gold stocks represent
good value at current prices. Others saying they are fully or
overvalued. Could you comment?quot;
Embry: That's an interesting question. I think the junior gold
stocks -- I mean that's the pennies of that ilk -- have gotten
beaten down again just because of lack of interest in the
market. And I would share the opinion of the chap that thinks
that they've gotten relatively undervalued. But for any of these
things to move significantly, we need a higher gold price, just
to change the psychology around the gold stocks. Right now
there isn't a lot of demand particularly for junior gold stocks.
And I think they are starting to get on the bargain table --
particularly the cheap, the real pennies.
Host: Why is there somewhat of a disconnect between gold
shares right now and the price of bullion? Bullion's up
something like 11 percent in the last couple of months and
a lot of companies haven't kept pace with that, have they?
Embry: That's another good question. There's actually a
really good answer to it. And the fact is that a lot of the
improvement in gold companies' operating costs and
everything was due solely to currency shifts. In a sense you
have a strong U.S. dollar. A lot of gold is produced in South
Africa, Canada, Australia. And they benefitted their operating
costs from their currencies declining significantly. What's
happened now with the weakness in the U.S. dollar against
all of the other currencies is that these people's costs have
floated up. So first-quarter earnings, compared to, say,
earnings in 2001, were very disappointing. I think that's had
an impact on gold stocks.
Host: We have an e-mail. quot;I want to ask you about Placer
Dome as well. They are saying a gold deposit in Nevada
could be twice as big as expected. How big is this news
Embry: I think it's significant in a sense because I believe
that's their best asset. I've been down there and that is a
very impressive operation at Cortez. And the more ounces
they can find there, they can keep going through. The
longer they can keep going there, the better it is for the
company. If they'd just get rid of more of their hedge
book, I'd like it a lotmore.
Host: They're not going fast enough for you?
Embry: No. But at least they're going. I think they
recognize that they probably have too many hedges. And
I think that they will probably be reducing, which is a good
Host: What about Barrick? They've been going in that
Embry: Well. ...
Host: You've never been a big fan, have you?
Embry: I'm still not. I'd like to see them go a lot faster.
I'm just not totally sure sort of what their game plan is.
They have not articulated it particularly well. I still think
they like hedging and are going to stick with it.
Host: They made a lot of money on it, though, didn't they?
Embry: They did indeed and I've always complimented
them on their prescience in hedging early in the bear market.
But it became sort of stupid when they were starting to hedge
when gold was like $260, $270. They were hedging their gold
almost at a loss, in the sense that their total costs now,
particularly for their Nevada operations, are WAY over $300.
Host: Let's take a short break. Be back in just a moment.
John Embry is our guest.
Host: Welcome back. Wednesday's edition of quot;Market Call.quot;
We're talking about gold and other precious metals with John
Embry from Sprott Asset Management and Lou Schizas, our
Schizas: I wanted to ask John this question. When you're out
there trying to vet all the junior mining prospects, how do you
do it? I know a lot of our viewers go to consumer shows, mining
shows at convention centers and so on. How do you do it and
how do you build the knowledge base necessary to make money
in this very, very dangerous game?
Embry: That's a dandy question really, because to me it's a
people game. First I have to evaluate individuals. But I have a
network of people I know in the business. So you use insights
from a lot of sources. A lot of peopl I wouldn't waste my time
seeing because if they don't have anybody sponsoring them,
somebody with a geological background -- I'm not a geologist
-- I can't. Some guy can walk into my office and tell me he's
got the greatest thing on earth. I can't evaluate that. But I can
evaluate the guy as to whether he's legitimate. And I can get
somebody else to evaluate the property. It seems to work.
You're gonna miss some. But what you try not to do is get
involved in too many that don't work, with bad people.
Schizas: Right -- so it's really a people game. What about
reading material? Do you go to the Northern Miner to try to
kick up some prospects or is that just too late by the time
it's out in the press?
Embry: Yeah, generally the Miner's a nice paper but it's more
of a retail vehicle. A lot of the stuff in there has been around.
Schizas: It's already been circulated.
Host: Thanks, Lou. Lou Schizas. Back with John Embry.
Your fund -- you're lead manager now on the Sprott Gold and
Precious Minerals Fund. You're up over a hundred million
dollars. Is money continuing to pour in?
Embry: We've had some inflow but no, the money is not
flowing particularly well into gold funds at all as far as I can
determine. We've had a bit of money but not a lot.
Host: Any mass redemptions on this latest scare?
Embry: No, no. I mean we get the odd very small redemption
but redemptions haven't been an issue. Sprott's money seems
to stick very well, at least in the gold fund. Whereas at the
bank [Royal Bank of Canada] I found the money moved in and
out a lot, or certainly out a lot more than I would have liked.
Host: There's higher minimums here, right? More penalties to
get in and out of it?
Embry: Yes, there are higher minimums.
Host: Since its inception this fund has returned 53 percent
over the last one-year period, down 18 percent year to date.
What's your plan to make that better?
Embry: I have been moving a few stocks around. I'm trying
to get more production -- you know, bigger companies -- into
it. For example, my biggest position in the fund now is
Newmont which I think is going to be the keystone stock --
a big gold stock. And I'm about 85 percent finished in terms
of putting the fund where I want it to be. I need a little more
liquidity in the market to finish it.
Host: Is this strategy going to be very similar to what you
did at Royal Bank?
Embry: It's going to be spot-on the same.I know only one
trick. I'm going to try to repeat it.
Host: So fewer positions but bigger bets?
Embry: Yes, I'm going to take fewer positions. I don't like
taking a scattershot approach. I like to take a rifle shot. I like
to know intimately the stuff I own so I can understand why it's
doing what it's doing. So yes, we're tightening it up.
Host:You had returns with your last fund of more than 100
percent, the best performing fund over a number of years. What
kind of returns realistically can investors expect over the next
12 months from this fund?
Embry: That's a good question. Based on what I think the gold
price could do, we could have a very big return at some point.
These stocks are getting so depressed down to levels where
a lot of the merchandise I could easily double in price. That's
with a decent gold price move. So it's volatile. We've had a nice
correction here for the first half of the year. The fund's off
through the first six months coming up. But that can be erased
overnight. I remember last year very well. Even though we had a
fantastic return for the year, from the end of May through the
end of November it was a big negative. And then it was up very big
in the first five months. It was up 38 percent in December. That's
just the way gold trades. People have to realize that. You have
to take positions in periods of weakness like this. This is when
you should be buying the funds. People have a tendency to buy
the strength. They should be buying the weakness. This is a bull
Host: Then the nervous nellies sell on the way down?
Embry: They get nervous when the thing gets cracked down and
they don't make the money they should.
Host: We've got Brian on the line from Sudbury. Are you with us,
Caller: Yes. Good afternoon, gentlemen. Mr. Embry, on Monday
Gabriel Resources finished at $1.20. Yesterday, when the price of
gold was down approximately $10, I think it was the only gold stock
that went up -- 1 cent. Today, the last time I saw it, it went
through $1.30. What do you see for this stock in the next six to 12
Embry: There's a couple of issues with Gabriel. There was a very
negative article in a Romanian newspaper last week that intimated
that the president of Romania had said this wasn't a priority
project. It was very negative. The suggestion is that either he was
misquoted or this was an article that was bought and paid for in the
newspaper. And the whole environmental thing is before the Romanian
parliament. I would expect a positive resolution to it. But if we
don't get a positive resolution, obviously the stock is going to go
a lot lower. I don't know. The other issue they face is that they're
moving this village and it's costing quite a lot of money to relocate
it. They're going to run out of money before they get the village
relocated. So they are going to have to raise money. A lower stock
price doesn't help them. I like the ore body, all right, but these
other factors make it a very speculative stock.
Host: We'll take a short break.
Host: Back with John Embry. Gary's on the line from Cambridge.
Caller: Hello John. I'd like to get your advice on McWatters
Mining. It's a little company in Quebec. I think I've done my
homework, and they say there going to be doing 150,000 to
200,000 ounces in 2004. I've tried to compare this to other
companies and I don't understand why the price is so low. I
would like if you could give me your long-term outlook on this
company. Thank you.
Embry: You've probably asked the wrong person. We own a fair
amount of it at Sprott, although there's none of it in my fund.
I'm a little dubious in how successful they are going to be operating
these mines up in Valdor area. So they say they are going to do
this and they're going to do that. But I gather they're running a
little short on money and we'll see how they do.The stock has
a real disappointment. It has been down about 33 percent here. I
know it has been down from over 20 cents to just over 15 cents
recently. So I'm not a great admirer of the project, and I'm an
admirer of the person who runs it. So I'm not an enthusiast.
Host: We've got David on the line from Toronto. Hello, David.
Caller: Hi, guys. My question's on Semafo, which is a relatively
unknown story. But they do produce 60,000 ounces of gold right
now, and they recently announced that they are going into
construction on a new mine that will boost their production to
about 200,000 ounces by Q2 2004. All the other companies
with that sort of production trade at market cap multiples of
four or five times what Semafo is trading at. I think that just
based on the fundamentals, at some point the market is going
to have to find out about this story and the valuation gap is
going to have to be bridged. So my question to John is: I know
you inherited this stock when you came to Sprott, but is this
one you would look to add to now yourself?
Embry: That's a good question. I just spent an hour and a bit
with the president yesterday, Benoit LaSalle, and we went over
all aspects of the company. And everything you said is right.
One thing that concerned me a little bit is that they have a fairly
heavily hedged position as a result of the debt they've had to
take on to put these mines into production. I think that detracts
a little bit from the attractiveness of it. But I think also they've
got a really good exploration project in Burkina Faso: Wona.
And to date the results were pretty impressive. I think the stock
is undervalued, even with sort of the hedging issues, which don't
make me all that comfortable. But even taking that in, the stock
is undervalued. I think you hit the nail on the head. It is not well
understood or well followed. There is the issue that the company
is 52 percent owned by the king of Morocco, essentially. I think
that might turn some people off because he exerts some
influence. But if the gold price moves up here, I think Semafo
will be discovered and the stock will do relatively well because
it is very cheap -- no question.
Host: Have you got a position now in it?
Embry: I do have a position. I am contemplating whether I
may add to it.
Host: Your past picks briefly from April 8. Orvana Minerals was
1.12 -- you're up 16 percent. Have you changed at all on that?
Have you sold it?
Embry: As a matter of fact, I'm actually more keen on it. And I'm
meeting with them. Their annual meeting's tomorrow and I'm going
to be seeing the management. But they're now in production, and
they're negotiating another very interesting property. To me it's
an emerging junior that I think's going to do very well.
Host: Golden Star Resources is up 27.5 percent.
Embry: Yes, this is one I like. Peter Bradford has put together a
really nice suite of properties over in Ghana. He's turned it into a
West African company and he's done a great job. It's got some
really good sponsorship in United States. That's another one I
think will be a leader in the next leg in the bull market in gold.
Host: And Metallica is down about 7.6 percent.
Embry: Yes, that one's been a bit of a disappointment. But
again, it's just because they're not generating any news. They
got a great project in Saro San Pedro that they've finally got
together with Glamis and they own it all now. I think it's a very
cheap stock. In fact, I was contemplating using that as one of
my favourite picks today, but I opted for something else. I think
it's great at these prices, a buck-twenty.
Host: We'll have your top three picks in the next half hour. John
Embry's our guest, talking gold and precious metals.