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CaesarsReport.com is an online mining portal specialized in (junior) mining companies. We provide coverage of companies that offer an attractive risk/reward ratio. Our aim is to inform our readers and to give them an incentive to do further research. We visit interesting companies ourselves and report from the source.
Thibaut Lepouttre is the editor of the Caesars Report, a newsletter and mining portal based in Belgium that covers several junior mining companies with a special focus on precious metals and base metals. Lepouttre has a Bachelor of Law degree and two economics masters degrees that have forged his analytical approach to the mining sector. Considered a number cruncher, Lepouttre focuses on the valuations of companies and is consistently on the lookout for the next undervalued mining company.
(00:02) Daniel: Greetings, and thank you for joining us at FutureMoneyTrends.com. I have a special guest today. He’s, in Europe, a really big deal when it comes to the number crunchers out there, the economists out there who are looking at the economy, precious metals, the mining sector, and the investment community… a lot like in the Future Money Trends letter. Only he comes from a European background, so it’s very interesting to hear his thoughts today. He has two masters’ degrees in economics. He also has a law degree. Thibaut Lepouttre is the editor of Caesars Report, based in Belgium, with a special focus on precious metals, base metals, and the junior resource sector. Mr. Lepouttre is known in the investment community as a number cruncher… a fact finder, finding undervalued investments. Thibaut, thank you so much for joining us today.
(01:05) Thibaut: Well, thanks for having me, Daniel.
(01:07) D: Hey, well I’ve been looking forward to having you on my show. Let’s break down into some of the economics right now, because there’s a lot going on, the Fed not raising rates, so much QE going on around the world. Are interest rates, in your opinion, Thibaut, are we going negative here in the U.S., and if so, what will be the impact we see in stocks and the hard asset space?
(01:31) T: Well, I fully agree with you that we are living in very interesting times these days. They have made it their mission for the Federal Reserve to increase their interest rates as fast as possible, but the longer it stays down in the Federal Reserve, the less it looks like it will be able to. The market participants were expecting the first rate hike to occur in September, which didn’t happen, possibly because of the Chinese crisis. But if you look at the labor numbers, which came out right after the decision, then you really see that the Federal Reserve is completely unable to increase the interest rates without injuring its own economy. Not only were there less jobs created in September than expected, they also had to revise the numbers from August down. So I don’t think that the Federal Reserve has any possibility to increase the interest rates anytime soon, and the market seems to be agreeing with my opinion, because if you just look at the futures markets of the Federal Bonds rate, the market has not priced in any rate hike any time before June of next year. So it’s pretty obvious that even the market doesn’t believe in the rate hike. But your question was about the interest rates going negative here. Well, it’s obvious that the real interest rates are already negative, because inflation is higher than the benchmark interest rates. So to answer your question, the real interest rates are negative, but I don’t really think that the Federal Reserve will dare to put the benchmark rate in the negative, or downgrade the benchmark interest rate. So it’s a loaded question, and there’s no doubt that the Federal Reserve is almost running out of options to do anything to get the economy going. So these are going to be very, very interesting times.
(03:21) D: What is the sentiment from your readers, and what you’re seeing in Europe. What is the sentiment right now for the U.S. dollar, gold, and the resource stocks?
(03:34) T: Well, as you’re fully aware of, I really had quite a few problems in the European Union, right, Greece almost collapsed and we had Cyprus as well, which has the banking system totally collapse. We had the Russians knocking on the door in Ukraine… so, again, these are very interesting times, and I have the impression that most savings accounts are now quite useless, with an interest rate of 0.2 or 0.3%. People are more and more interested in getting into fixed assets and hard assets. Three years ago, when the gold rate was going down and was trading at $1600 per ounce, I would say that the sentiment of it is less than it is now. So more and more people are really getting more interested in the precious metals space, and it doesn’t really translate into a higher gold price in Europe. If you do see it, it’s the premiums for certain coins or bars that are going up. There are sometimes moments where the demand is outpacing the supply. So I have the impression that Europe is slowly waking up, but we haven’t seen a huge boom of interest in gold just yet, but I really believe there is much more to come.
(04:53) D: When looking for value right now, when the world is awash with fiat currency, what is the best value you see for people right now to buy?
(05:05) T: I would think there’s two kinds of companies that most people should own, to protect their own assets and net wealth. So I put them down in two categories. The first category is junior exploration companies, which have very promising projects, but on top of that, they should also have a very decent management team and cash in the bank, because the problem is there are quite a few juniors that do have a good project, but have been completely locked out of the capital market and are unable to raise cash as a result of that. So you really need to have these three things combined to make sure your exploration company has a pretty decent chance of success and doing well. And the second category I would recommend to have a look at is the development-stage projects and companies, because these are currently trading at a huge discount. Put development-stage projects that will be in production within the next six months, and you are trading at a good value, where you can have 1100-1150 gold. So these are the two main categories I would strongly recommend your listeners to have a closer look at.
(06:21) D: I know people need to go to your website to get more information and learn about your research, but if you could share with us, just possibly one of your picks of what you just described in the criteria of a hard asset company with a good management team, cash, good projects, just to give us an idea of what type of companies you’re recommending.
(06:42) T: Well, I recently spent quite a few hours with the management team of Callinex Mines. It fits the bill of the first category. It has an interesting exploration project that has huge land right next door to HudBay Minerals. It’s a mine in Manitoba, Canada. So you’ve got the location, the company has cash… $4 million in cash, which should put them through at least the next 18 months. And on top of that, Callinex Mines has a great management team, and that’s been evidenced by the fact that a fund has taken a strategic position within the company, and it’s worth mentioning that they have the right management team at the helm of the company. So our tip is not to want to be involved with daily decision making, but just invest in the company, where we see a great asset led by a good management team. So Callinex Mines really fits the bill on all three accounts. Like I said, it’s exploring the shadow of the 777 mine by HudBay, and the problem there is that HudBay has been unable to find new resources at the mine. So right now, I would expect the 777 mine to shut down, I’d say by the end of this decade. And even though HudBay has tried to expand its resource space, it has been completely unable to do so. And this is where Callinex Mines comes into the spotlight, because they own huge land that’s surrounding the 777 mine, and of course, exploration involves… the company has, for instance, drilled 40 meters and found 4% copper, which is really phenomenal. Though it will be very interesting to see what’s going to happen in this upcoming time. The company’s, right now, designing an updated exploration program for the land base. So I’m really looking forward to seeing which targets the company wants to drill and what the effective drill results will be. Because once you’ve found a 40-meter, 4% copper intercept, you know there’s much more out there. So if I have to pick one company right now, which fits the bill, which has a great management company, good location, a decent project, and has cash in the bank, I would think Callinex Mines is an interesting company to have a look at right now.
(09:05) D: When you consider the value of the metals, or the resources, how undervalued are they right now, relative to previous decades, or previous fair markets, and do you think it’s the cheap prices, and the low prices that will birth the new bull market, or do you think it will actually be the money printing that births the new bull market in resource stocks?
(09:33) T: I think it’s a little bit a combination of both. And the problem with base metals right now is that even though some of the metals have a supply deficit or will have a supply deficit over the next 12 to 18 months, which is the case for zinc or nickel. The problem there is that there are still huge levels of inventory left, so it’ll take a few years to get to the bottom of that. So the immediate supply issues are being governed by the fact that there’s still some inventory left that can be sold into the market. That’s why you don’t already see… I would call it a price hike in the base metals, but see more interest in a higher price in the base metals. So that’s quite interesting as well, and on the precious metals part, let’s just have a look at gold. Even though the Federal Reserve and the mainstream media are trying to downplay the real value of gold, it still has its monetary value. It’s had some in the past 2-3-4,000 years, and it will continue to have still, because even Russia, even China, which have their own economic problems right now, they’re still buying gold. Russia has been getting hit critically hard by the low oil price. So instead of trying to protect their own balance sheet of the Russian central bank, by keeping their dollars, they are getting into the economy, to U.S. dollars, and buying gold with it. So it really says a lot when a large economy like Russia, which isn’t a small economy at all, values having physical gold more than U.S. dollars for the balance sheet of the central bank. Those are interesting signs that indeed indicate that central banks, especially in the case of larger countries, first-world, are picking up gold again. So there’s a sort of current correction of the supposedly market value, of the real values of the precious metals, and gold, and is higher than the paper market wants to believe.
(11:41) D: It’s interesting that you mention the paper market. So on gold and silver, do you follow the theory that the precious metals are manipulated?
(11:56) T: Manipulated is a big word, but I do believe that some have an interest in keeping the prices down, or at least making sure there isn’t a run up. So is it manipulation? Yes, it is, but… I don’t believe in mass manipulation, but there is definitely something weird going on on the futures market. It’s like the market in China where something would go up by $160 just before returning back to normal levels. So yes, there are parties at work in the gold and silver futures market, but it’s extremely difficult to find out who’s got a hidden agenda here.
(12:45) D: Fair enough. Okay, so with all the gold buying from central banks… you’ve got, I mean the Chinese are getting it basically delivered by the pallet. Do you think that hyperinflation is on the table for the U.S. dollar?
(13:04) T: Short answer? Yes. Okay, let’s go back to the basics of economy here. It takes a while when money gets printed before it really gets circulated in the system. In normal economic times, it takes like 24 to 36 months before a newly printed $100 bill is really brought into circulation, and you can see the trickle down effects of that. The problem in the current economic situation is the fact that the velocity of money is much slower than it used to be. Due to the lower velocity of the money, it takes much longer before you feel the trickle down effects. So instead of the 24 to 36 months, it’ll take, I’ll say 60-72 months before we see any of the trickle down effects into the real economy. So we’re closing in on the 6-7 year period right after the first round of quantitative easing started in the U.S. So I do expect to see some sort of inflation increase in the near future, and the problem is once the velocity of money goes up again, then you might, indeed, have some sort of snowball rolling off the slope of a hill, and it will be completely uncontrollable.
(14:16) D: I want to remind our audience, as well, that you have two masters’ degrees in economics. So, I mean, this is quite a statement for you to say that hyperinflation’s on the table. What is your current 5-year outlook for the west, Europe, the U.S., and then where do you see the mining shares and gold in all of this?
(14:40) T: Well, I’m not that particularly optimistic the economy outlook for our first-tier countries. The truth is, and the fact is, that we are all addicted to cheap debt. If you look at the total government debt of the United States, based on about $17 or $18 trillion of debt, even an interest rate of just 1%, which is not a lot at all, compared to the current averages, this interest rate increase of 1% will cost the American taxpayers $180 billion per year. That’s quite a lot for a country which has just 300 million inhabitants. So the truth is if the interest rates effectively increase, then there will be a lot of countries getting into trouble. Not just the United States… I mean, I live in Belgium, like you correctly said… if Belgium, which doesn’t have a very high debt-to-GDP ratio… If Belgium would see the interest rates increase by 1%, it’s… I would say 1.4-1.5% of GDP would have to be spent on the interest rate increase. So if Janet Yellen indeed had the balls to increase the interest rate, I think a lot of countries would get into trouble. And it’s one of the other reasons why Janet Yellen doesn’t dare to raise the interest rates yet. Because she knows that it would start a snowball effect.
(16:18) D: I was just going to follow up… you know, I’ve recently read a lot of different reports about Goldman Sachs and Morgan Stanley, being from America… all of them talking about different physical commodity shortages that we might face. Disruptions in copper, zinc, and silver supplies due to some major mines shutting down, as well as these depressed prices are killing the pipeline of precious metals, so last question… do you foresee or do you see some real shortages happening? Not because there’s not enough zinc and there’s not enough copper, but because there just isn’t enough available supply and supply coming from the mines.
(17:09) T: Absolutely. I mean if you just look at copper, which is at $2.30-2.40 a pound, but the fact is that on an all-in cost basis, I would say that half the mines right now aren’t making a lot on production. It’s really not just my numbers, though, the numbers of the Royal Bank of Canada. So I’m not just picking these numbers out of thin air. So yes, I would expect that… let’s focus on copper here for a minute. So yes, I would expect that if the copper price stays at these levels for a longer period of time. The operating assets, which are operating on the higher end of the cost, they have to take measures. So mines operating in countries where the currency has depreciated compared to the U.S. dollar would do better than the U.S. copper mines, for instance, because they can not benefit as much from the lowering of the dollar as much as the other ones. At $2.40 copper, yes, I would expect that some of the larger copper mines are at risk of shutting down. And we have the same situation in… I think it was the ‘80s, when three large copper mining companies were just waiting for each other, playing a game of chicken, waiting on each other to see who would shut down first. And I think that’s the situation we are seeing right now, as well, because right now, a lot of the large companies are not making any money right now, so market participants are waiting to see who’s going to shut something down first. I think Glencore might have made the first chop here right now, because they announced that they were not currently producing copper, which effectively removes 400,000 tons of copper from the market. So some large mines are already shutting down, and I think we’ll see much more if the copper prices indeed stay at the current level, mainly because it doesn’t make any sense at all to mine copper and sell it for less than it costs to produce it.
(19:17) D: I was talking to someone the other day, who’s a silver and gold bullion dealer, and he was telling me how 80% of silver comes from these copper mines, and zinc mines and lead. And the very fact that these mines are shutting down and there’s less production coming out is actually affecting silver, and silver, of course, is a very tight supply when you look at the demand for investors and the demand for industrial, so it’s very interesting times. I really appreciate your time, sir. Please, everyone who’s listening to this, check out the Caesars Report. It’s based out of Belgium. Again, it’s got a special focus on precious metals, base metals, and the junior resource sector. Thibaut Lepouttre is a numbers cruncher, finding undervalued investments. Don’t forget to check out and research Callinex Mines, one of his top picks for exploration and hard asset companies. Thibaut, thank you so much for your time, sir.
(20:15) T: Thank you so much for having me, Daniel. I really appreciate it