Inter-Citic CEO on Gold, China and Stocks
Source: Thom Calandra, Baby Bulls Twits (3/23/12)
"A China-centric gold developer says China's consumer price inflation is understated and real estate developers will melt down if the nation's banks step away from largely vacant offices, subdivisions and warehouses. The informed warning is good for gold."
The informed warning is good for gold and a wake-up call for soaring housing and commercial real estate prices in China.
Jim Moore of Inter-Citic Minerals (ICI in Canada and ICMTF in the U.S.) gave his forecast before word of declining home prices in many China cities hit the business wire today.
Moore explained to a group of professional investors how rising gold demand, negative real interest rates and tens of billions of dollars of China cash seeking producers will boost mineral resource juniors that have suffered since the 2008 mortgage debt disaster.
Moore on Offense in California
The buying of mineral juniors has barely begun, in other words. "We have billionaire families as shareholders and we know the desire to purchase legitimate minerals projects in Asia is intense, " says Moore. "China is resource depleted. There is almost no exploration in the country at all."
China, says Moore, a longtime businessman active in Russia and China and based with his company just outside Toronto, "is on the bid."
Moore is a former college football player who still looks the part. He finds himself and his seven-years-and-running Inter-Citic team in China tending their Dachang Gold Project every six weeks. "Gold is in demand like it never has been; even the Beijing airport sells it. At the same time, most new gold projects are years off, at best. There is no project pipeline."
One independent summary of undeveloped gold projects in China puts Inter-Citic at the top end in terms of its measured and Indicated gold at Dachang: some 1.9 million ounces (Moz). Much of it is found in holes less than 150 meters (m) deep.
China, the world's largest producer of gold, still must import bullion to meet consumers' financial demand. Fabrication for jewelry is also rising steadily as supplies drop.
I have time for Moore in my portfolio of trends. Moore was spot-on almost three years ago when I first met him and heard the Inter-Citic tale: a 3.8Moz gold resource, high-grade, bioleachable, in far western China. At the time, in New Orleans, he predicted Inter-Citic Minerals would hook up with influential China investors, in addition to the Hong Kong and Macau families already owning Inter-Citic's Canada-traded shares.
That happened in summer 2010, when Zijin Group, China's largest gold miner and third largest copper producer, took 17% of Inter-Citic in an equity placement. The investment came at a 38% premium to ICI shares at the time. Zijin is prohibited from making a bid for Inter-Citic under that placement deal until next month, April, after a standstill pact expires.
Zijin has about $1.5 billion to spend on acquisitions, Moore says. Moore and his bankers have in a way been fortunate. They raised money in January 2009 just before the mortgage debt crisis hit the blades of global credit. In the past two years, thanks in part to the Zijin stake, Inter-Citic has raised about $50 million (M), all of it from Asia. All of it at attractive prices to the gold explorer.
More from Jim Moore
—Garth Pierce, Inter-Citic’s vice president of exploration and a 17-year Noranda veteran, has been running the Dachang drilling, 180,000m of it and counting, since day one. "The team is intact and has always been intact; we have almost no turnover."
—Like select western observers in the know, Moore questions whether confidence in the official inflation data from China is misguided at best, savagely erroneous at worst. "The people shopping in Hong Kong are mostly from the mainland—the real estate developers and speculators who have made a killing on properties that are sitting empty right now in tier-2 cities." (Note: I mostly agree, having been through southern China and Hong Kong twice in the past four months. I was wondering who was buying those gorgeous $10,000-and-up gem-adorned mobile phones.)
—Why are junior resource companies' shares worldwide still floating in a foul canal with dead fish and raspy flies overhead? "Think of it like this: since 2008, everything has turned over. Very few companies know their shareholder bases. The executives have to go out and meet a whole new crowd. You go from $2 (a share) to $0.17, then back up again, well. . .it's a lot of work." (Moore and communications executive Stephen Lautens, an Ontario lawyer, are touring several hot-money cities in the western U.S. with Torrey Hills Capital—see note below.)
—Whence the canal tide turneth? "M&A will start to do the trick," says Moore. He acknowledges that, in the case of China and Inter-Citic, when a legitimate buyer or a mining partner comes along, investors still will view Chinese money through cracked glasses. (Note: My take—Yes, until Western media stop interpreting from behind their screen tops and start reporting on site.)
—Inter-Citic bullets: A revised resource is expected in the next few months."We’re really pleased with last year’s drill results in new areas," says Moore. Previous updates have added considerable ounces. Average grades—head grades—for potential Dachang open pits are running 3.2 grams per tone (g/t) gold to 2.8 g/t. Also: 1) The Dachang Main Zone is getting ready for Qinghai Province permitting; and 2) a China feasibility study done to required Chinese permitting standards will be filed in China in the coming months.
My take: When Inter-Citic catches a worthy bid, Moore and his team can expect to receive upwards of $100/oz for what could become a 4Moz-plus resource (all categories). In addition, Inter-Citic almost surely would keep part of the vast project—zones that await exploratory drilling—for shareholders in a spin-off. I intend to get out to Dachang soon. I also intend to purchase Inter-Citic shares in the next four weeks. In my view the shares, all 118M outstanding, are selling for well below what the company’s largest investors paid for them. In addition, even with just the 1.M top-tier resource ounces as a metric, the Dachang Project is valued at about $65/oz.
Thom Calandra is a lifelong journalist and investor who writes for www.babybulls.com, the Cambridge House Cafe, The Gold Report and other select providers of investment news. He is a principal of Torrey Hills Capital in Del Mar, California. He owns no shares of Inter-Citic Minerals. He will be touring Colt Resources (GTP in Canada and COLTF in the U.S.) and its tungsten and gold projects next week in Portugal. Look for updates from Calandra on several companies, including Gold Standard Ventures (GV), Mahdia Gold (MGD), African Gold Group (AGG) and Angkor Gold (ANK)—largely via BabyBulls on Twitte.
Thom Calandra, Baby Bulls Twits