Who is Chen Lin? and why you should listen to him.
Mr. Lin is a profitable doctoral candidate in aeronautical engineering, who found his abilities to strategize investments so profitalbe that he put his PhD on hold. In fact, he was so good at selecting good investments that he was able to take $5,411 of his wife's retirement account and turn it into $1.5 million - without adding any extra principal. The following are excerpts from an interview with Mr. Lin conducted by 'The Gold Report' where Mr. Lin discusses his thoughts on "undervalued gold miners, and why he has high hopes for silver...".
Begin Interview Quote
TGR: With gold trading around $1,800+/ounce (oz.), famous precious metals investor Eric Sprott announced that he is selling 2 million units, or $30 million (M), of the Sprott Physical Gold Trust. Sprott then said he would take that cash and put it into silver, which he called "the investment of the next decade." What do you think of his long-term silver strategy?
Chen Lin: Silver and gold are both precious metals, but they move at different times. Right now, the gold:silver ratio is a little bit over 40. Obviously, Sprott is more bullish on silver versus gold. I take a pretty even point of view. I like gold. I like silver. I know that historically the gold:silver ratio is much lower than it is right now. I checked Chinese history and it's about 10:1. Even China has much less gold than the rest of the world and is richer in silver. We could have a much lower ratio, which means silver would outperform gold going forward, but personally I'm betting evenly on gold and silver.
TGR: Another interesting development is that Venezuelan President Hugo Chavez has announced that he will nationalize all of the remaining non-state-owned gold mining operations in the country. Is this announcement likely to affect the share prices of small-cap companies operating in other countries with leftist leaders, like Bolivia or Peru?
CL: I think it's possible. What Chavez is doing will probably destroy the country's gold mining industry because it needs the juniors to lay the groundwork so the majors can dig out the gold. If Chavez nationalizes, it will probably lower the gold production. I think one day he will regret that. It will increase concerns about the political risk in countries that have those close ties to Chavez.
TGR: Recently, we saw the Dow Jones Industrial Average drop a little over 400 points in a day. What's your outlook for gold? Are we going to see $2,000/oz. gold before the end of 2011?
CL: It's very possible. I personally do not want to see the parabolic move of gold. I hope gold doesn't rise as fast as silver did in the second half of last year. But in the back of my mind, I think gold could do that. There is a dramatic difference between this year and 2008, however. In 2008, gold initially went down along with the stock market. This year gold went up as the market went down, which means investors believe gold is the place to put money. I read a report that some banks in China have low gold inventories because individual investors are buying gold like crazy. It's very possible gold goes to $2,000/oz., but I hope it goes slower. I invest in gold. I have gold exchange-traded funds, gold futures, silver ETFs * and silver futures on my recommendation list. But I hope they go up gradually.
TGR: Do you fear a correction?
CL: I hope we have some correction. I expect that the margin will increase another six times before gold has a real correction. That probably will push into early next year. Usually the gold season is strong from September into Chinese New Year. A severe correction could come in February.
TGR: Your investment success is somewhat legendary. You took about $5,000 in 2002 and turned it into about $1.56M by the end of 2010. Even as your portfolio regressed this year, it's only by 10%. What's changed in 2011 that is making it more difficult to find small-cap companies poised for big gains?
CL: This year has been difficult. The resource stocks got hit as investors took profits and ran. Fortunately, I have a pretty diverse portfolio. I have stocks, ETFs * and futures. It is a very difficult year for small-cap companies, but I see some great opportunities. I'm ready to buy because investors are selling gold stocks indiscriminately. This is the time to buy. There are some great opportunities for investors that have a relatively long-term vision.
TGR: So then, what is Chen buying?
CL: Pretium, which I mentioned earlier, is run by Bob Quartermain, the founder of Silver Standard Resources Inc. (TSX:SSO; NASDAQ:SSRI). Management is really key at gold and silver companies. There are tons of companies that just go nowhere. The management raises money to pay themselves. With great management, like Bob Quartermain, there is a proven track record. He doesn't just grant options to management. He buys them. He bought shares on the market like every other shareholder. He has a couple of projects that are becoming very promising in British Columbia, which I am visiting next week.
TGR: Is that the Snowfield Project?
CL: Yes. Pretium is in low-grade Snowfield and high-grade Brucejack. I think the Snowfield Project will likely do a deal with Seabridge Gold Inc. (TSX:SEA; NYSE.A:SA). Quartermain is more focused on the high-grade area with about 15 kilograms/ton of gold. Some people don't believe it. They say it must be silver. It's gold. That is what he is focused on. He is looking to do a very high-grade underground operation, which was permitted before. He just needs to reapply for a permit and get into production.
TGR: What are some other names on Chen's radar screen?
CL: Barkerville Gold Mines Ltd. (TSX.V:BGM) has been on my list for a pretty long time. I like the company. I met the management. The stock has already gone up pretty significantly since my recommendation. However, it recently has been in consolidation, which could be an entry point. The company keeps making progress. It keeps producing gold, which means it can generate a lot of cash flow at the current gold price. That will fund its next move versus going into the market begging for money.
TGR: Barkerville is planning to mine about 50 thousand ounces (Koz.) from the QR Mine this year. Is it on target?
CL: I will be following that very closely. As long as the company is producing gold, it should be doing fairly well. As long as it can produce, even if it's not 100% as planned, the higher gold price will compensate. If the company can make its target, that will be a great bonus.
TGR: Has Barkerville forward-sold any of its gold or is it fully exposed to the gold price?
CL: No, it is fully exposed to the gold price. You don't want to invest in any company that has hedges in place. Then it would be selling gold at maybe $1,000/oz. when it could be getting $1,800/oz. or more.
TGR: What's another name, Chen?
CL: I just visited Prophecy Platinum Corp. (TSX.V:NKL; OTCPink:PNIKD; Fkft:P94P). It's in the Yukon, very close to the Alaska border and only about 10 miles from the Alaskan highway. It just announced a NI 43-101 for about 12 million ounces (Moz.) of platinum, gold and palladium. The key for the company is to have very high grades. Right now, it has consolidated a little bit as the company is probably going to raise money. Sprott just announced it bought about 10% in the open market. I would assume Sprott would probably participate in one of many raisings. Then we can potentially consolidate the stock and it could go higher.
TGR: On the other side of the ledger, what are you divesting yourself of right now?
CL: I have been gradually selling some gold and silver ETFs *. They have appreciated a lot, so I use them as buying power on the dip on the miners. Instead of following Sprott by selling gold and buying silver, I'm reducing a little bit to use that as capital to buy undervalued small-cap gold and silver miners.
TGR: Any parting thoughts for us?
CL: I think this market correction will create a lot of opportunity for us. The market is putting a lot of pressure on the European leaders to get their acts together. There is a lot of pressure on Federal Reserve Chairman Ben Bernanke to do another round of quantitative easing. I hope the outcome will have some stabilizing effect on the market. In the meantime, when investors are selling everything, that's a very good buying opportunity.
End Interview Quote
* An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks.
To read the complete interview, visit this link - Read Article
