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Gold: Cyprus Contagion

Cyprus Breaks the Confidence in EU Banks

The Cyprus "bail-in" is like no other, due in part to the ineffectiveness of previous eurozone bailouts. To be sure Cyprus had debt obligations far larger than its economy could support. Cheap money allowed Cyprus to set up an offshore banking industry that represented three quarters of its economy. The system was built on about $30 billion of Russian oligarchs' deposits that allowed Cypriot banks to invest heavily in Greek bonds. Now those chickens have come home to roost and Cyprus is broke.

Unlike the bailout of Wall Street's banks, the burden of risk shifted from taxpayers to bank creditors and depositors who were asked to foot the bill. Worse, the rule of law was ignored and violated faith with depositors. The deal is reminiscent of the Thirties when Roosevelt confiscated his citizens' gold and closed the banks. The ability to protect one's property from the state is essential in a functioning democratic monetary system. The seizure of property without a vote by parliament or say by citizens harkens back to the totalitarian systems, many citizens fled from. As before, sacred cows are being slaughtered. Bank guarantees are out and capital controls are in. Government's total disregard for private property has resulted in a distrust undermining confidence in all institutions in which people have their savings. Another offshore banking centre is left in ruins. The world is learning (quickly) that paper currency held in a bank is no longer riskless. The consequences will spread.

No Country, No Currency Is Safe

Gold is very different than paper money. Money is printed, now confiscated and even debased. Indeed gold's attraction is that it remains outside the global paper system and therefore holds value while paper certainly loses value daily (at least in Cyprus). Gold cannot be duplicated like depreciating euros or dollars. Gold plunged to seven month lows last month raising fears of the end to gold's astonishing twelve year bull run. Gold historically has been the canary in the mine but today we hear only a warble.


Part of the reason is that the market has declared a recovery is at hand. The Dow has set daily records surpassing the 2007 peak amid optimism over an improved economy and relief that we finally emerged from the global crisis of 2008. It is illusory. The US economy is still in the doldrums with pundits and CNBC opining that the market is discounting better days ahead. Even the US dollar has rallied on hopes of a stronger US economy. While the market's recovery from the bear market is a direct consequence of the Federal Reserve's pump priming and Ben Bernanke's rounds of quantitative easing, we are in a different place today and this so-called recovery as well as the Cyprus bailout raises deep seated concerns.

Looking more closely, the recovery cost is significant and rising every day. Since 2006, the Fed's balance sheet exploded 237 percent, total debt is up 78 percent while 10 year yields have fallen 59 percent. And seven years later, unemployment has actually gone up 97 percent while food stamp users are up a whopping 76 percent. And further, consumer confidence has fallen 30 percent and over the same period, gold is up 111 percent. The disconnect is due to America, rolling the dice with the world's largest economy as its financial condition deteriorates. Like Cyprus and much of Europe, the US continues to live beyond its means. America again find itself in the eye in the storm and we believe the current market optimism is more fiction than economic reality.

Global Currency Wars

Protection of currency used to be a cornerstone of the modern financial system. Today the financial system itself is damaged. The ramification of the Cyprus bailout are huge in that the confiscation of private property to save the banking system, increases the risk that the problems will spread to the rest of Europe. Italy with $2.6 trillion of debt can't form a government. The Japanese economy remains in the doldrums and to defend its currency, the central bank finally succumbed to America's quantitative easing policy causing the yen to fall 15 percent against the dollar. Gold in yen recorded new highs. Indeed most countries have pushed their interest rates down to near zero in a race to the bottom causing competitive devaluations. Britain's lost its cherished AAA rating slipping to AA. Like the Dirty Thirties, devaluation has become the norm. And Beijing, on the receiving end of this hot money is worried about its vulnerability to devaluation losses.

The World is Addicted To Debt

The inconvenient truth is that the relentless rounds of quantitative easing were due to the failure of the world's leading economies to solve their debt problems. The world is addicted to debt. The problem is that the diet of free lunches of deficits and depreciating currencies have created numerous bubbles and a disorderly global currency war, symptomatic of the inflation to come. We believe the Fed's real goal was to keep interest rates low in order to finance the huge government debt and deficits. Money supply has increased in proportion to the increase in government debt. Worse the estimated $5.5 trillion of liquidity has piled up in bank reserves and after flirting with near-bankruptcy in 2008, money remains on their balance sheets, invested in newly minted Treasuries. Bloomberg reported that US bank lending is at the lowest levels in five years so that money has not helped the private sector with infrastructure or capital spending.

Lifecycle Of Deficit Financing

More troubling is the lifecycle history of deficit financing when governments have too much debt, they:

  • monetize
  • default
  • devalue
  • inflate

So far, most governments have opted for three of the four options to reduce their crushing debt load with the last one, inflation a consequence of all three. A combination of all four saw Argentina, Russia and Zimbabwe default and the consequence was always hyperinflation. In 2004, the Fed brought interest rates down from six percent in 2001 to one percent and the greenback fell 25 percent. In 2007, the Fed reduced rates from five percent to the current rate of 0.25 percent and the dollar has fallen another 20 percent. Each time, the dollar lost value with investors and debtors losing money through currency debasement. That said, unless your Cyprus, we feel that an inflationary resolution of debt is the most likely outcome.

The Animal Spirits Are Back

Cheap money has simply supported asset inflation. We have long believed the side effect of quantitative easing is inflation, particularly asset inflation. Already health premiums are set to rise because of Obamacare and gas prices are the highest since 1991 with food prices up, but those components were excluded from the calculation of the core consumer price index. In less than two years, the Dow Jones has increased nearly 2000 points to new records and everyone says there is no inflation. Land prices in Saskatchewan and the Midwest have increased more than 10 percent and of course the Canadian housing market is in a bigger bubble that burst in America in 2008. Today, condos in New York are at new highs as are collectable car prices. The inflation bubble is growing. And now our central bankers are targeting unemployment instead of inflation and having achieved near record high unemployment rates with their policies, they are pursuing a path to push up the rate of inflation in order to solve the first problem. We believe that these central bankers will prove to be all too successful in creating much higher inflation and eventually hyperinflation. The inflation genie is clearly out of the bottle.
Show Me The Money

Of concern is what happens next. Quantitative easing has its limits. As such governments are looking for new ways to raise revenues from closing offshore banking jurisdictions like Cyprus to hollowing the Swiss banking system to now confiscating savers of private property. America`s debt dilemma is complicated by the fact that despite the rhetoric, the tax system last year generated fewer revenues resulting in a trillion dollar deficit for the fourth year in a row. Put another way, the US government spends 25 percent of its GDP while it only brings in revenues just shy of 15 percent of GDP. America simply does not bring in enough taxes to support their spending and thus must rely on deficit spending and foreign money to plug that hole. And now each successive effort at quantitative easing is having less and less of an impact. Pacific Investment Management (Pimco), the largest non-government bond player in the world, calculated that in the eighties, it took $4 of new credit to generate one dollar of real GDP. Over the last decade, it has taken $10, and since 2006 it has taken $20 to achieve the same result. In other words, money is so cheap, that like a drug, money is having less and less impact. This is another sign of inflation.

Cyprus Is A Prelude to America's Collapse

"The greatest nation on earth cannot keep conducting its business by drifting from one manufactured crisis to the next. We can't do it," said Barack Obama.

Yet still, Washington doesn't get it. America has become very European. The reality is that entitlements such as Medicare, Social Security and Medicaid were left untouched. In the US for example, entitlements consumed about 45 percent of federal spending in 1978 or almost 9 percent of GDP. The trend among governments is that they have become purveyors of entitlement and distribution not production and thus their spending has grown exponentially. However today, entitlements take up some 60 percent of the federal budget or 14 percent of the country`s GDP. And who pays for this? The US monetary base has grew from $900 billion in 2008 to over $2.8 trillion or 211 percent. Total government debt grew 53 percent during the past four years reaching $16.4 trillion and is now 104 percent of US GDP. More and more taxes are going not to defend the country but to pay others and thus the need for a discussion of government`s role today. After the fiscal cliff worries and the failure to reach a Grand Bargain, there was much handwringing over the sequester talks which was designed to slice $1.2 trillion from spending over the next decade or a paltry $85 billion of automatic spending cuts. Obama's warning of an apocalypse did not happen. It seems the much feared sequester was just another opportunity to postpone the inevitable.

So far America has dodged the European bullet, but only through the issuance of record amounts of treasury debt of which more than a third is held by foreigners. America's dependence on their largesse is limited by their confidence and lately that confidence is waning. In that the last 12 months alone, America had to buy up almost 80 percent of treasury issuances themselves because foreign buyers are on strike.

Caveat Emptor

The lessons are that every sovereign nation can print their fiat currency. Every sovereign nation can create deficits and, of course pay for those obligations with paper promises but there are limitations. By giving free rein to their banking system, allowing the financialisation of its economy, Cyprus followed Greece, Ireland and Iceland where their big banks' bets went bad. The US had a near miss in 2008 when their largest banks failed but the fallout is still a string of large budgetary deficits, massive money printing programmes (QE) and spending. Taxpayers were on the hook. Like Cyprus however, the United States is following the same footsteps on a path of explosive indebtedness. This time the price of the bailout won't be covered by the taxpayers, but like Cyprus, creditors and savers will be the targets. Savers are getting wise to their government's insatiable appetite for revenues, putting their money in hard assets and gold. For those who think Cyprus' move was a "one off", they should think again and look at page 145 in the 2013 Canadian Budget which contains an explicit built-in provision.

"The Government proposes to implement a "bail-in" regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants."

Shortly after, the Finance Department issued a clarification stating depositors' money would not be used, at least for those accounts insured up to the $100,000 limit through the Canada Deposit Insurance Corporation, same as Cyprus.

The world is running out of patience in being hostage to US monetary policy. With the days of quantitative easing limited there are renewed concerns over the exit. Tightening is inevitable. The reality is that the exit means the end of the pump priming and higher bond prices without the support of the Fed. The Fed is more leveraged than Lehman Brothers. With a debt load of $16.4 trillion, sooner or later, interest rates most go up and the $3.1 trillion value of the Fed's portfolio will fall with those losses wiping out the thin capital base of $50 billion leaving the Fed without enough liquidity to protect the dollar or pay for its obligations. And, in unwinding its portfolio by selling half of its $3 trillion portfolio of Treasuries or mortgage-backed paper, the Fed will find itself bigger than the market. Of course, the Fed could always print more capital but the integrity of the dollar and this institution would come into question and a Cyprus-like run on the bank. Cypress is a dress rehearsal for America. Gold will be a good thing to have.

The Lessons of History

Britain in the Forties was forced to drop sterling as a reserve currency because of the cost of fighting two world wars. The US dollar replaced sterling as the world's reserve currency. America then owned two thirds of the world`s gold and after seizing much of their citizens' gold they declared that the dollar would become gold's surrogate and a foundation of the global monetary system. America could then pay its bills with their own currency. The US was on a gold standard from its beginnings in 1789 until 1971. In 1971, when too many dollars were issued to fight the Vietnam War, President Nixon defaulted and suspended the dollar's convertibility into gold in order to stop a run on America's gold. The gold price rose from $35 an ounce to more than $800 in the next decade. And today, seventy years later after having fought two wars, and bailing out the Great Recession, America's dollar has again lost its lustre in an eerie repeat of Britain's downfall. Since 1971 the world has relied on the soundness of the US economy to underpin the use of the dollar as the world's reserve currency. This has changed. If the dollar weakens, its use as a reserve currency and the safety of Treasuries will erode causing a Cyprus-like run.

Meanwhile the Australians are following the Germans in repatriating their gold reserves. Australia has some 80 tonnes in London, and like others are repatriating the physical metal to store in their own vaults. Of interest is that when countries mobilize their gold, devaluations generally follow. After Venezuela repatriated its gold reserves, the country blatantly devalued the bolivar for the fifth time since currency controls were introduced in 2003. That devaluation instantly reduced Venezuela's debt and consumer purchasing power collapsed as inflation took off since with than a third of Venezuela's goods imported. Who else will follow Venezuela? The repatriation move is an echo of the hyperinflation spiral in the past 75 years. Competitive devaluations were used in the Thirties to gain a competitive advantage and the "beggar thy neighbour" policies prolonged and deepened the Great Depression.

Meantime, every central bank appears to be protecting themselves by either buying gold, repatriating their holdings or diversifying from dollars. Central banks bought 500 tonnes, the most in over fifty years. Since 2006, central banks have doubled their reserves with gold becoming a big part of their holdings. Central banks from Russia, South Korea and Kazakhstan have increased their gold holdings.

In the meantime, world gold supply has fallen 1.4 percent as miners find fewer ounces. Even the selling by hedge funds in the last quarter was offset by central bank buying.

Gold Is Money

It may be reasonable to ask what is the solution? We have long argued that gold was real money because of its historic role as a reliable store of value. It is gold's dearness that gives it value. The same cannot be said for fiat currency, which has become more of a commodity traded in the trillions every day.

Despite a bounce, the greenback has weakened over 20 percent on a trade weighted basis, sparked by the Fed's tranches of quantitative easing. Needed is an exchange rate that all major economies can adopt to replace the so-called discipline of fixed exchange rates because few central banks will abdicate their money creation powers. A first step would be to fix the price of gold to the dollar which would reintroduce convertibility. By linking gold to the dollar or a basket of currencies, it would be a step towards the restoration of confidence and a spur to economic growth, something that is lacking in the world today. According to the IMF, the share of the dollar has fallen from 71.5 percent in 2001 to 61.9 percent of global currency reserves. The euro, once thought as an alternative, is too weak and vulnerable.

While economic power has shifted to the East, China`s renminbi, has gone from zero to fourteenth. China is joining four of the BRICS countries to create their own development bank giving them new financial muscle in their dealings with the traditional debt-laden west. We believe that China has taken initial steps towards making the renminbi an international currency and ultimately a reserve currency. The renminbi is used to settle trade in the East and China has signed currency swaps with over twenty countries. Of course, the renminbi is no replacement for the US dollar, but in the interim, gold has become a defacto currency again. China must somehow protect its large $3.2 trillion of foreign exchange reserves, which is invested mostly in dollars and vulnerable to depreciation losses. No one knows what the right price for gold, but gold historically has protected the purchasing power of currencies. That is gold's appeal - a hedge against the uncertainty of the value of currencies and the unknown.

Gold is a Default Currency

Gold fell five percent in the last quarter but last year climbed seven percent to a new high for the twelfth year in a row. Gold ETFs reached a record 2,632.5 tonnes at yearend. Bullion dropped below $1,600 in a corrective phase and is down 6.2 percent seemingly stuck in a range frustrating both bulls and bears. We continue to expect $2,500 an ounce this year. Gold is highly prized, particularly when paper money is being debase. With the closure of another offshore banking industry, together with the hollowing out of the Swiss banks, there is a war on private wealth. The potential exists for broad-based nationalisation of the banking system, more capital controls, restrictions on financial markets and the likelihood of more banking rescues using depositors' funds. The rules are a changing.

We therefore believe that despite gold's flirtation with ten month lows, gold is an alternative currency and a haven from currency woes. Cypress is the beginning of the end of the euro. Much of the drop in gold occurred during China`s week long New Year holiday and China which accounts for 25 percent of consumer demand is expected to continue to be the top buyer of gold. We expect China to boost its holding beyond the meager 1.8 percent current holding and thus the current weakness presents an excellent purchase opportunity. Gold has become the new global currency by default. It is the rational antidote as an alternative currency to the excess accumulation of dollars, euros and now yen. It is the rise in the price of gold for the past twelve years that reflect the devaluation of paper currencies. The seizure of savings, false bailouts, sequesters and currency wars have sapped confidence in the dollar without which, the world has no valid reserve currency. The inevitable always happens, not always on time. Part of gold's allure is its status as a safe haven. Gold is good thing to have - ask any Cypriot today.

Strategy: Mea Culpa

For the past six years, the gold miners have underperformed the yellow metal. Gold has risen 146 percent but the index has fallen 16 percent, due in part to the competition from ETFs. But the other main reason is that gold mining has not been a profitable business. The mining industry is well known for qualities that are sometimes out of step in today's marketplace. At one time the industry introduced hedging but soon reversed themselves after taking billion dollar losses. This time they went on a buying spree and the mega-projects and mega-acquisitions that were bought just a few years ago came home to roost in the form of mega-problems and mega-losses resulting in the replacement of at least a half dozen CEOs in the industry. To date the miners have written off a total of $12 billion related to earlier expensive acquisitions.

Now, the gold miners have adopted a new religion of profitability instead of growth. Consolidations and shedding of higher cost mines could give the industry a new lease on life. Rising costs are inevitable as miners dig deeper so grade control is key. Amazingly, much of the industry's executives are non-miners, so to no surprise execution became a problem, particularly since their much ballyhooed acquisitions were more about ounces than profitability. However, there are signs that the industry is a changing. For a long time miners glibly told investors that their cash costs were around $300 an ounce. But in the past few years, results were repeatedly subpar with many investors questioning the lack of profitability despite record gold prices. They asked, "if your cash costs were only $300 an ounce, why did you lose money?" The industry in an effort to revive industry interest has introduced "all in" sustaining costs which proved to be more than double earlier stated costs. All in costs will include exploration, interest, royalties, depreciation, amortization, maintenance capital and in some cases, capex. Still, there are some deposits shared by two companies and strangely the same deposit has two very different costs per ounce. The industry needs more transparency.

Show Investors the Gold

At one time hedging once boosted the industry's profitability at the expense of balance sheets and earnings. Barrick was forced to take in excess of a $5 billion hit to reverse those hedges. Thankfully, hedging has become socially incorrect. The industry misses the point. It's not the manipulation of earnings or profitability (after all many of them high-grade during the hard times and low grade during the good times, skewing costs) but that investors want exposure to gold. While gold miners were on this path of growth by acquiring each other and more ounces in faraway places, the gold industry created a depository for their gold by introducing gold bullion-backed Exchange Traded Funds, (ETF). From nothing, the ETFs currently hold more than 2500 tonnes, or more than most of the world's central banks. Simply, ETFs provided investors exposure to gold without the operating risk.

An equally bigger problem is that with the industry's new emphasis on profitability, there is the likelihood that the industry will harvest ounces and for some, not be able to replace reserves. Cash strapped juniors no longer have the financial wherewithal to fund exploration and at the recent Prospectors & Developers Association Convention (PDAC), the common theme was the lack of funding. It has been calculated that over half of the companies on the TSX Venture (TSXV) today are trading under $0.10 a share and their treasuries only have enough to cover their G&A expenses for the next few months. Too be sure, the exploration industry is in a bear market. Currently, the TSX Venture index is closer to the lows of the crash of 2008 and 2002 lows. Total equity capital raised in the first two months of this year was a paltry $558 million versus $1.36 billion last year and $2.46 billion in 2011. To be sure, in the long run there are some great values since the lack of funding and exploration will ensure less gold will be found supporting even higher prices in a peak gold scenario.

We also believe the gold industry should look for ways to return capital to their investors whilst providing exposure to gold. Dividend increases are a no-brainer, particularly since most Canadian miners pay less than 20 percent of the earnings in dividends. We believe that the industry could increase their payouts closer to the 30 percent payout paid by BHP, one of the world's largest miners. And, those CEOs in the corner offices should advise shareholders that the focus on dividend commitments are a priority. This would be a first step towards regaining investor trust. The industry is in need of structural change.

Investment dollars that once were used to support acquisitions or even exploration programs, have rushed to ETFs, gold bullion and other areas. The new religion is that growth is out, and that returns to shareholders are in.

Dividends are one way, or how about dividends linked to the price of gold. Newmont has already done that. Perhaps the gold industry should extend that further, and think of introducing a royalty tied to the price of gold with quarterly distribution to their shareholders. Or why not a structured product based on a company's production but the return goes not to the company but to their shareholders. This way, investors can make an investment and knowingly participate in gold's bull run. Indeed one questions the logic as to why the gold industry continues to dig gold from the ground, processes the ore and in turn receives paper, a depreciating asset in exchange for their monetary asset. In some cases it is better for the gold producer to keep the gold in the ground since gold has appreciated for more than 10 years. Perhaps the industry would be better off keeping the gold they mine on their balance sheet, something that Rob McEwen did with Goldcorp. In other words there is the need for a new approach, a new paradigm - show investors the gold.


Agnico-Eagle Mines Ltd.

Agnico's results were in line with expectations and the Company continues to under promise and over deliver on achievements at its Quebec-based flagship LaRonde with improvements at Meadowbank and Pinos Altos in Mexico. Agnico produced one million ounces at a cash cost of $640 and raised its dividend. Canada's fifth largest producer is benefiting from having its mines in geographic friendly jurisdictions as well as fewer execution problems in developing their new mines. Agnico will report flat production this year but a 12 percent increase next year. We reiterate our view that Agnico is a buy here.

Barrick Gold

Barrick took a whopping a $4.2 billion charge in the fourth quarter, writing down the value of Equinox Minerals, which it bought for $7.3 billion in 2011. Like its competitors, Barrick also pointed to rising production costs and thus pared its capital spending budget. As others, Barrick pointed to their production target many years out, but near term production will still be flat.

Barrick is the world's largest gold producer and the new CEO, Jamie Sokalsky is left to turn this big supertanker around. We believe that like the stubbornness to reverse the hedge book which cost Barrick billions, management remains fixated on developing the world's most expensive gold mine, Pascua Lama, on the Chilean and Argentine border. Once budgeted at $3 billion, Barrick now estimates that the mine could be completed at a whopping cost of $8.5 billion. What Barrick and the gold industry should learn, is that too often mega-projects bring mega-problems.

The industry is a cyclical industry and the rate of return on expensive capital makes the production of a declining resource prohibitively expensive. With over 140 million ounces of gold in the ground, Barrick should be focussing on producing those ounces at a healthy profit. In addition Barrick should be thinking of paying out a dividend of least 30 percent of their earnings. Hopefully Barrick will be a better seller than buyer of assets and the kitchen sink includes not only the gas company but African Barrick and some of those mines in geographic risky areas of the world. Resource nationalism has become a problem and too many governments view the industry as a golden goose ready to be plucked. Needed also with the departure of Munk is a shake-up at the Board to include more technically competent and mining savvy individuals like the late Bob Smith. Nonetheless, we believe Barrick shares have discounted its problems and with the retirement of founder Peter Munk, we feel the shares have bottomed out around here.

Centerra Gold

Centerra reported a loss of $68 million due to an accounting charge related to the underground operations at Kumtor in the Kyrgyz Republic. Kumtor accounts for 12 percent of Kyrgyz's GDP, but the government is still pushing for more than their 33 percent stake. We believe that Centerra will accede to their demands making the shares vulnerable to a correction. Noteworthy is that Centerra has replaced reserves that total 11.1 million ounces. Centerra has a great balance sheet with cash of $600 million but the Company needs to utilize that cash to diversify its asset base. An agreement with the Kyrgyz government would at least bring peace, but unfortunately does not appear to be a lasting one. We prefer Eldorado here.

Goldcorp Inc.

Goldcorp booked lower profits of $0.57 due to increasing costs. Goldcorp plans to spend $2.8 billion this year, with the big part to be spent at the Cerro Negro project in Argentina where costs have sky rocketed and the geopolitical climate remains uncertain. Overall cash costs increased to $621 an ounce, but all in sustained costs were up to $900 per ounce of which sustaining capex is $439 an ounce. Goldcorp did announce a boost in proven and probable reserves to 67.1 million ounces despite almost 16 percent drop at Penisquito. However, the promising Eleonore project in Quebec will not be in production until late 2014 and Cochenour will not be in production until 2015, although Cerro Negro should in production by the end of this year. At the big Penasquito mine in Mexico, Goldcorp has given guidance of 360,000 to 400,000 ounces which is optimistic given the problems since start up. Penasquito remains a disappointment. Their other main mine, Red Lake will again post lower output offset by 40 percent owned Pueblo Viejo in the Dominican Republic. Goldcorp's output should show a slight improvement this year over last year's 2.4 million ounces. A switch to Barrick would be timely.

Kinross Gold Corporation Kinross' production was up slightly with a major contribution from Paracatu (Brazil), Maricunga and La Coipa (Chile). Kinross will spend $60 million in South America and are hopeful of reaching an agreement with Ecuador for the development of $1.2 billion Fruta Del Norte (FDN). The development plan has been delayed and the project agreement expires on August 31, 2013. As expected, Kinross took a massive $3.1 billion write-down, mostly for the Tasiast Mine in Mauritania acquired in 2010 for $7.1 billion. We believe that Tasiast continues to be a problem and even with the project cut in half, we do not believe that the project is viable and thus we would avoid Kinross. Kinross should produce 2.4 million ounces this year.

Osisko Mining Corp.

Osisko's performance has been a disappointment due to the lengthy start-up problems at the 100 percent owned Canadian Malartic mine in Quebec. Osisko is putting through 50,000 tonnes per day, less than designed. The key is to boost output. Nonetheless Osisko produced 500,000 ounces annually from its large open put and earnings of $0.20 a share or $78 million. Osisko still has Upper Beaver (Queenston) and Hammond Reef, but "job one" is to maintain consistency at the Canadian Malartic mine. We like Osisko down here, particularly for its geographic jurisdiction and growing production and growth pipeline.

Yamana Gold Inc.

Yamana's fourth quarter profits were above expectations despite a big boost in exploration. Based mostly in South America, Yamana's production was up more than 17 percent in the quarter and should produce 1.4 million ounces from primarily three mines in Brazil due to be brought on stream. Development work on the Cerro Morro in Argentina has begun and the project is more advanced. Yamana has copper and reports on a gold equivalency basis. By-product credits help costs but are confusing to investors. Nonetheless, cash flow last year was a robust $1 billion or $1.04 a share and cash on hand is about $350 million.

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Analyst Disclosure
Company Name Trading Symbol *Exchange Disclosure code
Aurizon Mines Ltd ARZ T 1
Barrick GoldCorp ABX T 1
Centamin Minerals CEE T 1
Centerra Gold Ltd CG T 1
Detour Gold DGC V 1
Eldorado Gold Corp ELD T 1
Disclosure Key: 1=The Analyst, Associate or member of their household owns the securities of the subject issuer. 2=Maison Placements Canada Inc. and/or affiliated companies beneficially own more than 1% of any class of common equity of the issuers. 3=<Employee name> who is an officer or director of Maison Placements Canada Inc. or it's affiliated companies serves as a director or advisory Board Member of the issuer. 4=In the previous 12 months a Maison Analyst received compensation from the subject company. 5=Maison Placements Canada Inc. has managed co-managed or participated in an offering of securities by the issuer in the past 12 months. 6=Maison Placements Canada Inc. has received compensation for investment banking and related services from the issuer in the past 12 months. 7=Maison is making a market in an equity or equity related security of the subject issuer. 8=The analyst has recently paid a visit to review the material operations of the issuer. 9=The analyst has received payment or reimbursement from the issuer regarding a recent visit. T-Toronto; V-TSX Venture; NQ-NASDAQ; NY-New York Stock Exchange


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