TGR: And the other emerging silver producer is?
AK: Bear Creek Mining Corp, which operates in Peru. Besides MAG silver, it has the best-quality assets of any silver junior. It has a very large silver reserve—over 500 million ounces (500 Moz)—relative to its market cap of $86M.
It has two projects. Santa Ana was frozen by the Peruvian government. This is now the subject of an international arbitration, one that I believe Bear Creek has a very good chance of winning. Its second project is Corani. This has Proven and Probable reserves of 228 Moz silver, 2.77 billion pounds (2.77 Blb) lead and 1.47 Blb zinc, at a grade of 51.6 g/t silver. According to its June feasibility study, it has a 20.9% after-tax internal rate of return and a $660M net present value. Mine life is forecast to be 18 years, and the sustaining capital expenditure is $667M. In this market, finding financing will be a challenge. I think Corani will need to wait for a more positive view of the future price of silver.
TGR: To what extent are companies operating in Peru deprecated because of the news of anti-mining riots coming out of that country?
AK: Bear Creek's share price was a casualty of Peruvian politics. And the stories about anti-mining protests do affect the share prices of other companies there. However, Peru's future prospects are very dependent on a healthy mining economy. Its current government is actually very supportive of mining, seeing it as a means to improve quality of life within rural Peru.
TGR: Are there any companies you could mention that are being ignored by the market now?
AK: We talk to investors about where to find value within the gold space without having to worry about the current gold price. One of those opportunities is in what we call predevelopment names. Some are Torex Gold Resources Inc,which is building the 4.8 Moz El Limon-Guajes mine in Mexico, True Gold Mining Inc, which is building the 5 Moz Karma mine in Burkina Faso and Asanko Gold Inc, which is building the 2.3 Moz Asanko mine in Ghana. All these companies have the balance sheets and the financing necessary to go into production, so long as they execute according to plan. And they're trading at fairly significant discounts relative to intermediate or junior gold producers.
Another company in this group is Guyana Goldfields Inc, which will declare commercial production at its 8.4 Moz Aurora mine this year. Its share price has done very well relative to its peers throughout its execution.
TGR: So you believe that West Africa remains a good mining region?
AK: A number of companies operating in Burkina Faso have suffered depressed share prices. Many investors remain concerned about the transition to a new government and the new mining regime. Even though we're probably looking at increased taxation there, it's a pretty supportive jurisdiction and has gone through a fairly orderly regime change. I expect that investors will over time become more comfortable with West Africa.
TGR: Summer is traditionally the weakest season for precious metals equities. Is it prudent for investors to buck the prevailing wisdom and take positions in gold and silver companies now?
AK: The history of the last 20 years has demonstrated the wisdom of summer buying. The seasonality analysis BMO did last year concluded that investors who bought in June and sold in September realized average returns of 9–10% 8 times out of 10. This is a real opportunity, and investors should pay attention.