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Gold/Mining/Energy : International Precious Metals (IPMCF) -- Ignore unavailable to you. Want to Upgrade?

To: go4it who wrote (30157)	1/24/1998 9:39:00 AM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 35569

Charles, I understand the hypothetical nature of your post and in that spirit I would like to comment. IPM has a reserve calculation and the have a higher cost extraction process. Because they have this they can now perform forward sales of gold and Pt... Under the scenario you outline IPM will not be able to execute forward gold sales. There are two mechanisms for a company to execute such hedging transactions; exchange traded futures or otc transactions with a gold trading firm. Exchange traded futures will require initial margin and ongoing variation margin. This will be a lot of cash, cash that IPM doesn't have and will need to start operation. Trading firms will not enter into forward gold transactions with a firm that has no production yet and hasn't yet proven commercial viability of its extraction process. And trading firms and banks will be very slow to extend credit based purely on higher commodity prices. They all have bitter memories from busted loans to the energy industry when oil was at $40 a barrel. The recent Bre-X scandal will also make them wary of claims of unique gold deposits. Forward gold sales will not be a viable option until you have a producing mine. IPM will need to get into production using equity capital before credit intensive techniques can be contemplated. I am neither a gold bug or bear. I never buy the arguements about worthless paper currencies as they are out of touch with the reality of the functioning of the currency and metals markets in a global market with free capital flows. I currently believe gold is undervalued but not because of some inherent superiority as a currency. People get into a lot of trouble with their investments by investing for the wrong reason. Investing in a gold mine because of a belief in gold is the wrong reason. A gold mine is a business. Investing in a gold mine should be about finding a company that can get the stuff out of the ground cheaper than it can sell it. If you believe in gold, buy gold. Keep your decisions focused. The future for IPM is finding a process that will unlock additional reserves and developing a lower cost production method. A decision to invest in IPM should be made based on a decision on their ability to accomplish that. If you believe that gold is going to spike up and THAT will bale IPM out, then there are better choices. At $400 an ounce it would be a very high cost mine and a marginal producer. There are many other levered gold mines that are already in production which would make a much better investment under those circumstances, RYO for instance. Again I realize this was just a speculative discussion. Henry