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Gold & Silver: The Perfect Storm | Q&A with Paul Mylchreest, Mining Analyst

24 Nov 2020 / News

On Wednesday 11th November, we introduced our first Mining Investor Forum in partnership with London South East. Traditionally a multi-sector conference, for this quarter our Forum evolved into a timely, specialised event, focusing on the mining sector.

Driven by renewed interest in “safe haven” assets and Bank of England discussions around negative interest rates in 2021, the line-up of presenting miners provided investors with valuable insights into high conviction investment ideas and a chance to interact with management through the live Q&A.

Following the company speakers, Paul gave the keynote presentation, followed by a lively Q&A session.

Here, we transcribe that Q&A (edited for concision). You can watch the video of the session here.

 

Paul Mylchreest Q&A

Richard Angus, Head of Business Development, Hardman & Co

Thank you very much, Paul. We’re going to have a very quick Q&A session. You’ve got three questions. Please try and be as succinct as possible, but I suspect you could talk for a long time on at least two of the three questions.

The first question: if the new resources of gold, in particular, are becoming more scarce and more difficult to find, do you think that the large mining companies will become more acquisitive in order to replace assets? Or do you think another scenario will play out?

Paul Mylchreest, Metals & Mining Analyst, Hardman & Co

No, I think that’s exactly right. I tend to take my lead from Barrick Gold. It bought Homestake and Placer Dome, and that was right as the bull market began. More recently, we’ve seen Barrick take over Rangold. It tried to take over Newmont, but that didn’t work out. They have great timing and, as many of the smaller companies will tell you, the big companies are good at running mines, but they’re often not very good at finding gold reserves, so I think it’s almost certain that, yes.

Richard

Just to go back to your one of your opening comments, I think you described silver as being gold on steroids, or words to that effect. Could you just expand on that statement, please?

Paul

One thing I really look at is the gold:silver ratio, which, I think most people would agree, at something like 75, looks completely out of line versus history. When Alexander the Great was walking the earth, it was 12 and a half. When Isaac Newton was the master of the royal mint, he set that ratio at 15.5, and most people thought they undervalued silver, and silver left the shores of England, which is one reason we ended up on a gold standard. So I think we’ll eventually see some kind of mean reversion, and I think the great thing about silver is that it’s both a monetary and an industrial metal. Any electronic device you can think of has silver in it these days, because it’s the best conducting metal. So I think we’ve now got past the negative impact of the loss of the photography industry, and I think we’re seeing growth in industrial demand and investment demand.

Richard

How do you play the gold and silver markets right now? You’ve got certain instruments, you’ve got certain ways, and certain strategies – what do you think investors should be looking at?

Paul

I guess it depends on your attitude to risk. If you want to take the lowest risk, you either buy the metal, so you know you can buy a physically backed ETF, or you can go and buy sovereigns, and store them at the royal mint – they’re not subject to capital gains tax, because they’re legal tender. If you want to go out on the risk side of things, you’d shift from gold into physical silver, but, as we all know, silver is very volatile – that’s the nature of the beast – and then you’re moving through the gold mining majors into the junior players, which should have the highest returns, because they are the highest risk. I think we’ve put up three very interesting potential investments here today, but if none of those work for you, then don’t forget you can buy ETFs, which give you a broad exposure to a number of juniors.