The Gold Report: More and more new gold companies are popping up as interest in gold as an investment vehicle increases. How does an investor begin to understand which gold companies are viable and which ones are just taking advantage of the building interest in gold? Brent Cook: Investors should consider that most of the new companies coming in now are trying to take advantage of the gold price. Longtime gold investor Rick Rule has a classic statement that the only thing that limits the supply of paper that the Canadian market can print is the number of trees between British Columbia and Newfoundland. To some degree, that is very accurate. I think it is important to be even more diligent in reviewing companies today. Investors should look at management, share structure and the prospectivity of the projects the companies are actually planning to spend your money on. That is key.
TGR: Some companies may simply be springing up to take advantage of the rising price of gold, but there must be some legitimate new companies. Is the gold price making some projects economically viable?
BC: Certainly. If you run a geologic and economic model on a mine—let's say 0.7 grams per ton (g/t)—it could be economic with gold at about $1,300/oz. but not when gold was at $1,000/oz. You still have to look at that profit margin, plus the size of the capital needed to build the mine. I think we are going to see a lot of companies that have marginal deposits start to be put into production. Those deposits rely on the gold price staying above $1,000/oz. or more. (more)
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