The Real Deadline

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I know US politicians have you scared. You should be. They are playing cat and mouse with the market they spent trillions to prop up. They are playing with our money and our livelihoods – all in the name of politics.

So how should we invest in this market? More on this later.

While I doubt the US will default on its obligations, the mere thought of it is sending chills down every investor’s spine. That’s because if the US defaults on its debt obligations, the country’s economy could contract by 5 percent and stocks could fall by 30 percent. At least that’s what Credit Suisse predicts. Not pretty.

We all know the debt ceiling limitation is a political game between the Republicans and the Democrats. The Republicans want to make Obama look bad so he won’t get another term. Obama wants to look good, so he gets another term. This reckless battle between the two parties is killing us. Combine that with the summer doldrums and we have a weakened market with no buy-side support.

But as much fear as there is in the market, there are also much bigger opportunities that the retail public is passing up.

I speak with some of the nation’s top brokers, fund managers, and deal makers on a consistent basis because I believe that’s how you get an edge in the market. All of them are doing deals right now. All of them behind closed doors.

Meanwhile, the retail market is sleeping.

The phones of my brokers haven’t stopped ringing – but they’re not phone calls from retail clients – those are dead. They’re phone calls from deal makers and institutions. That means deals are being done and some hot issues are being worked on in anticipation of the next rally.

I said a few weeks ago that the debt debate will be resolved in the eleventh hour, like it always has (see The Next Big Wave). I still believe that. I am not going to sit here and pretend I can accurately predict politics or what’s going to happen around the world. But I am also not going to sit here and be a victim of a political game.

Regardless of what happens in the short term and regardless of what happens during this debt debate, one thing is for certain in my books: Erosion of currencies and fiat money.

Over time, there has been an erosion of currencies and fiat money. It used to be that the Dollar and gold were natively correlated but now what we’re seeing a negative correlation, whereby gold is rising over time regardless of what the Dollar is doing.

Generally speaking, we are in a secular bull market for gold and that is typified by gold rising against all currencies, against all fiat money. I liked gold at $800; I still like gold at $1600. Certainly what has been going on in Washington has not given any confidence to fiat money. But this is happening around the world. Not just in the US.

I could easily see gold go to $2000 or more, who knows. At the end of the day, it’s all a confidence game. If the global economy continues to waddle along and we see positive growth and nothing cataclysmic happens, we’ll see gold slowly trend higher and we’ll see stronger oil and commodity prices.

But if we get another problem, like a Lehman brothers scenario or another serious credit contraction, (which is more than likely to happen in the long term because of a major de-leveraging in the global monetary system), we’re going to see gold even higher.

Debts have grown to the point where they cannot be paid. Until we see debt levels contained to manageable levels, gold will continue its climb. This could take a few years, it could take more. If we should have a deflationary event, like Lehman brothers, then we look at the real price of gold. For example, what does an ounce of gold buy you…How much oil can I buy with an ounce of gold?

Just take a look at gold prices and what it has done since the Lehman brothers crash. Gold has more than doubled in value, it has become collateral at major banks (see The Banks Are in – Are You?), gold ETF’s are exploding in demand, and many states in the US are beginning to adopt gold as a currency (see The Greatest War in History). More importantly, gold continues to reach new record highs – over and over again.

Many seem to think that once we reach an agreement on the debt ceiling, gold and silver will pull back some of its gains. While this may be true, I don’t think the impact will be enough to justify worrying about a major decline in gold prices. Even with gold prices anywhere above $1500, or even $1400, there is a lot of money to be made. That’s because even at those levels, the miners are extremely profitable.

Of course, there is still a major disconnect between gold prices and the price of gold miners. This is one question that I get asked a lot.

People don’t understand gold miners. While it is riskier to own a gold mining stock than to own gold itself, the leverage far outweighs the risk in my opinion – especially at current valuations.

The real price of gold has risen dramatically which also means the profits of the major mining companies are rising very dramatically. While I like the big producers and own them in my portfolio, I am still much more bullish on the juniors or the new producing gold and silver mining companies.

Let me tell you why. The guys at the top, the Barricks, the Goldcorps and the Kinross’ are having a hard time replacing the gold they produce every year. In order to keep shareholders happy and attract new investors, they’re now having to pay out dividends for the first time. That’s the problem with the majors. All shareholders care about is the next quarter. All they care about is increasing production. But when you increase production, you wear out your mine life and quickly need to find other sources to replace it. As a result, they have to go down the food chain and look for smaller companies to takeover.

That’s where the new producers and juniors have an advantage.

The new producers and the juniors are the ones that are finding lots of new gold in the ground. That’s where I think the real money is going to be made because the senior mining companies have to pay through their nose to add to their reserves. They have to pay five, six, and sometimes eight hundred dollars an ounce in the ground to buy out some of these companies. When you factor in the costs of the acquisition and the costs to take that gold out of the ground, there really isn’t a lot of profits left for the big guys.

When you consider that many of the juniors are currently being valued at less than $50/oz of gold in the ground, the potential for gains can be astronomical. Even at a $500/oz buyout price, that’s ten times your return on investment with $50/oz valuations. But that doesn’t mean every company with gold in the ground is going to be bought out.

The companies that will be bought out are those with great projects in mine-friendly jurisdictions. They are the companies that are near, or along strike, of other current producing mines and deposits. They are the ones with large unproduced resources. Even if they don’t get bought out, the possible fact that they could be considered as a takeover target could send shares through the roof.

Just recently, I wrote a new report on my latest investment, Abzu Gold Ltd. (TSX.V: ABS)

If you missed it, you can find the full report by CLICKING HERE

In short, Abzu Gold’s (TSX.V: ABS) management team is incredibly strong, their land position shows significant potential surrounded by numerous deposits and mines, and the drills are turning. Not only is Abzu Gold a new story capable of turning into a breakthrough, its well under the radar and trading near its 52-week low.

For those who missed the report, here is a brief excerpt:

Back in 2006, a new mine in Africa and a steady rise in the price of gold lifted a company called Red Back Mining from obscurity in 2006.

Led by Rick Clark, Red Back went from virtually no revenue in 2005 to $45 million just a year later – on the strength of a new and promising mine in Ghana, the Chirano mine. The Chirano mine achieved commercial production in October 2005 and is the start of what propelled Red Back Mining into new territories.

Six years ago, shares of Red Back Mining were trading at less than $2. Over the next five years, Red Back continued to reward its shareholders with tremendous returns, closing at nearly $35 before it was finally sold to Kinross Gold for nearly $7.2 billion.

If you were a Red Back Mining shareholder five years before its takeover and invested $10,000 at $2 per share, you could have made $165,000. That’s a gain of 1650%.

That’s why getting involved with companies before they ramp up can return investors with big rewards. I love getting involved with companies at an early stage. That’s why I am about to introduce you to a new West African, Ghana explorer with a very significant land package and a management team to back it up:

Abzu Gold Ltd.

Canadian Symbol: (TSX-V: ABS)

U.S. Symbol: (OTCQX: ABZUF)

There’s a lot more to this story and I think that in the coming months, we’re going to hear a lot more buzz about Abzu.

That’s because Abzu just did a deal with Red Back Mining Ghana, a wholly owned subsidiary of Kinross Gold, for the right to earn a 51% interest on 10 concessions held by Red Back.

Abzu Gold (TSX.V: ABS) needs to spend $3 million in exploration work to earn a 51% interest in the properties they just received from Kinross. Once they spend the $3 million, Kinross automatically becomes a joint venture partner with Abzu, contributing 49% of the dollars that Abzu needs to spend on the project. That means less dilution for shareholders and a major backing from Canada’s third largest gold producer. Having Kinross as a joint venture partner gives Abzu a significant strategic opportunity for the future development of a major discovery.

Abzu just raised another $3 million last week and I expect some of this money to be spent on their recent property acquisitions from Kinross, in particular, their Nangodi concession where prior drilling intercepted*:

• 52m @ 3.24g/t Au (NGRC009)*
• 26m @ 2.24 g/t Au (NGRC017)*
• 51m @ 2.4 g/t Au (NGRC018)*
• 13m @ 2.48g/t Au (NGRC019)*

*(based on incomplete, unpublished historic data provided by Red Back. This information is historic in nature and is not 43-101 compliant. A Qualified Person has not reviewed drilling or sampling procedures or QA/QC undertaken at the time of drilling. However, Abzu has no reason to doubt the validity of the information).

These targets are near the Burkina Faso border (well-known for its resource rich properties) and are approximately 30 km southwest of and along strike from the Youga Mine where Endeavour Mining Corporation anticipates gold production of approximately 84,000 ounces this year.

Abzu is still young and that’s why I like it. I also like the fact that Gordon Neal and Jeff Pontius are directors (just to name a few) – these guys don’t do small deals. Based on Abzu’s trading and technical patterns, it won’t take a lot to move Abzu higher. That means strong news from current drilling could gather some serious interest from other investors – especially with their market savvy management team.

I bought more Abzu after my report went out on a few separate occasions and may look to accumulate more in the coming days or weeks.

The Bottom Line

At the end of the day, I still think that longer term the mining shares will do better than the metals itself.

While I could see gold peeling back short term based on a debt ceiling resolution in Washington, any resolution will be focused on the short term. In the long term, there is really is no resolution. The US will continue to print more money to pay the deficits. Even if the debt ceiling is raised, it means more debt, more fiat money, and more money created out of thin air. That’s bullish for gold and silver.

Until next time,

Ivan Lo

Equedia Weekly

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We’re biased towards Abzu Gold because we own shares, they are an advertiser, and we own options in the Company. You can do the math. Our reputation is built upon the companies we feature. That is why we invest in every company we feature in our Equedia Reports, including Abzu Gold. It’s your money to invest and we don’t share in your profits or your losses, so please take responsibility for doing your own due diligence. Remember, past performance is not indicative of future performance. Just because many of the companies in our previous Equedia Reports have done well, doesn’t mean they all will.

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Forward-Looking Statements

Certain statements contained in this document, including, without limitation, those concerning the economic outlook for the mining industry, expectations regarding metal prices and production, the completion and commencement of commercial operations of certain of Abzu Gold Ltd. (Abzu) projects, and its liquidity and capital resources and expenditure, contain certain forward-looking statements regarding Abzu’s economic performance and financial condition.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the accuracy or adequacy of this presentation, which has been prepared by management. There can be no assurance that any of the assumptions in the resource estimates will be supported by a Pre-feasibility or Feasibility Study or that any forward looking event will come to pass. The data is incomplete and considerable additional work will be required to complete further evaluation, including but not limited to drilling, engineering and socio-economic studies and investment.
Abzu undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of the annual report. All subsequent written or oral forward-looking statements attributable to Abzu or any person acting on its behalf are qualified by the cautionary statements herein.

Cautionary Note to U.S. Investors Concerning Estimates of Inferred Resources

This presentation uses the term “Inferred Resources”. U.S. investors are advised that while this term is recognized and required by Canadian regulations, the Securities and Exchange Commission does not recognize it. “Inferred Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of “Inferred Resources” may not form the basis of feasibility or other economic studies. U.S. investors are also cautioned not to assume that all or any part of an “Inferred Mineral Resource” exists, or is economically or legally mineable.

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