The collapse of the financial system as we know it is real, and the crisis is far from over," George Soros

1. Maedel’s
Equit y M arket Analyst
June 11 2010 Bulletin “The collapse of the financial system
as we know it is real, and the crisis is
far from over,” George Soros
Editor: Neil Maedel
Uncompromising analysis
exclusive advice beginning 1987.
Predicting a bottom...
Last Month, your com- I stood on the beach
mentator was busy an- near Phuket in 2004.
alyzing reams of data The Ocean had simply
at his Thailand office vanished and we could
Maedel’s Upside target
5 while reassuring as- see stranded fish flip-
March 2010 3 B sociates that in reality ing in the sand. A fa-
A `C in most of the country ther next to me said to
4
1 was very difficult to tell his little boy “look son,
there was any insurrec- this is a Tsunami,you’ll
2 tion. probably never see an-
This month I am other one for the rest of
back in Switzerland your life.” Fortunately
tending to my teenag- I am pretty sure they
ers, going to a birth- escaped the coming
day trip to watch the cataclysm just as the
Champions league fi- gale force 4 correction
nal in Madrid and for we just endured may
my daughters birthday has left our positions
a shopping in Lugano. largely intact. Still close
Both duties were wel- calls are not to be taken
come diversions from lightly. Fortunately `I
US Gold Producers the ongoing corrections can report with confi-
and as I write from my dence that the worrying
mountain Chalet it I am abundance of bullish
encouraged by the way investors and advisers
events have unfolded. has turned into a stam-
In my previous post pede of sellers.
just as the Dow Jones Lipper FMI re-
5
Industrial Average was ported a $16 billion
3 approaching my upside outflow from equity
Gold target (see chart left) I funds and equity ETFs
(nearest future) warned that the equity had occurred the week
1
market was “ripe for a ending May 26th – the
4
correction”. most in its 20 year his-
The lack of naive- tory.
ty of that statement in The Investment
2
regards to exaclty what Company Institute,
we were about to expe- noted that during the
rience reminds of when same week U.S.-focused

2. Maedel’s June 11 2010
funds saw $13.4 billion May to a recent –45. derpinning the metal’s stream, mean mining
head out the door and This translates rise remain very bull- output is relatively in-
international funds lost to a negative senti- ish. elastic and unable to re-
$3.9 billion -- the larg- ment regarding equi- The long term act quickly to a change
est outflows in each ties so great that most bullish case was recent- in price outlook.”
category since the week newsletter advisers are ly illustrated when two
ending March 11, 2009. recommending sub- of the world’s most in- Gold bullion’s rise
Fibtimer.com scribers sell stock they formed gold producers, pushed many gold ma-
which was dead on in don’t even have (go Barrick Gold Corp. and jor’s shares higher but
predicting the 2007- short) which leads to Kinross Gold Corp. de- the ongoing flight from
2009 market crash the question of who’s cided to develop the risk and thus equities
noted in a bulletin June left to sell? low-grade $4.2 billion in general moderated
6th: “Last Thursday the Finally Insid- Cerro Casale copper- their moves. The re-
NYSE had up volume ex- ers’ sales compared to gold project in Chile. cent equity market cor-
ceeding down volume buys have plummeted At $800 gold the proj- rection’s real damage
by 36 to 1. It is histori- from over 7 sales for ect is barely economic was done in the small
cally rare for such trad- every 1 buy last Febru- with a 5.5% IRR but at and micro-cap arena as
ing days (better than 9 ary, to only 1.2 sales current prices its IRR is investors’ abandoned
to 1) to occur and if it for every buy. What around 15% which justi- these higher risk invest-
happens twice within do they know that we fies proceeding. Clear- ments for presumed
two months it usually don’t? Clearly they ly both companies are safe havens such as US
marks the beginning of can’t be too concerned calculating that gold’s treasuries, gold and to
a new bull market. This about predictions of a price stays at its cur- a much lesser extent,
Wednesday we had the profit-growth-halting rent level or goes even large cap gold stocks.
second such bullish day slowdown. This looks higher. Compounding
with up volume exceed- like a bottom and we the gold sector’s chal-
ing down volume by 20 are adding to our posi- Also bullish is that gold lenges, Australia’s
to 1 on the NYSE. Histori- tions. supply has yet to react Prime Minister Kevin
cally such action results to the metal’s histori- Rudd added to the ap-
in about a 14% advance Gold breaks out cally high prices. In parent risks associ-
in the next six months.” In the November 2009 the World Gold Coun- ated with owning re-
Meanwhile the Maedel’s my “techni- cil’s words: source stocks when
proverbial wall of wor- cal 6 month upside he shocked investors
ries’ grown to a very target for gold was “Today, the overall level by announcing a 40%
bullish height. Mark $1300. In May I warned of global mine produc- Resource Super Profits
Hulbert reports that Gold looked ready to tion is relatively stable, Tax.
the average recom- break out to new highs, averaging approximate- In Africa when
mended equity expo- which has occurred. ly 2,485 tons per year companies such as
sure by short-term Gold reached $1251 over the last five years. First Quantum Miner-
stock market timers has last week and normally New mines that are be- als (or more recently
plunged from 20.3% on I would not wait for the ing developed are serv- Extract Resources in
February 8th (the pre- last $50 of a technical ing to replace current Namibia) get their as-
vious correction low) move which looks to be production, rather than sets arbitrarily con-
to last Tuesday’s mi- in a terminating wave 5 to cause any significant fiscated to benefit the
nus 8.8%. This is after within a larger bull mar- expansion in the global interests of others, it
his NASDAQ Newsletter ket wave up. However total. The comparatively becomes just another
sentiment index also sentiment is relatively long lead times in gold dreary and somewhat
plummeted from 80% subdued and indicates production, with new expected “This Is Africa
recommended equity further upside just as mines often taking up ” moment. Not uncom-
exposure first week of the fundamentals un- to 10 years to come on mon and a risk which
page 2

3. Maedel’s June 11 2010
95 quarter of 2010. This ounces of gold every how rising gold prices
First helps explain the large year just to replace were accompanied by
Quantum gold producers under what it produces) ac- the development of
Minerals performance. It also quiring smaller compa- heap-leaching which
80 shows like oil, the age nies such as the recent allowed the profitable
of cheap to get gold is $139 million takeover recovery of gold from
long behind us. Recall of Underworld Re- previously uneconom-
that the average grade sources by Kinross ic low grade oxidized
mined in the 1950s was Gold are bound to in- gold ores. Gold mining
60 12 grams per tonne or crease. stocks did not begin to
more than one third of One conse- take off until the mid
an ounce gold and is quence of such take- 1970s when gold had
50
now around 3 grams. overs is investor’s such already tripled to $500
April May June Harder to find as Underworld’s sud- (adjusted for inflation
and produce gold denly find themselves is about $1400 today).
most investors accept makes those juniors left with un-deployed The Carlin Trend
as part of the great risks with highly developed cash which they either in Nevada was at the
that come with the con- exploration projects spent or reinvest. It is forefront of the gold
tinent’s immense profit and serious production only natural for them to stock rush and has
potential. growth profiles all the redeploy some of those since produced more
When a modern more attractive to ma- profits into similar ex- than 50 million ounces
developed country like jor producers looking ploration stories which – more than any other
Australia confiscates a to replace their declin- often are in the vicin- gold trend in the US.
major part of the earn- ing reserves. ity. This influx of new Many investors
ings of its miners, it is Although the less money in itself under- made a lot of money
not expected, and be- diversified a junior’s pin the resource stock from gold bullion’s rise
cause it highlights the gold production or in bull market. beginning 1975 the
very investor unfriend- the case of pure explo- At Maedel’s we year US investors were
ly trend of resource ration plays the more think we are in the ear- allowed to buy it. From
nationalism, it makes they are dependent on ly days of this process 1975 it rose from a low
physically owning gold financings, the more and many more success of $140 to $850 five
a an even safer and the volatile they will stories and sector pro- years later. But those
more attractive alterna- be as they will be more pelling takeovers are 600% gold bullion gains
tive. effected by changes in on the horizon. So it is were nothing compared
Also dogging risk tolerance - Hence important to be patient to the action in the ju-
gold producer return’s the deep correction in and remember that the nior resource sector. I
in the mushrooming many gold juniors over foundation of this bull had just begun work
cost of producing the the past month. market is the increasing as a trader at the Van-
stuff. There may be no profits of the gold pro- couver Stock Exchange
inflation yet in the US The Trickle ducers and their need in 1978 and witnessed
but there certainly is down effect to replace the gold they some of those spec-
in the mining business. As gold’s price increas- are producing. tacular gains made by
es so do gold produc- Additional retail owning the right junior
A Fortis Group ers and in an effort to investors will flock to gold stories. One of
led study estimates maintain their existing the sector as the num- the most famous start-
average cash costs reserves (for example ber of takeovers in- ups was Nevada-based
have risen from around Barrick, the world’s crease. heap leach pioneer Gla-
$450 in early 2008 to largest producer must mis Gold which began
US$544/oz in the first find roughly 8 million Recall the 1970s as a penny stock with
gold bull market and a market capitaliza-
page 3

4. Maedel’s June 11 2010
tion of a few hundred ward investors. I think the Gualcamayo gold tinuing to accumulate.
thousand dollars called we can be confident project in San Juan He acquired for MAG
Rennick Resources that the momentum Province, Argentina for its Cinco de Mayo proj-
and was bought out by will continue to build Viceroy Resource Cor- ect which is developing
Gold Corp. in 2006 for in this highly profitable poration. The Gual- into one of the richest
$8.6 billion. sector as new discover- camayo went on to be molybdenum deposits
Critically dur- ies attract more money Viceroy’s principal as- in the world. Now he’s
ing the late 1970s in a and new investors just set as it became a huge busy working his magic
few short years, a mul- as existing investors re- success with over 11 on Pan American’s be-
titude of investors were invest their profits in million ounces of gold. half while we continue
sitting on enormous new gold stories. Viceroy was taken over to accumulate the com-
profits from invest- Our experience by Yamana at around pany’s shares.
ing in small cap gold is that when gold’s bull US $10 per share (.97 We are adding
stocks. This success market is at a terminal Yamana for every 1 one more gold junior
combined with a rising stage gold and gold share of Viceroy) and start-up Rio Novo Gold
gold price made other stocks will move in tan- according to Yamana Inc. (TSX:RN $1.28)
types of previously dem - Radically higher, it was: “because of the to our portolio. It is a
marginal gold resourc- very quickly and the Gualcamayo”. When Brazil based new is-
es economic, attracted difficulty will be having Mr. Young cofounded sue which is expected
even more investors the discipline to chose International Royalty to begin producing
which underpinned the an exit point. Everyone Corporation not only roughly 100,000 ounc-
bull market. And com- will be bullish. Remem- was he key in its acqui- es per year beginning
pared to then we are at ber internet stocks in sition of an interest in late 2011. The com-
a very early phase. 1998: we are light years the giant Voisey’s Bay pany has considerable
The addition- away from that final nickel mine, but more production and reserve
al influx of investors stage. important was directly growth upside and in-
funded exploration (es- responsible for get- tensive drill program
pecially by Canadian Buy on weakness ting IRC’s interest in is currently underway
companies) world-wide Our strategy is to con- the Pascua Lama - a gi- with first results ex-
which later resulted in tinue adding resource ant 17 million oz/gold pected late this month.
huge discoveries such stocks to our portfolio /635 million oz/sliv- The company has
as the Goliath, Golden with a focus on gold ju- er mine. The Pascua 90.75 million shares
Sceptre discoveries at niors. Our position in Lama was one of the outstanding giving it
Hemlo and later Prime the George Young run principal reasons cited a $116 million market
Resource Group’s Es- Pan American Gold- for IRC’s later takeover capitalization. A com-
kay Creek (eventually fields (OTCBB:MXOM by Royal Gold. He also prehensive report will
taken over by Home- $0.30) is being in- co-founded the major be distributed to sub-
stake) and Arequipa creased. The com- success story MAG Sil- scribers shortly.
Resource’s Pierena pany has just begun ver (TSX:MAG $6.50),
discovery (bought by gold production at its which we are also con-
Barrick for $1.1 billion Cieneguita gold deposit
after its shares rose and they are negotiat-
from $0.40 to $32). ing the acquisition of a
We can see the major project in Argen-
market already coming tina. This makes sense
to life in this respect as Mr. Young is well
as a new influx on in- known for his ability to
vestors funds a wave find and acquire major
of exploration which is assets. George was in-
already starting to re- strumental in acquiring
page 4