Smallcappower.com is pleased to feature an interview with Mr. James West, publisher and editor of “The Midas Letter”, an independent capital markets entrepreneur and investor, and portfolio advisor to the Midas Letter Opportunity Fund, which is a Luxembourg-based fund that captures early stage financing opportunities with premium management teams

In this exclusive interview with SmallCapPower.com, Mr. West provides his perspective on markets, impact of European debt crisis and outlook for gold.

James West: Gold heading ‘much higher,’ no crisis in Europe

James West, publisher of the Midas Letter, says gold will climb above the US$2,000-per-ounce threshold in 2012 and that silver will rise along side the yellow metal. With the long-term picture in mind, Mr. West launched the Midas Letter Opportunity Fund in 2011 and he discusses a number of the fund’s positions in this exclusive interview with SmallCapPower.com

SmallCapPower.com: James, in 2011 you launched your Midas Letter Opportunity Fund, but then the markets, especially the small-cap junior mining sector, slumped badly over the remainder of the year. Will the junior mining sector rebound in 2012 or will it take longer than that?

James West: I think we’ve already seen a bit of a rebound in the first weeks of trading, but it’s rebounding selectively. There are some companies with very strong projects, with good access to capital, that have made significant advances in the past year, markets notwithstanding, and those companiesare recovering very nicely. I can think of10 or 12 stocks in my portfolio that essentially doubled in value in January.

SmallCapPower.com: What subsectors of that space are most likely to display some strength in 2012?

James West: Precious metals will be the leader and I believe oil and gasis going to be extremely strong in 2012. Iron ore is going to continue to see solid demand throughout 2012.And that’s pretty much it. I think real estate investment trusts in Canada are very strong, but not so much in the United States.

I don’t think mostbase metals or lithium or rare earths are going to be very attractive to investors this year. I think that it’s really only going to be those two sectors that perform – precious metals, and oil and gas.

SmallCapPower.com: Nonetheless, let’s get your perspective on copper.Copper started 2011 at around US$4.40/lb. but finished at US$3.43/lb., a drop of about 22%. How do you expect copper to fare in 2012?

James West: I expect it to rebound over the $4.00/lb. level in late 2012.I’ve become very bullish on copper after studying the supply/demand picture more closely going into 2012. There is a tremendous shortage of copper building, and so we’re looking to get involved with more copper stories this year.

SmallCapPower.com: Do you have any exposure to copper through your Midas Letter fund now?

James West: We do. We are building a position in Redhawk Resources Inc. (TSX:RDK), which I fully expect to become the target of takeover bids onceits next resource update is published, which should happen in mid-April. Redhawk already has 5 billion lbs. of copper at its Copper Creek copper-molybdenum project in Arizona and, judging by recent drill results, that number looks poised to nearly double.

CuOro Resources Corp. (TSX-V:CUA) is the best early stage copper exploration story that I know of. It recently announced a fantastic intercept of over 102.9 metres of 1.44% copper at its Santa Elena property in Colombia, and the company just released a technical study that supports the idea that there could be some rather significantVMS-hosted copper mineralization present.

I also have exposure to copper in Prophecy Platinum Corp. (TSX-V:NKL). Prophecy owns the Wellgreen platinum group metals+gold-nickel-copper deposit in the Yukon, which is easily North America’s largest and most valuable undeveloped platinum group metals target. It all comes in ataround 0.4% copper so there is some exposure to copper there.

And I have a position in New Gold Inc. (TSX:NGD), which has exposure to copper as a byproduct at some of its gold mines.And that’s about it for my copper exposure.

SmallCapPower.com: No conversation with you would be complete without some talk about precious metals. What’s your outlook for gold and silver?

James West: I continue to believe precious metals are headed much higher. I think you’re going to see an increase in the price of gold over the next 10 years that will be very similar to what we saw over the previous 10 years, which were average annual increasesof more than 20%. I expect that to continue but I fully expect there will be episodes, such as the one that began on Sept. 2, 2011, where the price of gold plummets by 23% over a couple of weeks due to extreme unloading in both the SPDR Gold Trust ETF (NYSE:GLD) and the futures market. That was a co-ordinatedliquidity event by parties who would appear to be unrelated. But are you telling me that they just coincidentally got together and decided that they were going to get out of gold at all costs, even if it meant taking a loss? Some people say that it’s just the banks manipulating the futures market for profit, while others believe the market is being manipulated by central banks. In any case, the gold market’s so small relative to equities that the gold market is easily manipulated no matter which entity is doing it.

I think the price of gold is going to break through US$2,000/oz in 2012. It could go over US$2,500/oz. but it all depends on what the people who recklessly sell gold have in mind for 2012.

SmallCapPower.com: And will silver see a similar rise, at least in percentage terms?

James West: The trend in silver during the last three years is that when the precious metals are rising strongly as the market appears to be reacting to a drop in demand, we see the ratio of gold to silver – the number of ounces of silver that it takes to buy an ounce of gold –coming down.And then we see it widen again duringmajor selloffs like we saw in the third and fourth quarters of 2011.So, if gold goes to US$2,500/oz, I think the ratio of gold to silver could go as low as 30 to 1 from the current ratio of roughly 45 to 1.

But then if the holders of SPDR Gold ETF and gold futures suddenly become short the market, for whatever reason, then I think that ratio will widen again. That’s why I find it hard to say whether it’s going up or it’s going down because everything to do with precious metalsalso depends on what this completely unpredictable group is going to do.

SmallCapPower.com: Let’s get into some economic situations that could affect the gold price. If the European debt crisis continues to be the dominant theme that it was in investment circles toward the end of last year, is that likely to negatively impact precious metals prices?

James West: No, I don’t believe so. Prior to the European debt crisis, the U.S. had its own debt crisis, even though it never was admitted or discussed in the mainstream financial media. I think the debt crisis is really a global debt crisis and, at the same time, it’s not really a crisis. Time and again central banks have demonstrated that when they have no choice but to print money, they will print money. Therefore, there is no possibility of a crisis because in 2011 we came to measure our debt in trillions. And before that it was billions. And so, if you’re looking into the future, we will measure our debt in quadrillions, quintillions, septillions, ad nauseam, untileverybody decides that it’s a crisis again. Everyone has become so accustomed to it and the market is priced that way.

SmallCapPower.com: What are some of the Midas Letter Opportunity Fund’s holdings in the junior gold space?

James West: My top holdings are Hunter Bay Minerals Plc (TSX-V:HBY); Giyani Gold Corp. (TSX-V: WDG; Corazon Gold Corp. (TSX-V:CGW); Meadow Bay Gold Corp. (TSX:MAY); Foundation Resources Inc. (TSX-V:FDN), Prophecy Gold; and Scorpio Gold Corp. (TSX-V:SGN).

SmallCapPower.com: You have a number of plays in Northern Ontario’s Red Lake camp.Why are you so bullish on that area?

James West: In terms of political risk it’s non-existent in Ontario.Ontario is the most prolific province for gold in Canada.It’s produced more gold than any other province by a factor of about four.My father was born in Timmins, Ont.His father worked in the mines in Timmins, and his father came to Canada to work in the mines in Ontario. And so apart from Ontario’s political stability and its precious metals-rich geological systems, it’s also in my blood.

SmallCapPower.com: Could you tell us more aboutwhat you consider your top three or four names?

James West: Well, Hunter Bay’s flagship development project isSela Creek in Suriname. It’s on trend with several multimillion-ounce gold mines in the area. It’s just north of Brazil so there’s probably 10 mines in the vicinity. EldoradoGold Corp. (TSX:ELD) has a mine on the same type of geology as Sela Creek. Eldorado acquired that when it took over BrazauroResources. These types of deposits have been identifiedby the existence of artisanal miners whobasically remove the overburden and process it because it’s relatively rich in gold. Most of the major artisanal mining camps in that part of Latin America have turned out to host multimillion-ounce gold deposits. And so with Sela Creek being one of those, I am relatively confident that we’re going to see that type of a mining scenario develop. Whether it’s 1 million ounces(Moz) or 10 Moz is really, in my mind, the only question mark.

SmallCapPower.com: Tell us about some of your fund’s other positions.

James West: OK, let’s talk about Giyani Gold. Giyani’s land package hosts a group of past-producing mines in South Africa’sGiyani greenstone belt.There are seven past-producing mines and they are all outside of the Witswatersrand Basin area, South Africa’s traditional gold mining region, which is why they’ve sort of been overlooked. These mines were in the northwestern area of South Africaand all seven were operated independently. No one has ever looked at that area as one continuous mineralized system, which is basically Giyani Gold’s theory, and that’s how the exploration program is going to be approached. The deal just got finalized at the end of December so we expect drilling to start soon. Being in South Africa, that one has a lot of potential, so that’s why I’m excited about Giyani.

Foundation Resources is one of my larger positions and that company is developing the Coldstream Gold Project just outside of Thunder Bay, Ont. That’s not quite the Red Lake camp but it’s in that same part of the world. Coldstream has a National Instrument 43-101-compliant resource of 860,000 ozgold (763,276 ounces gold inferred and 96,400 ounces gold indicated) on its Osmani deposit. Foundation has a market cap of about $5.8 million so you’re actually buying your ounces in the ground there for about $7.00/oz in the ground. And that’s just one of five highly prospective gold targets Foundation has within a 16-km trend.

SmallCapPower.com: Does the fund have a position that leans more toward silver?

James West: I could point to Kootenay Gold Inc. (TSX-V:KTN).It’s called Kootenay Gold but it owns thePromontorio silver-lead-zinc deposit in Sonora, Mexico. Promontoriois a silver-dominant system with grades up to 2 oz per tonnesilver.Kootenay continues to drill Promontorio, which should only add to its existing resource. Kootenay is certainly my biggest silver play right now.

SmallCapPower.com: Are there some ways that retail investors can compete or even outperform institutional investors in this space?

James West: Outperform?

SmallCapPower.com: Yes.

James West: Well, that’s tough. In the mining space it’s virtually impossible for retail investors to compete with institutions. Institutions buy wholesale and they buy wholesale repeatedly so their average cost per investment is generally much lower. If I were to compete with institutions, I would look for companies that have already done their financing and where the share price has dropped far below where the institutions financed it. These companies would also have to have a geological resource that has increased in value despite the market failing to recognize that. Those are the kinds of opportunities where a retail investor could come in and develop a big position at much cheaper rates than the institutions paid.But they wouldn’t have the benefit of a warrant, which typically comes with the wholesale financing that an institution would participate in. That’s really the only way that an individual could outperform an institution.

SmallCapPower.com: But the conditions seem just about ideal for that kind of cherry picking because a lot of these juniors are at all-time lows.

James West: Yes, absolutely. In terms of Foundation Mining, for example, almost all of its private placements were done at almost double the money. So, you could buy a million shares of Foundation for probably less than $0.15 a share and you would outperform the institutions, for sure.

SmallCapPower.com: How has your fund performed to date?

James West: The fund has not been in existence for a year, so we have not done a net asset value calculation at this point. The fund is still in “developmental” mode; it’s still bringing in subscriptions.

SmallCapPower.com: As it turned out, was2011 was the right time to launch your fund?

James West: It was in terms of it being a great time to be buying stock. It wasn’t in the sense that raising the money was very difficult.Nobody wanted to put money into anything speculative in the last six months of 2011. Basically, it was the people with whom I’ve developed very long relationshipswho finally opened their wallets to participate because it’s simply been a risk-off market. In fact, in Asia 123 funds actually closed their doors in 2011. So in that sense it was a horrible time but we only set out to raise 20 million euros, so it wasn’t that much of an issue.

SmallCapPower.com: And you plan to launch another fund this year, no?

James West: Yes. Our next fund will be a resource capitalization fund where we’re going to extend loans to advanced exploration projects heading toward production in exchange for a portion of their production. We’re looking to raise $1 billion to start, and that’salready underway.

SmallCapPower.com: What is 2012 going to look like for you? Please give us a picture of that.

James West: My goal this year is totarget double-digit growth in all of my investments, and I think that’s going to be very feasible.Because of the new discipline inflicted by the bad markets of 2011, I’m 10 times more picky than I was at the beginning of 2011. So I’m looking for double-digit performance and I plan to get it.

SmallCapPower.com: Thank you for talking with us today, James.

Interview Disclosure: This interview was conducted by Brian Sylvester on behalf of SmallCapPower.com. Mr. Sylvester and/or his family may own shares of the companies mentioned in this interview.

James West may/may not own shares in all of the companies mentioned in this interview.

Read the full interview here.

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Midas Letter is the Journal of Investment Strategy of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment Fund that specializes in Canadian-listed emerging companies in the resource sector with a focus on precious metals explorers and miners. James West is the Portfolio and Investment Advisor to the fund.

Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.
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Mid-week action in Canada confirms a strengthening willingness on the part of sidelined capital to venture forth on to the Venture exchange, as the S&P TSX Venture index moves upward again for a 30 day gain of 13.8%., outperforming the senior TSX board, which has moved up only 2.5% in the same time frame.

A mantle of indifference would appear to be the most significant development among resource investors as concerns the gong show in Europe, which we are now to understand will be treated with the same remedy as the U.S. debt blowout – by printing, fabricating, conjuring, or otherwise creating from nothing endless amounts of currency. Reality need not apply to the macro picture any longer, as the Fed and Treasury have now succeeded in position the U.S. dollar as the least toxic currency for bond investors to hold.

For us resource investors, that means we have what looks like at least a 6 month bull window, which could go on for as long as a couple of years, if each new debt crisis is met with a decisive blast of freshly minted Euros, Dollars, Yen, Renmibi, Reals, Rupees, or whatever the occasion calls for.

Companies we’re watching this week include Calibre Mining Corp. (TSX.V:CXB), who at the time of this writing was up a penny on 12 and a half million shares traded. Sellers more or less equal buyers as the traders who jumped in after January 20th’s press release that woke the stock up from its year-long slumber below 20 cents sold heavily into new strength for a double and then some.

Continuing results are going to be watched for with anticipation, and the fact that there is so much new interest in the story even a week after the press release suggests there is a lot more to this porphyry than the excellent intercepts of January 20. Results reported included a 134 metre intercept grading 1.015 grams per tonne gold and .35% copper. A great first round and there’s still 2,000 metres to go in the current program.

This represents a new discovery in Nicaragua, and Calibre is exploring the project in a Joint Venture with B2Gold (TSX:BTO), who is earning a 51% interest for spending $8 million to June 2014. So far, they are $4 million in.

Unigold Inc. (TSX.V:UGD), is conducting an analyst tour this week at their wholly owned Candelones Project, Neita Property in the Dominican Republic. Unigold announced on January 16 an intercept of 73 metres grading 2.35 grams per tonne gold. These holes, from last year’s drill program, have spurred the company on to conduct an additional 10,000 metre program, which, if met with similar success, could propel shares of the company substantially northward. Neita is one of three properties held by the company in the Dominican Republic on the border with Haiti. The total land position is over 1,000 sqaure kilometre, and are atop a volcanic belt with similar geologic characteristics as those at Barrick’s 23 million ounce Pueblo Viejo project there.

There are 149 million shares out, with a further 45 million options and warrants so the discovery is going to have to be significant to keep the momentum going.

Inter-Citic Minerals Inc. (TSX:ICI), the China-focused explorer with 1.88 million ounces of gold in the Measured and Indicated category, and 1.93 million ounces in the inferred, has started gaining momentum again on the strength of early January drill results, such as 9.7 metres grading 10.92 gram per tonne gold, indicating that the resource is going to continue growing.

Inter-Citic rejected an unsolicited takeover bid by “a large Chinese mining company” in October of last year, but considering the excellent results continuing, it would come as no surprise to us to see the unnamed company back at the table with a sweeter offer.

Lukas Lundin’s Lucara Dimaond Corp. (TSX:LUC) has sprung to life as its 75%-owned Karowe (AK6) diamond mine nears completion, and will come online producing, according to estimates, upwards of $100 million a year, growing to $150 million per year.

With a current market cap of $364 million, the likelihood of share price appreciation in the near term remains high. All the pain of diamond exploration plays is non-existent in this company, and its essentially a growth story in the diamond production space where new producers are few and far between.

The company is not what you would call a great source of news flow, but that shouldn’t deter investors seeking to participate in an advanced diamond production story at the outset of its production phase. Upside exists in the company’s 75% owned Mothae diamond mine in Lesotho, which is currently producing “one-off” high value large carat gems, but is not yet in what could be considered full commercial production.

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Midas Letter is the Journal of Investment Strategy of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment Fund that specializes in Canadian-listed emerging companies in the resource sector with a focus on precious metals explorers and miners. James West is the Portfolio and Investment Advisor to the fund.

Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.
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Not too many portfolio managers are laying claim to stellar performance in 2011. Equities were a killer, debt is choking Europe, Asia and the United States and forcing investors in Greece to accept losses. Commodities were weak, and the only solid performers were the monetary metals, with gold ratcheting up a 17% gain on the year, which was disappointing after the $1,920 high that was touched in September.

The fact that Japan, structurally the weakest currency, followed by the U.S. dollar, the second weakest currency fundamentally, were the strongest forex performers is a testimony to the utterly dysfunctional investment environment we have to contend with in 2012. Volatility was absolutely the accurate choice of words for 2011 in one word, and in 2012, that word is “unpredictable”.

A number of new realities born in 2011 can now be considered fundamental aspects of markets, which is in itself, the most alarming new reality. Among these:

1. On days rife with horrible financial news, which historically took markets downward reliably, we are now just as likely to see markets move up significantly;

2. Gold and silver, which over the last decade moved somewhat reliably in opposition to major indices and treasuries, now emulate the performance of those asset classes;

3. Europe and the United States have taken to capital fabrication without any kind of preamble or announcement, and it is only through careful scrutiny of foggy central bank balance sheets and IMF transactions that we can discern the shape of Quantitative Easing.

4. Both Europe and the United States have proven that institutions are “too big to fail” when they hold substantial amounts of sovereign debt on their balance sheets, and they will be the recipients of bailouts and restructurings ad nauseum.

These market encumbrances, which have now thoroughly demolished any pretence of a “free market” in discerning minds, are also evolving into the most significant barricades to any market recovery.

Instead of lending the funds to businesses and institutions further on down the food chain, (which would arguably be used to underwrite economic activity) recipient banks of one percent loans opt instead to deposit them with central banks at 0.25% interest. Since the collateral can now be anything that fits into a garbage bag (defaulted sovereign debt included), and in the full knowledge that bailouts will continue commensurate with the impact any given institution’s demise would have on the surrounding house of cards, large financial institutions who have made bad bets on sovereign debt are now thoroughly incentivized to expand the balance sheet on the debt side as much as possible, and as quickly as possible, to assure their place at the trough where free money is dispensed now daily.

In that macro climate, instead of 2011’s volatility, we have that, plus the aforementioned unpredictability, which gives us uncertainty.

Uncertainty, mostly because the level of interference in key markets, and impossible-to-take-seriously government statistics, renders any kind of mathematical forecasting impossible in any market. The intentions and goals of those manipulating statistics and markets are unknown to the general and institutional investing public, and so its impossible to enter x an y values in any equation because you can’t know what they are supposed to add up to. I mean, its obvious that the underlying strategy is to foster confidence where none exists. But it is lost on those operating the levers that the more they try to bamboozle, the more obvious that not only is leadership absent, but that the stand-ins are baboons.

If you ask me, I think there is more coordination internationally behind the scenes than the media is aware of and therefore that we are permitted to know. The end objective of such covert cooperation is the retirement of USD, EUR, and YEN currencies to facilitate the cancellation of debt, and the introduction of a global trade unit, along the lines of the IMF’s Special Drawing Right. That won’t happen, of course, until the largest asset bases which are the targets of those who control this whole process have been plucked from the hapless climbers soon to be dismayed by the fact that they weren’t in the “in club” they thought they were.

The United States dollar continues to be the biggest obstacle to the unfettered increase in the price of gold as that currency’s overpopulation provides the cover for its movements into ETF’s and Futures, whereby they enter gradually and exit suddenly for maximum negative effect. CFTC reporting protocols render it impossible to document proof of such intentions, and the CFTC itself is set up as a shield from prying eyes into the affairs of the largest banks who control ETFs and futures markets, and thereby the prices of gold, silver, oil and any commodity they want.

Mainstream media continues to demonstrate a willful denial that anything untoward is going on, botched CFTC and SEC investigations notwithstanding. Mainstream investment analysts besmirch themselves by trying to identify newsbits as the key forces behind daily market direction.

PRECIOUS METALS
Not that India’s crash in gold exports had no effect – from a purely fundamental perspective, gold’s trend in jewelry certainly appears to be heading lower. Theoretically, I expect that physical end use deterioration to be replaced by investment demand, but one can’t ignore the fundamental reality of price interference through futures markets. The most recent figures from the World Gold Council indicate a strong rise in investment demand coincident with the drop in jewelry demand, but those are Q3 numbers, which won’t reflect the drop in investment demand that will no doubt be proven in the Q4 figures, after the coordinated sell-off in gold by SPDR Gold ETF and gold futures at the same time shortly after gold set the record mentioned above.

At this point, we haven’t seen a resumption of the assault on the gold price, but I suspect that may change this week upcoming as the cows fatted on the ill-gotten gains of last year’s criminal market interference are not likely to be back at their desks just yet. Silver, of course, sustains parallel performance for the same reasons. The bankruptcy of Kodak is certainly the writing on the wall for silver usage from photography.

The patience of clear-eyed gold and silver investors continues to be rewarded annually though. Now we see a lot more publication of increasingly high target numbers for gold, with Rob McEwen’s $5,000 gold price call in 2004, which then seemed outlandish, now seem conservative alongside the multitude of $10,000 dollar an ounce calls growing.

Resource Stocks
Copper declined by 20.4% in 2011. To me, that’s one of the purest indications of next year’s global economic outlook; despite supply tightness caused by aging primary production assets, even that positive wasn’t sufficient to offset the negative influence of China’s slowing growth.

Given that we know to expect volatility, unpredictability and therefore uncertainty, investing in resource stocks is going to be tricky. Adopting the guerilla mindset necessary, be prepared to take profits off of anything that does 15% or better. There are xx categories of resource stocks that do well in these types of markets:

1. Companies that are getting reorganized, rolled back, and boards of directors replaced by recognized names in the industry. Buying at the right time, often these stocks will be an easy double, if you know where to find them, in a matter of a few months.

2. Companies that already have a major deposit, and a high level of confidence exists that a larger mining company will buy that company’s asset or all the shares of the company.

3. Companies drilling what is already known to be a great project, with lots of money in the bank to finance continued drilling for at least another year or two, and where confidence is high that more “discovery” holes will be hit. The potential for major share price appreciation is especially present if drilling has been consistently successful, yet the company has yet to publish a 43-101 resource calculation.

In all of these scenarios, on days where there is a heavy sell-off in the major indices, these stocks often get dragged down with the herd, and that’s the time to build a position in these deals.

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Midas Letter is the Journal of Investment Strategy of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment Fund that specializes in Canadian-listed emerging companies in the resource sector with a focus on precious metals explorers and miners. James West is the Portfolio and Investment Advisor to the fund.

Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.
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Research in Motion had a pretty rough 2011. Starting with the suspension of their services in India and Saudi Arabia because governments couldn’t snoop into Blackberry messages, and continuing with a delay in the release of the copycat Blackberry Playbook, RIM shares have been dealt a mortal blow, it would appear. From a 52-week high of CA$69.30, to last week’s close of just above $14, it sure looks like the stock may well be ready to fall the rest of the way off of the cliff.

Plummeting marketshare, arrogant and delusional management, and the runaway success of both Android phones and of course, iPhones, would appear to have sapped the company’s momentum. Some commentators are calling a botttom in the market. But I think the company is closer to a beheading than a ressurection.

Thats because the new iPhone 5 is rumoured to have a slide-out, tactile keypad. For many Blackberry veterans, the onscreen keyboard is the main barrier to making the swith to iPhone. With a tactile keyboard, that barrier is removed, and I think that will be the straw that breaks the Blackberry’s back.

Short interest in the stock rose from November 30th’s 37.8 million shares to 42.5 million shares as reported on December 15th. Analyst downgrades outnumber positive ratings by a factor of 7. Company-issued profit warnings, the layoff of more than 2,000 employees, and no technological innovations on the horizon would all seem to point to a single exit strategy for RIMM shareholders: A buyout.

But the problem with that is the same as the problem with the company in 2011: Management. Mike Lazaridis and Jim Balsillie, the two founders and co-chairmen of the company, own a combined 10% of the companies shares, which is why its been so hard to get rid of them in the first place.

Additionally, with the shares valued at $7.50 a share in patents, and $12.50 a share in monthly subscription fees according to Alkesh Shah, and analyst with Evercore partners, the price tag is likely going to be in the range of as much as $13 billion. In the current environment of diminished economic prospects around the world, thats not the kind of investment that is going to start a stampede.

Both Lazaridis and Balsilie are intent on retaining control of the company they founded more than 12 years ago. “It is important for you to know that Mike and I, as two of RIM’s largest shareholders, understand investor sentiment, and we are more committed than ever to addressing the issues at hand,” Mr. Balsillie said before announcing that, as a good will gesture, they had cut their salaries to $1 a year.

Maybe RIM is going to pull a rabbit out of the proverbial hat, but I doubt it. I think its probably a bit oversold, given the book value. But at this point, we’re dealing with a substantial management discount, and if they don’t get out of the way soon, the value of their 10% holdings may yet go a lot lower.

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Midas Letter is the Journal of Investment Strategy of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment Fund that specializes in Canadian-listed emerging companies in the resource sector with a focus on precious metals explorers and miners. James West is the Portfolio and Investment Advisor to the fund.

Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.
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According to faulty interpretations of Mayan calendars, 2012 is supposed to bring with it the demise of humanity. Fortunately for us, this apocalyptic myth, like so many, is based on a superficial interpretation of the Mayan calendar. Like many stories based on a lie, this one nonetheless gains traction in the popular imagination thanks to our fascination with anything apocalyptic.

Besides Mayan disinformation, there are many commentators who advise selling all gold, while acknowledging that gold is going higher in 2012. The lunacy of such advice is self-evident to me, and I presume, to the vast majority of readers. But lets not dwell on mainstream financial media: the credibility of that institution is non-existent going into 2012, and most intelligent people understand that story assignments originate in board room conversations and on golf courses, and filter down through editorial management. Thus, whose who sit on the boards of directors of banks and media conglomerates are easily able to transmit their requirement for negative sentiment towards precious metals easily and without public scrutiny.

There is no point in arguing whether gold and silver price manipulation exist – even Bart Chilton acknowledges that it does. But we are forced now to consider that manipulation as a “fundamental” influence on the future price of gold. The problem is that as a fundamental factor, is not quantifiable like supply and demand metrics, because its intensity is arbitrarily (at least, to public view) decided, and so all we can say for sure is that supply and demand drivers are, in the futures market, seconded to the fundamental influence of futures market manipulation. And since the futures market is exponentially greater than the spot markets, the spot price is determined by such manipulative shenanigans.

I often wonder when I hear people like Dennis Gartman, Jon Nadler and others for whom it would seem that it should be within their interest to be bullish on gold, are bearish because they have factored in that fundamental and participate on the short side more so than the long. How else to justify the main commentator on a site that sells gold being uniformly and relentlessly negative in his comments about it?

Thus, despite the fact that Europe’s Quantitative Easing ship has been launched, and the U.S. QE3 stands by in a hidden harbour, those fundamental facts that are intensely gold price positive must considered in the light of certain facts pertaining to the futures market. These are:

1. Oversight of the futures and derivatives market, presently the domain of the Commodities Futures Trading Commission, is in reality a collusive accomplice in the exploitation of futures markets along with the major financial institutions who represent that vast majority of futures contacts each month. In the future, this criminal activity will be identified and exposed publicly, and properly categorized as criminal manipulation. Nobody will be indicted, however, as the United States government is also an accomplice in shielding the perpetrators from prosecution.

2. Whereas the original purpose of the continued downward manipulation of the gold price was to induce a general perception that the U.S. dollar was and is a sound currency, the major banks who are regularly short silver and gold in significant volume have since understood that through the control of markets and associated volatility, they can regularly reap huge profits, but continuously rolling over losing contracts in their “dark” market, while waiting until the price can be driven downward sufficiently to put short contracts in the red into the black.

3. There is no intention nor interest in curbing the manipulative schemes on the part of the CFTC, because while they have been tasked with oversight, their powers of investigation, and most importantly, their ability to indict or even investigate such criminal activity is limited.

Europe is already printing money technically, in that it is purchasing weak sister bonds where no private entity dare wade in for less than 7% risk premium. While the line item accounting might trace the cash for the purchase of the bonds from a pre-existing balance, following the money leads to a quagmire of murky road forks that wear obscurity as a mark of intention. That the ECB has already decided to yoke its last resort bank backstop to the most larcenous countries’ bad loans is, to some, proof positive that solving the problem is not the priority: keeping the game going is the number one goal of current Eurozone management.

As the European Central Bank prepares to launch a program to replace frozen bank lending with thinly and delusionally configured quantitative easing as a last-option defense against the seizing up of the European banking system, markets rally, alebeit temporarily, lending the impression that there is a solution to the problem available. Quite the opposite is true. Succumbing to the last ditch fabrication and distribution of capital in a system that is choking on an excess of capital is merely deferring the inevitable while amplifying the severity of future market implosion on the near horizon.

The blinking red light on this latest ham-fisted implementation of perception management was the absence of confirmation that systemic risk appetite was back in the form of anemic bond market activity. If there was a real rise in confidence unfolding, then interest rates should arguably be dropping and private appetite for sovereign bonds materializing. Neither is the case.

If it were possible to stimulate real economic growth (as opposed to nominal economic growth that appears as profit on bank and financial sector-related companies as a direct result of free government money), then stimulus and government lending might be considered advisable.

Consider the effect of TARP, Bailouts, and the various QE’s that started in 2008 in the U.S. in repsonse to the freeze-up of credit markets. At the onset of the stimulus, stocks rallied and the “recovery” was declared officially underway.

But after injecting a total of $1.5 trillion into bank bailouts and stimulus, we are three years down that road with zero economic growth, banks who used the funds mostly for proprietary transactions that have created the illusion of market stability through reported earnings, and a fabulously expanded Fed balance sheet. The debt crisis in Europe is on a par with the debt crisis in the United States, and the value of money is in terminal decline. The lesson is that while QE and other forms of stimulus are superficially satisfactory treatments for the symptoms, they are far from a cure, and at the end of the day, have only compounded the problem. The effectiveness of stimulus and easing, most importantly, exponentially increasing the quantity of currency in the system, is now known to have a finite window of influence, and, once exhausted, begins to affect the economy negatively. That’s because the emergent perception is that stimulus only benefits the top layer of the financial system, and benefits the broader economy negligibly.

Extending credit facilities and replacing private sector capital sources with public ones, while at the same time inflicting austerity measures on the general population, is a recipe for absolute disaster in the long term, for the weaker economies. A population that finds itself expected to work harder, pay higher taxes, amid diminished infrastructure, services, and opportunities is going to respond with outrage, and will not work harder, or pay higher taxes, or tolerate social safety net destruction. They are going to take to the streets, and further paralyze economic activity.

We’ve seen riots in France, Spain and Greece, and as economies continue to deteriorate in 2012, violence and protests will escalate, and at some point, it may pass the threshold of public protest into civil war.

If the Occupy Wall Street movement were to seek some relevance, targeting the causes of economic disparity – primarily the protection of predatory financial institutions who control governments in North America and Europe through corrupt and collusive political systems – would yield a far more effective dividend than protesting against the outcome of such activity.

Maybe that’s what we can look forward to in 2012…an end to the corrupt governments of the United States and Europe, and a dismantling of the largest financial institutions, whose boots rest on all of our throats.

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Midas Letter is the Journal of Investment Strategy of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment Fund that specializes in Canadian-listed emerging companies in the resource sector with a focus on precious metals explorers and miners. James West is the Portfolio and Investment Advisor to the fund.

Every month, James West’s MidasLetter Premium Edition deconstructs the economic and political events of the past and upcoming week, and identifies risks and opportunities to investors seeking to profit while the majority of investors are losing money.

With a track record extending back 10 years in precious metals-related assets, Midas Letter provides actionable, accurate, and un-biased information every week that saves subscribers losses from exposure to mis-identified trends, and directs them to high performance investments.

Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.

Click here to read the Midas Letter Feature on Abakan Inc.
James West interview Andrew Sherman (1st Clip) and Robert Miller (2nd Clip) from Abakan Inc. (OTCQB:ABKI), principles of a company based in the U.S. that develops next-generation, nano-composite coatings for pipelines, ships, bridges, ports, railways, planes – just about any steel that is used in high stress or corrosive environments.

NOTE: James West owns 100,000 shares of Abakan at average cost of $1.02 per share.

TRANSCRIPT:
JW: I’m James West, and this is Midas Letter Money. Over the counter bulletin board in the United States is that dangerous place for investors to try to make money. But I think I found a company that’s going to make investors a lot of money in the future, and that’s because I’ve spent over a year and looking at the deal. My next guest is Robert Miller, CEO of Abakan Inc., which trades on the OTCQB under the symbol ABKI. Robert, welcome to the show.

RM: Thank you very much for having me on.

JW: Why don’t you tell us a little bit of what exactly Abakan does?

RM: Abakan has taken control of the research and development company that specializes in nano materials. So when you add nano materials to regular other coatings like nickel or rare earth metals, they have specialty performance that would increase the performance of a magnitude of like 10, 20, 30 times better performance.

JW: So it if I recall correctly the company’s called MesoCoat, and you actually apply this coating to high performance corrosive environments steels such as—what are the applications?

RM: We apply our coatings to low performance cheap carbon steel, so X65’s the most common, we apply coatings for corrosion protection, for wear protection, sometimes for a combination of both.

JW: Now what industries do these coatings have applications in?

RM: Interesting, when I first approached them they said that they apply to numerous industries so we focused on a few, oil and gas, and that’s for corrosion resistance and we’re going after the oil sands, mining, and heavy equipment

JW: Okay, now you got some fairly heavy hitting industrial partners already who are deploying your technology. Can you give us an example of that?

RM: We’re in Stage Two of two stages with Petrobras. We came out of stage one with pretty incredible results of 1/6th the corrosion rate of our competitors, so that’s with Petrobras. And with Petrobras, are ten of the top twelve oil majors in the world – they’re called super majors, so they’re all watching. The other companies like Exxon said we’re 90% approved when Petrobras puts us in the field. They’ve—with some of the biggest heavy equipment manufacturers we’ve done joint development agreements with, that when we hit Milestone One, we’ll announce them. We’ve dealt with five of the biggest oil sands majors in Canada, the three majors from Canada, Suncor, Syncrude, third I can’t mention. The other two American giants that are in Alberta have some very heavy needs coming up very quickly, so it’s a really exciting time for us.

JW: Okay, so Abakan has right now, it’s a sixty million dollar market cap fully diluted give or take. What you see the market size for the applications of the coatings are you talking about in, say, one year’s time?

RM: One year’s time is quick, and that’s a good question. Oil majors operating in the north slope of Australia, so Australia’s sour, offshore they have four very big fields, sour oil and sour gas. They’ve come to us saying, can we bid in 2012 for a project that they want coatings in 2013—that project we would need a partner.

JW: Let’s say for the whole market for applications and oil pipeline, what the global market size right now?

RM: Two billion a year just for oil and gas but it’s growing– it’s projected to triple since all the major fields are all sour or hot or high pressure. With those three, they need very expensive coating, high performance coatings.

JW: So essentially all the sweet oil in the world is pretty much done for and now we’re going to be producing from high sulphidation, high corrosion, high temperature, high pressure fields.

RM: Some of them have combinations. For example the Gulf of Mexico’s medium sour, so they’ve approached, the big players there, you know who are, they approached us for bidding next year, 2012, for projects they want coatings in thirteen. But these markets, these are minimum orders of thirty million, maximum orders per single project, single portion of the project, is 200 million in coatings.

JW: Now for an investor who may be a little bit nervous about investing in OTC bulletin board deal because there’s history there, what are your plans for obtaining a listing on a senior exchange?

RM: The rules are we need one year’s full working capital. That would be for us about eight million dollars, so an eight million dollar financing, we do an audit, it takes a month to do an interim audit, then we make an application two or three weeks later, and it’s four to eight months to list on NASDAQ, that’s our intention. I myself have done that several times with companies that I was the director or largest shareholder of– that’s all on our website, I guess.

JW: Why don’t you give me some examples of companies you’ve taken from zero to hero?

RM: Asiaamerica Equities, as an individual family, I was the largest shareholder. The stock went from fifty cents to 48 dollars, but George Soros took it up from 24 to 48. Crystallex International, a lot of people know that company. I was founder, raised the first twenty million dollars, went into positive cash flow and has 21 million ounces, seventeen million proven, the stock went to eleven dollars. And I did Nanovation Technologies, I did a Y2K deal, that I was the director, financier for the listed NASDAQ.

JW: So you’ve got a track record. Well, Bob, that’s really fascinating, we’re gonna keep track of Abakan’s developments and try to watch you build your market share there, and we wish you well in moving to the NASDAQ. I’d like to thank you for joining us today.

RM: Thank you very much.
JW: If you’d like to learn more about Abakan, you can visit their website at abakaninc dot com, that’s a-b-a-k-a-n inc dot com. If you’d like to hear about companies like Abakan at an early stage of the value curve, visit Midas Letter dot com. I’m James West, this is Midas Letter Money.

James West interviews Eric Sprott on Midas Letter Money. James asks Eric about his views on the silver futures market, and Eric makes the case that the physical spot price of silver is determined by the highly manipulated paper futures market.

By James West
MidasLetter.com
November 21, 2011

We are led to believe by the actions of the Euro and U.S. leadership that defaulting on the debt of institutions and countries that are deemed “too big to fail” would result in an economic meltdown from which the world likely would not soon recover. Such institutions are deemed thus precisely because they’re disintegration might/could/would precipitate such a long dark economic winter.

We are taught, however, that all debts must be reconciled, and that extending further credit to a delinquent debtor is not only foolish; its self destructive to the lender.

Yet here we are, in the 21st century, extending more credit to delinquent debtors, nurturing institutions whose sheer size render them cancerous to the system, all kept afloat by the appearance of solution by the world’s leaders, and the continuous expansion of the money supply where no such expansion is justified, except of course, to perpetuate the illusion of sustainability of the aforementioned economic behaviours.

Fortunately for humanity, nature has a way of insinuating its laws upon the conduct of humanity when humanity’s behaviour becomes harmful collectively to its future as a viable species, and to the planet as the host of such a feckless breed. Indeed, it is the laws of nature, immutable and irrefutable, that differentiate true “laws” from the rules fabricated by humanity’s leaders to take advantage of one another.

Nature’s intervention in the case of the terminally debt-addicted human race at this juncture is most simply comprehended in the discipline of mathematics. Reducing a nation’s debt load to 120% of GDP is contemporarily regarded as sustainable, yet that is true only as long as economic growth proceeds at a rate superior to the interest rate that a nation must pay to continue access to capital. Given that the crisis level of yield (to a lender) or interest (to the debtor) would appear to be anything above 6%, and given that only China and certain Latin American economies are expected to deliver that kind of economic growth in the foreseeable future, mathematics is going to enforce the reality that the delusional path can not long be travelled.

And so, instead of tearing the bandaid off, we’re peeling it back excruciatingly slowly, exacerbating the livid economic flesh in the process, by extending credit, and soon, printing money American style.

At the end of the slow tortuous path equivalent to water torture is the same outcome as letting the “too big to fail” institutions and countries go the way of the dodo. There will be a collapse of countries and institutions, and that will indeed be followed by a long, cold and dark economic winter. But because of the absence of vision and courage required by what would amount to real leadership, we have the incessant buck passing and check kiting that is going to render that winter much longer, much colder, and much darker, than it have been had we not adopted the attitude of “let the chips fall where they may”, in regard to TBTF institutions.

But the more sinister effect of all this bumbling and stumbling and groping for a solution, when the solution is, as ever, before our very eyes (let the weak fail), is the effect on risk capital in the real economy (as opposed to the Disney economy brought to you by Finance Ministers, Prime Ministers, Treasurers, and Presidents. The deflationary effect of sidelined capital that correctly assesses an excessive level of risk in the world marketplace undermines future economic growth – the only thing that can reverse the negative economic course enforced by weak banks and insolvent countries.

Extending credit to delinquent creditors is the process by which the crisis spreads upward and outward. The only way to protect one’s self from a gangrenous limb is to sever the limb. Wrapping it in bandages only promotes systemic contagion.
Meanwhile, in the U.S., the Senate Supersquabble on the debt ceiling is coming to a head, with the November 23 deadline just days away, and no accord in site. While the largest debt in the history of the world continues to grow at lightspeed, the next time the U.S. is going to bump its head against the national ceiling is only a year away. In the absence of an agreement by the supercommittee, $1.2 trillion in spending cuts are theoretically going to kick in, largely targeting the Pentagon and unemployment insurance. However, there is already a good deal of speculation that the cuts will not be allowed to kick in, either through direct presidential intervention or some other layer of congress managing to sidetrack the cuts.

John Chambers of Moody’s has stipulated that while the absence of a deal by the supercommitte to reduce spending would not necessarily result in a further downgrade of U.S. credit, thwarting the automation of the $1.2 trillion spending reductions almost certainly would.

Not only would a credit downgrade transpire, but the U.S. would essentially have no credibility left in the eyes of the world, and for all intents and purposes, would be reclassified in many minds as a rogue economic nation.

It is the absence of credibility among the leaders of nations that is undermining the credibility of democratic government in general. The evolving model from the standpoint of economic history is that capitalism and democracy are failing in terms of systems of government. And that paves the way for revolutionary thinking.

Thus, Occupy Wall Street.

What is most conspicuously absent from the Occupy Wall Street movement is a coherent message or any direction that can be brought to bear in any meaningful way on the current political structure. “Stop Corproate Greed” or “End Economic Inequality” are noble ideas, but they ultimately demonstrate the youthful naïveté of the movement’s spokespersons. The call it a “leaderless revolution”, yet never has any revolution succeeded in the history of humanity that did not have a very charismatic and powerful leader. Its more like a “rudderless revolution”.

While they claim to represent the “99%”, they don’t even come close. I’m not in the top 5% economically, and I’m not in the lower 50% either. I’d say I’m in the 70-80% range, and, speaking strictly for myself, Occupy Wall Street not only doesn’t speak for me, but they have become an impediment to change. By demonstrating raucously in support of idealogical slogans, and absent leadership or political agenda, they successfully appease the indignant and disenfranchised youth, and they are pacified by a sense of accomplishment. Yes the movement seems to be gaining momentum, but there’s a limit to how far it can go.

I see the need for revolution, and Wall Street is an appropriately symbolic venue, but the real changes must occur in Brussels and Washington, London and Beijing. What needs to change is the political infrastructure that accommodates the pillaging of the lower 95% by the top 5%. This process can be initiated by popular protest, but it can only be accomplished by progressive negotiation, and the continuous identification of the true culprits of the current compromised global political system.

These people are easy to see. They’re the ones who move from roles as bankers and economists into roles in government, transferring the required regulatory framework into the political system so that complex financial instruments like securitized debt and credit default swaps and index futures can be successfully foisted onto the public. The profits are privatized (bonuses) and the losses socialized (bailouts).

Absent the self-discipline on the part of leadership to balance a checkbook and let too big to fail become too big to exist, the revolutionary tendencies of a growing disenfranchised youth are certain to grow and spread.

If the weak countries and banks were allowed to fall without taxpayer bailouts, there would indeed be a period of economic contraction and a deterioration in the standard of living of a large swath of the global citizenry. But economy-driving risk capital investment will not materialize until all that rot is out of the system anyways. The leaders of the United States and Europe need to get that through their numb skulls if they want the current condition of slow, tortuous, drop-by-drop global economic deterioration to reverse.

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Midas Letter is the Journal of Investment Strategy of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment Fund that specializes in Canadian-listed emerging companies in the resource sector with a focus on precious metals explorers and miners. James West is the Portfolio and Investment Advisor to the fund.

Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.
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How much more of this can we be expected to take? The theatre of the absurd enters yet another improbable act with the announcement of a referendum in Greece by George Papandreou to solicit Greek public approval for the austerity measures required for a bailout. I can’t imagine that anyone would vote for reduced services and infrastructure and higher taxes. One must question the motiviation of the Greek PM. I suspect that he’s keenly cognizant of the political SNAFU he’s found himself in at this point in the Euro crisis, and realizes that when the smoke clears and he’s packed into retirement, he’s going to be living among those on whom he inflicted austerity. Its somehow appropriate that the founders of democracy should deploy it in its purest form to undermine their immeidate salvation.

Who is their right mind is going to vote in favour of austerity?

Markets certainly voted with their feet yesterday, with major indices suffering from the effects of a general exodus as the flight to the horribly mis-named “safe haven” assets took them much lower. Today, there appears to be a bit of breath-holding going on so far in the east, but thats not likely to hold when New York and Toronto open shortly. Most fingers are poised on the sell trigger rather than the buy button, is my bet.

And as is becoming the norm in our seriously compromised markets, gold mimicked general markets and tumbled $33, though that was a microscopic loss compared to equities. At the end of the day, the direction of Greece specifically and Europe in general is only positive for gold, and no matter which way things go, after the next crash, which is likely right around the corner as Italian yields break the 7% mark, and Spain looks next.

Though MF Global’s demise is being touted by the mainstream as an isolated incident that involved only private investors’ money, the swiftness with which it fell, and the absolute refusal of anyone to help, is indicative of the prevailing atitude of the big money to “outsider” institutions who don’t have the benefit of political association. The question is, how many MF Global’s are out there, and how many will fall before a general market rout ensues?

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Midas Letter is the Journal of Investment Strategy of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment Fund that specializes in Canadian-listed emerging companies in the resource sector with a focus on precious metals explorers and miners. James West is the Portfolio and Investment Advisor to the fund.

Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.
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(Video: Watch this video on the post page)

In the finale to James West’s Market Call on BNN last Tuesday, he talks abouth his top picks:Western Pacific Resources (WRP.V), 2. Prophecy Platinum Corp (NKL.v), 3.Newstrike Resources
(NES.V)