Resource World Magazine

"Volatility created by market uncertainties can lead to opportunities." In terms of commodity pricing, much is dependent on a resurgence of growth in demand from China. Our research has led us to believe that China is only half way through their tremendous growth and infrastructure build-out. It does serve their interests to have this slowdown in demand as it keeps commodity prices down. We expect that China will be a major buyer in picking up high quality commodity plays while the prices are depressed. China does not need more US dollars, China needs more copper. The former has an infinite supply that can be produced by turning on the printing press, while copper has a shrinking supply that can only be produced within an environment of rising costs and environmental opposition. COMMODITY EXTRACTION VS. GLOBAL OBSTRUCTIONISM One thing we think we can safely predict is that the resource industry will continue to face considerable opposition from NIMBY and environmental lobbies. We are in favour of strong environmental protections and regulations, as are most Canadians. Canada has been a global leader in protecting our environment, while still allowing important developments to go ahead. But we are headed for a showdown – whether it's on pipelines or mining – and the answer is not to ban or prohibit all of these economically important activities. The DECEMBER/JANUARY 2014 RW December 2013.indd 15 world needs commodities and it is the mining industry's job to go out into the world and find those resources and bring them to production in an environmentally responsible manner. If the obstructionists prevail, it will lead to inevitably higher costs, project shutdowns and delays that will lead to higher commodity prices and fewer resources being extracted. Barrick's Pascua Lama is just the latest example of an important project being shelved by escalating costs brought on by environmental concerns. Eighteen million ounces of gold that was slated for production in 2016 is now going to stay in the ground for the foreseeable future. We feel this latest round of cutbacks and project delays will ultimately lead to higher metal prices, once global growth picks up steam. The advantages of the US ETFs are their option-eligibility which comes from their superior liquidity. The offering by the Royal Canadian Mint are attractive in that they are exchangeable for physical metal subject to minimum amounts. We have no opinion on the short-term moves in these precious metals for the reasons we have stated. Regarding mining companies, we believe that starting with the largest and highest quality companies, the valuation is starting to look pretty compelling. We would start with BHP Billiton [BBL-NYSE, LSE, ASX, JSE], which gives us broad exposure to coal, copper, and petroleum and iron ore. A few of the Vancouver-based companies we are watching are Pan American Silver [PAA-TSX; PAAS-NASDAQ], Eldorado Gold [ELD-TSX; EGO-NYSE] and Silver Wheaton [SLW-TSX, NYSE]. The four commodities we want to own are gold, silver, copper and diamonds COPPER PRECIOUS METALS: GOLD AND SILVER As long as there is an increasing supply of paper currency, we believe that gold and silver are important, long-term assets for most of our clients. We continue to think that your core precious metals holdings should be in bullion and we recommend using bullion-backed ETFs like GLD, SLV and, in Canada, the Exchange-Traded Reserves (ETRs) sponsored by the Royal Canadian Mint. The fundamentals of copper are among the best in the base metals sector. It has broad, important uses and an increasingly difficult supply profile. The problems with supply include cost escalation, geopolitical risk and environmental opposition. However, this is where we run into the problem of shortterm prognostications once again. At the beginning of 2013, Goldman Sachs was calling for US $4.00/lb copper in 2013 and, as you can see from the chart, this has not happened. From a technical perspective, www.resourceworld.com 15 12/11/2013 6:11 PM

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