This interview was conducted by Brian Sylvester of The Gold...

This interview was conducted by Brian Sylvester of The Gold Report (15/07/2013)

Now is the time to be brave, to buy when everyone else is selling, advises Stephan Bogner, analyst with Rockstone Research and CEO of bullion dealer Elementum International. Content to go against the grain, Bogner believes investors should be 100% invested in precious metals, both in physical metals and equities. He is interested not only in companies that are profitable now but also in ones that will someday be in the black again. In this interview with The Gold Report, he describes his ideal portfolio, which includes companies operating in far-flung places.

The Gold Report (TGR):
You are more bullish on gold and silver now than when the bull market started in precious metals nearly 13 years ago. Yet Swiss bank UBS says the commodities super cycle is over.

Stephan Bogner (SB):
I was pretty bullish on gold and silver in 2002 when I completed my university diploma thesis on the exotic topic “Gold in a Macroeconomic Context.” I’m even more bullish today because the macroeconomics did not change; it got worse.

The fundamentals for gold and silver have never been as bullish as they are today. Money is much more likely to flow into the sector, as there’s no other place to hide from the increasing uncertainty and excesses of our financial and economic system. The recent crisis in Cyprus has shown that money in a bank account is not safe anymore and yet this does not even take inflation into account.

TGR: Have gold bulls like yourself underestimated the ability of the world’s largest banks and most powerful governments to control the gold price?

SB: Gold and silver are the only barometers of the health of our monetary system. Those who want to maintain the current system may try to manipulate the barometers so that the masses misinterpret the situation as long as possible. But prices will not remain low for long; the fundamentals of supply and demand will cause them to appreciate. Professor Dr. Hans Bocker, my diploma thesis supervisor and a renowned economics expert in Europe, emphasizes that nothing and no one are stronger than the market.

TGR: How should investors break down their portfolios for this new world order?

SB: Liquidate all available assets and move at least 70% out of the banking system by purchasing physical gold and silver bullion and storing it in an independent vault within a free zone of a safe country.

I do not recommend that anyone buy paper gold and silver in the form of certificates, options or futures. These are the most dangerous markets and the most manipulated. This includes exchange-traded funds (ETFs). You can’t be certain that they are really buying physical gold and silver with all the money you put into ETFs or that you will get the physical bullion when you want to sell. Professor Bocker, who is also the chairman of Elementum, emphasizes that it’s crucial to physically hold bullion in order to survive the upcoming financial crisis.

Mining equities fit very well into a portfolio consisting of physical bullion. You can pour some 70% of your funds into bullion as a crucial life insurance or security deposit and invest 30% of your total assets in mining equities, vehicles that typically generate exorbitant profits during a bull market in gold and silver.

TGR: What about cash? That leaves you with almost no liquidity in your portfolio.

SB: I consider investments in mining equities as cash equivalents. You can sell part of your holdings anytime and use that cash immediately.

TGR: Doesn’t the size of the precious metals equities market make it difficult to get in and out and reduce the market’s liquidity?

SB: You should diversify and focus on stocks that are liquid so you can get out quickly without much “noise.” Have a healthy diversification between junior and senior mining stocks and trade frequently within your core portfolio.

TGR: What are the basics of your thesis for precious metals equities?

SB: At Rockstone Research I not only analyze the general markets, I analyze junior and senior mining stocks. Mining provides unique possibilities for great profits. If you know a bit about geology, chemistry, metallurgy, technology and the general mining business, you can identify mining stocks on the verge of rising, regardless of the underlying metal prices.

The share price for a small exploration company with great drill results will rise even if gold is in a bear market. Keep in mind that increasingly fewer stocks will appreciate through the next collective upswing; many projects and management teams have not proven to be viable. These companies will go out of business and make the market a better, more consolidated place than it was during the last decade.

From an investor perspective, you can view the current temporary bear market as a good thing because only the best companies will survive. Finding these companies before other investors find them can be the chance of a lifetime. Now is the time to start buying mining equities when they are heavily discounted and priced down. Take all your courage, go out there and buy when everyone else is selling as if there was no tomorrow.

TGR: What do you think is an effective approach to buying these equities? Should investors buy on drops and pullbacks?

SB: Yes, buying on dips and pullbacks is a good way to get into an investment. If you are in the red with an investment, you can either try to be patient and wait for a general recovery or you can sell and buy different mining stocks now because the market has changed severely in the last seven months. It has created ridiculously low valuations of certain mining stocks that I would not have bought seven months ago. I am no fan of strict “buy and hold” approaches as whole markets, expectations and single opportunities change over time. Selling some positions even with a loss to buy others that appear to be much more of a bargain can be very lucrative.

TGR: What stories are you following?

SB: In a depressed mining market such as today’s with low metals prices and most producers operating unprofitably, investors already, and will increasingly, favor not only the few profitable mining companies that are left but also mining equities with the following six characteristics: 1) have experienced management, 2) are cashed-up, 3) have an advanced-stage exploration and/or mine development project, 4) have low capital expenditures (capex) to achieve high internal rates of return, 5) have high-grade deposits, 6) are operating in a stable mining jurisdiction.

Cash is king, even more notably in tough times, so I now look for newborn cash-flow machines that are poised to grow big during the next few years as I bet on much higher gold and silver prices.

You want to look out for companies that right now are successfully developing world-class deposits; when production kicks off in a few years, metal prices are expected to be much higher than today.

TGR: What other companies are you following?

SB: Other stocks that I like in this respect are Roxgold Inc. (ROG:TSX.V) and Orezone Gold Corporation (ORE:TSX), with their high-grade and large gold deposits both located in Burkina Faso,
as well as ASX-listed Ampella Mining Ltd. (AMX;ASX), which has the 3+ Moz Batie West Gold deposit, Burkina Faso’s largest undeveloped gold resource at a 1 g/t cut-off.