The Correct DecisionIn this Month’s Issue

� The Correct Decision

� Producer Update: Where We Are, and Where We Are Headed

� Portfolio Updates: Buying in Tranches

� Parting Thought: Drucker on Decisions

Doug Casey, ChairmanLouis James, Sr. Investment StrategistLaurynas Vegys, Analyst Konstantin Ogurchenkov, Analyst

Prices

Gold ............................. $1,324.70

Silver ........................... $18.75

Platinum ....................... $1,043.00

Palladium ..................... $666.00

Oil ................................. $43.17

Uranium ........................ $25.25

Natural Gas .................. $2.97

Copper ......................... $4,607.00

Nickel ........................... $9,880.00

Zinc ............................. $2,348.50

Issue 8.9 Sept. 7, 2016

A publication of

Casey Resource Investor

Dear Resource Investors,

It was lucky that the car had slowed to round a corner when the door opened and my baby sister fell out. She’d been leaning against the door, not wearing a seatbelt. I was a teenager, sitting beside her in the back seat. I reacted pretty fast, but not fast enough; I caught her by the foot. It wasn’t a good enough grip to pull her back in…and she was slowly slipping from my grasp.

It was one of those crystalline moments in life, when you see everything clearly in a flash. I shouted, but no one else could see. I knew what would happen if I held on. The car would take time to stop. It would straighten out of the curve. Holding her by the door, I was keeping her close to the car; she’d almost certainly go under the back wheel.

There wasn’t time to look around and see if other cars were coming. The decision was clear. It was a near-certainty of her little body getting crushed by the back wheel, vs. the unknowable odds of her rolling away from our car and getting hit by another car.

I let go.

I’m happy to say that there were no other cars around. Her back was lacerated and she got some other bumps and scratches, but my sister survived and is alive and well today.

The obvious point of this story is simple enough: we as individuals and investors must often make decisions the results of which we cannot know, so we do our best to estimate the odds.

Less obvious is that a correct decision makes the odds of success, but doesn’t guarantee it. In my case, when I let go, my sister might have been hit by another car. Letting go would then have been the “wrong” decision in terms of outcome—but it was still the right decision in terms of giving her the best chance I could.

Casey Resource Investor

2

A correct decision isn’t always a winning decision. It’s the right thing to do, given what we know at the time.

This is how resource investors must view their decisions. Success is never guaranteed. Mr. Market doesn’t care what we want or what we think should happen. Our feelings are irrelevant. We have to weigh the odds with the information we have. We must accept that we’ll win some and lose some. If we assess the odds correctly, we’ll win more than we’ll lose.

Here are the critical pieces of information relevant to our investments now:

• Gold dropped as much as US$50 in August, or about 3.7%. Silver was down as much as 9.8%. Both rallied last Friday.

• The Gold Miners ETF (GDX) dropped as much as 19.8% in August. It was down 14% from its recent high as of last Friday’s close. That’s a big correction for large companies, as you can see in the chart below.

• We see the correction in our portfolio, as we warned we might. Our trailing stop loss (TSL) on First Majestic (AG, FR.TO) was triggered.

• A lot of the downward pressure came from growing fear that the Fed will raise interest rates this month. That fear diminished when the U.S.’s August employment numbers came in weaker than expected.

• The global house of economic cards remains shaky. There are some signs of improvement, some signs of further decay. The world’s central bankers continue experimenting with crazy policies with unknown consequences, such as negative interest rates.

• The global geopolitical tinderbox remains on the edge of conflagration. There are many hot spots from the Middle East to the South China Sea. Black swans circle thicker than ever.

In short, precious metals and our stocks are on sale while our reasons for owning them remain in force.

The correct decision is clear: it’s time to back up the truck to complete our positions in the best of the best gold and silver stocks.

In the context of this letter, that means the most solid producers. With this in mind, we have a comprehensive review of our top picks for you in this issue.

Casey Resource Investor

3

About Stop LossesAs noted above, our TSL on First Majestic (AG, FR.TO) was triggered. Remember that our TSL recommendations are a new policy. They are meant to prevent massive losses, should the markets turn decisively against us, or should a company get into serious trouble. In First Majestic’s case, the correction in metals prices could mean real trouble. If so, there’s more downside in this specific stock, so we followed through on the TSL.

The question now is: What do we do if more TSLs are triggered? With gold miners down so much, I’m saying it’s a buying opportunity. But why buy if our TSLs might get triggered?

Let’s sort out some of the scenarios.

• If you have already applied our previous “Casey Free Ride” profit-taking policy to a stock, our TSL guidance does not apply. By definition, you cannot take a loss on any stock on which you’ve already recovered your initial investment. Instead of letting price fluctuations determine when you sell, you should sell when it’s the right thing to do for specific reasons. (I.e., close the position when the stock has risen as much as you think it will go. Or sell it because the company is failing in some material way. Or liquidate because you want the money for some other need, etc.)

• If you buy in now at lower prices than our stocks’ recent highs, your TSL triggers won’t be the same as ours. That is, we’d see a TSL triggered if a stock reaches -25% from its recent high. You’d see it triggered at -25% below your entry point. If you average down and use your average cost basis as a new starting point, your TSL trigger might be even lower. (As the stocks head back up again, the “trailing” aspect of your TSLs will put us back on the same page, but for now, we’ll keep this in mind.)

• Note that our TSL guidance is based on daily closing prices, not intra-day fluctuations. This question arose regarding Fortuna Silver Mines (FSM, FVI.TO). There was a big price drop registered intra-day. Because the TSL was not triggered by closing prices, and because we still believe the stock has a lot of value to add for shareholders, we did not sell. (TradeStops, our recommended TSL alert service, also bases its alerts on closing prices.)

• Remember that one size does not fit all. Perhaps you really like a company that has gone on sale for the wrong reasons. You believe in the trend for the commodity in question. So, instead of selling on a TSL, you double down. We may close positions in this letter based on TSL triggers, but that doesn’t mean you have to. It’s just a recommendation. International Speculator readers, for example, love to buy when others are selling. But that’s a strategy for those more interested in wealth generation than wealth preservation. You can find out more about that by clicking here.

Casey Resource Investor

4

Please also remember that this monthly letter is not an alert service. We do post changes on our portfolio pages between issues, so you’re not left without guidance for an entire month. That includes TSL sales. You can check more frequently when our market is retreating to see what we recommend.

However, if you want to be alerted when it’s time to implement a TSL, we recommend that you sign up with TradeStops. They do a great job with their notifications. The service includes useful charts and tools so you can track your positions.

In ClosingMr. Market turned psycho in 2008. His “doctors” have all been making things worse ever since. This is the sad but real trend driving our resource investment strategy today.

Gold may fluctuate. It may correct even more. In anything but the short-term, it won’t matter. The world is not getting any safer, physically or financially. I can conceive of no credible scenario in which the masses of people driving demand for gold around the world suddenly wake up and decide they don’t need any safe haven assets.

The correct decision today is crystal clear to me.

The current volatility is an opportunity to seize.

Sincerely,

Louis James Senior Investment Strategist Casey Research

Producer Update: Where We Are, and Where We Are HeadedLaurynas Vegys, Research Analyst

As you can see in the chart below, our precious metals producers have had a great year—and all are now relatively on sale.

Casey Resource Investor

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None of our stocks rose more, or have now retreated as much, as First Majestic (AG). This is why we were stopped out. That’s been covered elsewhere in this edition, so we won’t dwell on it here. What we will do is update you on the remaining producers in our portfolio. We hope this will help you better inform your decisions.

Diving right in then…

Agnico Eagle Mines Ltd. Resources: Gold, Silver

AEM, AEM.TO, www.agnicoeagle.com

Price Share: US$53.57 MCap: US$12.03B On: 09/02/16

History Rec: US$52.92, 10/07 Gain: 26.86%

52-Week: US$21.22–US$60.01

Shares SO: 224.5 million FD: 231 million As of: 7/2016

Warrants UnEx: Nil - -

Options Open: 6.5 million Avg. price: C$35.53

Avg. life: 2.5 years

Debt US$1.07 billion Avg. 4.77%, 9.43 years As of: 7/2016

Cash US$467.9 million EPS TTM: US$0.15 As of: 7/2016

BUY—Agnico is an international gold producer with operating assets in Canada, Finland, Mexico, and the U.S. These countries are well-established, pro-mining jurisdictions. No country is perfect, but these are some of the best mining locations on the planet. Better yet, about two-thirds of the company’s gold comes from mines in Canada, one of the best places in the world to mine. Agnico is not the largest gold producer, but it has exceptional management and lots of room to grow. It pays a dividend, which is not true of many other miners. In fact, it’s been doing that for 34 years. Last quarter, the dividend rose from 8 to 10 cents—up 25%.

Gold represents 95% of Agnico’s revenues. The company has one of the strongest project pipelines in the senior gold mining space. The most important producing assets are Meadowbank, Canadian Malartic, LaRonde, and Pinos Altos. These four mines comprise roughly 70% of the company’s gold production. Agnico has reserves of almost 19 million ounces of gold, and resources of another 30 million ounces. With the current reserve base, the company has production capacity of 10 to 15 years. It aims to maintain its reserves from 10 to 15 times of the annual production.

We like Agnico because it’s stable, and has proven capable of generating value for its shareholders, even in bad times. But it hasn’t always been that way. The company struggled to bring five mines on stream between 2008 and 2010, missing production and cost guidance. In 2011, it suspended mining at Goldex in Quebec because of flooding and rock instability. A year later, however, it was back on track. Since then, operational and exploration success, coupled with acquisitions, have kept it that way.

Last year saw Agnico chalk up (another) year of record gold production, 1.67 million ounces, at all-in sustaining costs (AISC) of $810. That was significantly better than the company’s AISC guidance of $850. The company also reduced net debt and generated US$24.6 million (or US$0.11 per share) in net income. Though not a stellar performance compared to the prior year, Agnico remained profitable despite lower gold prices.

Casey Resource Investor

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Many other majors did not. Fast forward to 2016. With improved operations and rising gold, Agnico was able to raise its 2016 production guidance to 1.58–1.60 million ounces (from 1.56 million) while lowering guidance on costs, reducing debt, and upping its dividend. Outstanding.

Unlike many majors, Agnico has a strong exploration arm. It’s been investing in growth through aggressive exploration at key projects. Agnico doubled its exploration budget in 2015, a time when most others were cutting exploration budgets. Now, thanks to success at a number of projects (including Kittila and Canadian Malartic), Agnico may be able to replace mined-out reserves post-2018—and maybe even more. There are other exploration-related catalysts ahead, including potential results from Amaruq, El Barqueño, and Barsele.

On the M&A front, Agnico has been exploiting opportunities brought about by the ongoing slump in commodity prices. In 2014, for example, it joined with Yamana Gold to buy Osisko Mining, giving it a world-class asset: the Canadian Malartic gold mine in Northern Quebec. Then, practically on the heels of the Osisko deal, came the acquisition of Cayden Resources. This time it was a bet on an exploration company, and one that’s very early-stage (i.e., with no official resource established yet). This is long-term thinking in action. With increasing margins, Agnico has enough cash to further develop its gold mine pipeline. That, combined with the robustness of the company’s operations and a relatively strong balance sheet, makes Agnico a first-rate gold miner.

Here’s the Push on tap:

• Achieving the revised 2016 guidance.

• Production growth further out. Agnico aims to increase production by 30%–40% by 2020.

• Quarterly profits. As long as the gold rally continues, we expect higher earnings ahead.

• Acquisitions. Agnico has plenty of projects after acquiring Canadian Malartic and El Barqueño last year. More acquisitions are likely, although we’re not sure when the next transaction will happen.

• Drill results to replace ounces mined. A bulk of Agnico’s properties have promising discovery potential.

Bottom line: this profitable company, known for high-quality operations, remains a top pick in our portfolio. Our formal recommendation is to buy a first tranche (or a second, if you are in at higher prices) on down days for gold.

Barrick Gold Corp. Resources: Gold, Copper

ABX, ABX.TO, www.barrick.com

Price Share: US$18.16 MCap: US$21.16B On: 09/02/16

History Rec: US$19.37, 4/16 Loss: 10.05%

52-Week: US$5.91–US$23.47

Shares SO: 1,165.3 million

FD: 1,167.8 million As of: 7/2016

Warrants UnEx: Nil - -

Options Open: 2.5M Avg. price: US$42.0

Avg. life: 3 years

Debt US$9 billion 2.5%–6.35%, 2018–2043 As of: 7/2016

Cash US$2.44 billion EPS TTM: US$-2.43 As of: 7/2016

Casey Resource Investor

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BUY—Barrick Gold is the biggest gold producer in the world, with more growth on tap. The company has a reputation for being one of the toughest and most entrepreneurial gold mining companies around. It grew from a startup to the world’s largest gold miner in under three decades.

That’s not been without growing pains. In 2011, for example, management decided to spend billions on the underperforming Lumwana copper mine in Zambia. Later it was Pascua-Lama, a major gold project on the border between Argentina and Chile that has been a complete disaster. No surprise then that there have been changes in management. CEO John Thornton seems focused on keeping the company lean and concentrated on gold. We approve. If we’d wanted the kind of diversified miner espoused by previous management, we’d have bought one of the existing ones with experience in that realm. This change is one of the reasons we just recommended the stock.

Barrick currently has 14 producing gold mines located in Canada, the U.S., Peru, Argentina, Australia, the Dominican Republic, and Papua New Guinea. It also holds a 63.9% equity interest in Acacia Mining, which owns gold mines and exploration properties in Africa. The company’s major producing projects include Goldstrike and Cortez in Nevada, Pueblo Viejo in the Dominican Republic, and Veladero in Argentina. Most of Barrick’s top assets are located in what we consider low-political-risk countries. Pueblo Viejo and Acacia Mining are the most at-risk.

Rumor has it, however, that Barrick is considering the sale of its African operations, which are valued at around US$1.9 billion. This, if true, would improve the company’s risk profile.

One of our biggest concerns with Barrick, for a long time, was that the company carried more relative debt than any of its competitors. We’re glad to see that the company is changing this, having hit a US$3 billion target of debt reduction in 2015. Barrick has reiterated its commitment to further strengthening its balance sheet by trimming another $2 billion in debt this year. Tapping into existing cash, delivering more free cash flow (FCF), and selling noncore assets are all legitimate ways to achieve this.

Barrick’s operations remain strong, with a lower cost for the last few quarters. Now, at an AISC of US$782, Barrick is one of the lowest-cost gold producers out there. This delivered US$138 million to the bottom line last quarter. The company has even reduced its AISC guidance for 2016 from US$750–US$790 to US$760–US$810 per ounce of gold.

Barrick’s ability to achieve this guidance and follow through on its ambitious debt-cutting plans are the main drivers behind this stock. As a turnaround story, it has excellent leverage to the upside, making it a top pick. Our formal recommendation is to buy a first tranche (or a second, if you are in at higher prices) on down days for gold.

Casey Resource Investor

8

Fortuna Silver Mines Inc. Resources: Silver, Gold

FSM, FVI.TO, www.fortunasilver.com

Price Share: US$8.35 MCap: US$1.21B On: 09/02/16

History Rec: US$4.69, 2/13

Gain: 103.21%

52-Week: US$2.00–US$9.75

Shares SO: 145.3 million FD: 148.4 million As of: 7/2016

Warrants UnEx: 1.5 million Avg. price: C$6.01 10/2018

Options Open: 1.6 million Avg. price: C$3.75

9/2016–3/2020

Debt US$39.6 millionLIBOR + extras, 4/2019

As of: 7/2016

Cash US$90.8 million EPS TTM: US$-0.10 As of: 7/2016

BUY—Fortuna Silver Mines became a silver producer about 10 years ago when it bought the Caylloma silver mine from Hochschild Mining for US$7 million. Some 400 years in production, the sellers deemed Caylloma to be on its last leg. Fortuna had a different view; it drilled off new reserves, refurbished the mine, and for years generated more operating profit than it paid for the mine in the first place.

Fortuna leveraged this success by first joint-venturing with, then buying out, its partner in the San Jose silver-gold mine in Oaxaca, Mexico. At first, this was a small, high-grade resource on a property that had seen some small-scale past production. Fortuna drilled away on the structure, and San Jose now boasts 28.2 million ounces of silver and 209,900 ounces of gold in Proven and Probable mining reserves. These average 232 g/t silver and 1.73 g/t gold.

There are another 57.3 million ounces of silver and 359,500 ounces of gold in the Measured, Indicated, and Inferred categories. We conducted a site inspection when San Jose was ramping up production from 1,000 tonnes per day (tpd) to 2,000 tpd, and were able to verify the quality of the operations. Flash forward to today, and Fortuna has just ramped up to 3,000 tpd at San Jose. This will enable greater economies of scale, just in time to process ore from the new higher-grade Trinidad North discovery. The combo of higher grades and cheaper processing should be very good for the bottom line. That will be true even if silver doesn’t rise, but, of course, we expect it to rise even faster than gold in the not-too-distant future.

The latest development is that Fortuna just bought Goldrock Mines for its Lindero gold-silver project in Salta, Argentina. Lindero’s bankable feasibility study projects, at a base-case of $1,200 gold, a 5% discounted net present value (NPV) of US$152 million and an internal rate of return of 26%. We’ve been to the project and know it has several production advantages, including its location devoid of people in a pro-mining province. This deal tripled Fortuna’s tally of ounces in the ground. Once Lindero is built, it will more than double Fortuna’s production.

As for political risk, Mexico is good, but even so, we’re glad Fortuna’s operations are far from the areas of greater drug war activity. On the Peruvian front, Caylloma has been in operation for 400 years without permitting problems or protests. Argentina has recently made a turn for the better, and Salta Province, where Lindero is located, is pro-mining. We rate the political risk to be moderate in this play.

Casey Resource Investor

9

All in all, Fortuna is a classic “coiled spring”-type play. The company is cashed up. It has strong growth on tap in the immediate future at San Jose with longer-term growth coming into play at Lindero. We can see that the company is also looking for new deals; it recently bought an equity position in Medgold Resources. As such, there’s lots of push ahead in this stock, including:

• Improved financial results (e.g. due to the ramp-up to 3,000 tpd at San Jose, etc.).

• Positive construction decision on Lindero.

• Progress building Lindero.

• Takeover potential.

• Another high-grade discovery in any of Fortuna’s mine camps.

It’s all about growth for Fortuna. Yes, the stock is way up in 2016, but the company has a lot more value visibly on tap ahead. That’s what makes it a top pick. Our formal recommendation is to buy a first tranche (or a second, if you are in at higher prices) on down days for silver.

Goldcorp Inc. Resources: Gold, Silver

GG, G.TO, www.goldcorp.com

Price Share: US$16.02 MCap: US$13.67B On: 09/02/16

History Rec: US$45.86, 3/11 Gain: 7.28%

52-Week: US$9.46–US$20.38

Shares SO: 853 million FD: 869 million As of: 7/2016

Warrants UnEx: Nil - -

Options Open: 12M + 4M (RSU)

C$20.72–C$48.72 -

Debt US$2.9 billion

LIBOR + 150 basis points (1.50%), 07/2021

As of: 7/2016

Cash US$328 million EPS TTM: US$-5.36 As of: 7/2016

HOLD (or BUY ON SPEC)—Goldcorp is a major gold and silver producer with operations throughout the Americas. The company’s primary gold (and silver) mines include Red Lake, Éléonore, Porcupine, and Musselwhite in Canada; Peñasquito and El Sauzal in Mexico; Cerro Negro in Argentina; Pueblo Viejo (40% interest) and Marlin in Guatemala; and Alumbrera (37.5%) in Argentina. There’s no clear “flagship” mine at Goldcorp due to the number of quality deposits, but Red Lake would certainly be at the top of the list. Red Lake has been called the world’s richest mine, with an average grade of 16+ grams/tonne gold and low cash costs of about US$958 per ounce. Then there’s Éléonore, a new gold mine that’s expected to become Canada’s largest. The company’s operating assets are too many to highlight, but suffice it to say that most of them are in safe areas, and we would rate the political risk lower than for many of its peers.

Casey Resource Investor

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Though Goldcorp is well positioned to deliver in the near term, it has been struggling this year. It’s up 39% year to date, but that’s considerably less than its peers. There are several reasons. First, the company has spent massive amounts of money on capital expenditure (capex) investments over the past three years. That’s good, setting the stage for growth for years ahead, but it’s resulted in weak cash flows. To put this in perspective, the company has thrown an average of 45% of sales back into capex, versus 29% for Barrick and 19% for Newmont. The spending spree and narrowed margins amid lower gold prices resulted in losses and cut dividends. The latter, though unfortunate, was, of course, prudent—and likely to be reversed as gold continues rising. Still, many analysts saw Goldcorp as reckless.

Goldcorp reported a loss of US$4.1 billion due to write-downs on various projects last year. The company lost money again last quarter. That, however, wasn’t much of a surprise, given the temporary shutdown at the company’s largest operation at Peñasquito, resulting in a whopping 21.7% drop in production. Goldcorp had said it was expecting a 15% reduction in production. Adding insult to injury, some apparently exaggerated reporting of possible water contamination at Peñasquito hit this stock hard last month. (We are investigating.) Peñasquito, of course, wasn’t the only contributing factor as the second quarter also saw the company face lower grades at its mines and corporate restructuring, resulting in new management.

On the plus side, Goldcorp has cut its costs, including major cuts at the head office. Goldcorp is also sticking to its 2016 guidance of 2.8–3.1 million ounces, at an AISC of US$850–US$925 per ounce. The question is, can it pull that off? Our answer to that is: probably.

For one, Goldcorp seems to have passed the low point of its operational performance. The particularly weak Q2 looks like a one-off event. With 1.4 million ounces for the first half of 2016 already in hand, Goldcorp should have no trouble cranking out at least as many ounces in H2 as operations at Peñasquito go back to normal. The mine plans at Peñasquito and Cerro Negro should also have both mines getting into higher-grade ore. That, coupled with production ramp-ups, will help. This is a strong company that we expect to pull through. Hence our decision to hold.

However, those more adventurous among us see Goldcorp as an oversold opportunity. Everything else is up so much, this stock is a relative bargain. That kind of contrarian thinking is more at home in International Speculator, but we thought we’d mention it for those much keener on wealth generation than wealth preservation.

Newmont Mining Corp. Resources: Gold, Copper, Silver

NEM, www.newmont.com

Price Share: US$40.52 MCap: US$21.50B On: 09/02/16

HistoryRec: US$39.12, 6/16

Gain: 4.27%52-Week: US$15.40–US$46.07

Shares SO: 530.6 million FD: 534.6 million As of: 7/2016

Warrants UnEx: Nil - -

Options Open: 2M+2M

Avg. price: US$51.00 Avg. price: US$48.00

Avg. 3.5 years

Debt US$5.38 billion

1.6%–6.25%, 2016–2017, 2019, 2022, 2035, 2039, 2042

As of: 7/2016

Cash US$2.90 billion EPS TTM: US$0.15 As of: 7/2016

Casey Resource Investor

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BUY—Newmont is one of the largest and most geographically diversified gold miners in the world. Only Barrick produces more gold. And this is one of the compelling arguments to buying Newmont: its sheer size and diversity of assets. Over 80% of Newmont’s total sales come from gold and silver, with copper making up the balance. Some of the company’s major gold projects include Carlin and Twin Creeks in Nevada; and Boddington in Australia. The precious metals component should increase going forward, as Newmont is selling its 48.5% stake in Batu Hijau in Indonesia for US$1.3 billion, which has been Newmont’s primary source of copper. We approve.

The company holds proven and probable reserves of 73.7 million ounces of gold, 113.3 million ounces of silver, and 5.67 billion pounds of copper. Carlin is one of the company’s biggest assets, with more than 16.8 million ounces of gold in reserves. The mine knocked off 204,000 ounces at an AISC of US$1,128per ounce in Q2 2016.

As for political risk, the bulk of Newmont’s revenue (~70%) comes from operations in countries like the U.S., Peru, and Australia. All are relatively safe mining jurisdictions. Indonesia probably represented the biggest risk, but with Newmont bailing out of Batu Hijau, investors shouldn’t worry too much.

On a less happy note, one point of concern for investors with Newmont has always been its debt. Happily, the company has taken steps to reduce it by making cost improvements at its mines and divesting higher-cost, noncore assets. The result: at the end of Q2 2016, Newmont had cut total debt 50% since 2013.

The thing we like most about Newmont is simply its low AISC. At US$876 per ounce in Q2 2016, Newmont’s AISC is among the lowest in the industry. And the company has proven consistent in improving its cost performance. Last quarter, for example, Newmont lowered its 2016 cost guidance by US$10 to US$870–US$930 per ounce. That came on the heels of the US$20 reduction in guidance, announced in its Q1 2016 results. As a result of strong operational performance in Q2 2016, the company also lowered its long-term AISC assumption by US$20 per ounce to between US$880 and US$980. As Newmont has made structural changes to achieve these results, we think they are likely to keep costs down and margins up going forward. That should be more than enough to fuel the stock’s positive performance both this year and beyond as long as gold cooperates.

We’re pleased to see that Newmont is just US$85 million shy of hitting US$1 billion in debt repayments just this year, leaving another US$5.1 billion in long-term debt outstanding. That’s a great improvement over just a couple years ago, but it’s still a lot of debt to pay off. It’s important that Newmont keeps at it.

A potential dividend hike is another driver here. If management maintains the gold-price-linked dividend of $0.025 per quarter, dividends could double in the third quarter of 2016. Newmont plans to revisit its dividend payout later in the year.

Casey Resource Investor

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The bottom line here is that Newmont is pretty much firing on all cylinders, and we expect that to continue. As another turnaround story, we see additional leverage to the upside, relatively on sale, which makes it a top pick. Our formal recommendation is to buy a first tranche (or a second, if you are in at higher prices) on down days for gold.

Tahoe Resources Inc. Resources: Silver, Gold

TAHO, THO.TO, www.tahoeresources.com

Price Share: US$14.00 MCap: US$4.35B On: 09/02/16

History Rec: US$15.56, 7/16 Loss: 10.02%

52-Week: US$6.48–US$17.01

Shares SO: 296.7 million FD: 301.3 million As of: 7/2016

Warrants UnEx: Nil - -

OptionsOpen: 3.9M + 0.67M (DSA, RSA & SAR)

Avg. price: US$14.29

Avg. life: 3.10 years

Debt

US$35M/US$150M on revolving credit facility

6.95%/LIBOR + 2.25%–3.25%

As of: 7/2016

Cash US$151.7 million EPS TTM: US$-0.19 As of: 7/2016

BUY (IF YOU DARE)—Tahoe Resources is our latest silver pick. We talked at length about the company and our reasons for investing in it in the last issue, so we’re not going to beat the dead horse other than to make a few crucial points.

Tahoe has recently come out with strong Q2 2016 results. The 71% growth in revenue was nothing short of impressive. The company beat market expectations for earnings, delivering US$16.9 million (or US$57.8 million on an adjusted basis) to the bottom line. All in all, last quarter’s performance is telling of the quality of the operations Tahoe is running. It’s a confirmation of our investment thesis.

Thanks to strong operational performance, the company cut its AISC guidance for 2016 to $US8.00–US$9.00 per ounce of silver, down from US$10.00–US$11.00. It expects to hit the higher end of its 2016 production guidance for silver, while maintaining the gold production guidance. This is good news, which should translate into more profits this year. We have no doubt as to the company’s ability to pull this off. Remember: Tahoe’s AISC are among the lowest in the industry, and more important is that it has proven consistent in keeping them down while driving its margins up.

All good, but Tahoe rates the highest in our portfolio on political risk. That’s due to its flagship Escobal mine being in Guatemala. And even though it has gone from being 100% exposed to that country to less than 50%, it’s a risk not to be taken lightly.

Our formal recommendation is for the more daring among us to buy a first tranche (or a second, if in at higher prices) on down days for silver. Watch this one more closely than you would other major producers, and buy only if you are willing and able to implement a trailing stop loss.

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ValuationOn any given day, there's a trading price recorded for a given company when the market closes for the day. Price by itself doesn’t mean much, of course, unless you specifically know what you’re buying (intrinsic valuation) and/or how it compares to similar alternatives in the market (relative valuation). While both are beyond the scope of this report, we do like the idea of assigning value to things. One way of doing this is to compare the value the market is giving a company, per ounce of gold in hand, versus what it gives its peers. Granted, no two companies are created equal, and there’s much more to a producing company than just the sum total of the ounces it has in the ground. Still, it’s interesting to see how much the market is giving our companies per ounce of gold (or gold equivalent, for silver picks).

First Majestic looks overvalued—an illustration of just how irrational the market can sometimes get. Perhaps it’s not so bad that we got stopped out. The rest of the results you can see on the chart are more or less in line with what one would expect:

• Agnico and Fortuna came (far) second and third to Majestic. We really like these two and are not really surprised with the market’s valuation. The companies are clearly rewarded for their excellent operational performance and outstanding project pipelines.

• The value given to Tahoe’s ounces may seem a little surprising given the element of political risk associated with this play. But not until you consider that the company is no longer a one-trick (Guatemalan) pony, having made great strides in trying to reduce this risk. It’s also exceptionally high-grade.

• We can also see that the market hasn’t yet forgiven Newmont’s and Barrick’s debt-related trespasses (or the dividend cut in Newmont’s case). Barrick in particular seems to be especially cheap relative to its goodies.

• Goldcorp certainly seems like an underdog, given the quality of its assets. The shares have trailed considerably behind their peers, and that’s a direct result of the company’s operational difficulties as of late.

Of course, market perception is not everything, so let’s have a closer look at some fundamentals. First, the balance sheet (red numbers indicate those that are worse than the median).

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Company Name EV (US$M) Total Debt (US$M)

EBITDA (LTM,

US$M)

Total Debt/EV

Total Debt/EBITDA

Total Debt/Forward EBITDA

Total Debt/Total Capital

(LTM)

Current Ratio

Barrick Gold 30,029.8 9,000.0 3,513.0 30.0% 2.56 2.31 44% 2.75

Newmont Mining 27,082.7 5,380.0 2,637.0 19.9% 2.04 1.64 26% 3.44

Goldcorp 16,386.3 2,900.0 1,274.0 17.7% 2.28 1.77 17% 1.52

Agnico Eagle Mines 12,699.1 1,070.0 801.5 8.4% 1.33 1.19 20% 2.96

Tahoe Resources 4,266.0 35.0 318.1 0.8% 0.11 0.09 2% 1.63

First Majestic Silver 1,864.6 63.4 79.7 3.4% 0.80 0.54 10% 1.83

Fortuna Silver Mines 1,036.9 39.6 48.5 3.8% 0.82 0.47 13% 3.74

Sources: Thomson Reuters, Yahoo Finance, Company Reports

Tahoe clearly leads the pack with the smallest amount of debt on its hands. This also helps explain the higher valuation given to its ounces by the market. On the other end of the spectrum is Barrick that, despite all the strides made, continues to be in worse shape debt-wise than most of its peers. Fortunately, the company is working towards more reductions, as explained earlier. That’s part of the opportunity we see in the stock.

But just how expensive are they relative to where they are now, and where they are headed? The next table may illustrate.

Company Name MCap, (US$M)

MCap Change YTD (%)

Divi-dend Yield

EV/EBITDA

EBITDA Margin

(Last Fiscal Year, US$)

FCF per Share (Last Fiscal Year,

US$)

FCF per Share (Cur.

Fiscal Year*, US$)

EPS(Last Fiscal Year, US$)

EPS (Cur. Fiscal Year*, US$)

Newmont Mining 21,499.7 126% 0.25% 10.3 32.5% 1.47 1.79 0.98 1.20

Barrick Gold 21,152.8 145% 0.44% 8.5 39.9% 0.93 0.35 0.30 0.45

Goldcorp 13,678.3 43% 0.52% 12.9 35.1% 0.15 0.29 -0.11 0.40

Agnico Eagle Mines 12,048.1 110% 0.75% 15.8 39.3% 0.77 1.27 0.44 0.64

Tahoe Resources 4,350.8 121% 1.70% 13.4 42.8% 0.22 0.11 0.39 0.64

First Majestic Silver 1,922.3 279% 0.00% 23.4 28.5% 0.32 0.10 -0.11 0.14

Fortuna Silver Mines 1,088.1 280% 0.00% 21.4 32.8% -0.02 0.01 0.05 0.19

*Consensus estimates

Sources: Thomson Reuters, Yahoo Finance, Company Reports

What are the conclusions we could draw from this? There are quite a few:

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• Agnico is the company has only one single number that’s worse than the median. This shows a couple things: 1) It’s still a relative bargain, and one with lots of growth on tap; 2) Unlike most of its peers, it offers a handsome dividend yield, which one shouldn’t ignore given the company’s 34-year-long track record of payouts to shareholders.

• Tahoe looks better than its peer group on a number of important metrics. The company has the highest EBITDA margin among its peers—a very important metric that speaks to the quality of its operations. Further, Tahoe’s dividend yield is clearly superior to those of its peers. This is because it has underperformed its peers by a wide margin in terms of appreciation in its share price, and it does pay a decent dividend (US$0.24 per share).

• Fortuna doesn’t look stellar on most metrics but that’s mostly because its shares have appreciated the most in the entire peer group. We also expect more upside from Lindero than the current (dated) NVP numbers suggest.

• Goldcorp is the stock that boasts the highest growth profile based on where its cash-flow and earnings-per-share (EPS) growth is put by the consensus estimates. This is unsurprising, given the company’s massive spending on capex projects during the past three years. These investments have set the stage for more growth for Goldcorp going forward, almost regardless of how well (or badly) the company wraps up this year.

• Newmont and Barrick look well on most metrics. The former’s FCF per share as well as earnings per share (EPS) are the highest in the group. Then there’s growth, which Newmont seems to have plenty of. Both stocks trade at the lowest EV/EBITDA valuation compared to their peers, which indicates a bargain. Again, we see this as a “debt discount”.

ConclusionDifferent companies can be different things to different people. Investors are bound to have differing risk tolerance or possess other factors that may make us lean towards certain investments versus others. With the information above, you should be able to make the correct decisions regarding your investments in our sector today.

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Portfolio Updates: Buying in TranchesOur guidance this month is straightforward: the correct decision is for those still buying to use the market’s current volatility to fill in their tranches. All our top picks are relatively on sale. We don’t generally recommend “averaging up,” but if there are some stocks you like but don’t own yet, now is a great time to act.

Top Picks Agnico Eagle Mines (AEM)

Barrick Gold (ABX)Fortuna Silver Mines (FSM)

Pretium Resources (PVG, PVG.TO)Newmont Mining (NEM)

Osisko Gold Royalties (OR.TO)Tahoe Resources (TAHO, THO.TO)

Silver Wheaton (SLW, SLW.TO)

Note: Our trailing stop loss was triggered on First Majestic Silver (AG). We are sure the stock will do well when all is said and done, but we have followed through and closed the position.

As for the rest of our stocks, please click on the company names in the table below for detailed guidance on each.

Model PortfolioProducersCompany Status Price EV EPS (TTM) AISC Entry Gain TSL Today

AGNICO EAGLE (AEM) Buy $53.57 $12.07B $0.15 $848 $52.95, 10/23/07 26.86% $44.75

BARRICK GOLD (ABX) Buy $18.16 $28.79B $-2.43 $782 $22.21, 7/6/16 -10.05% $16.98

FIRST MAJESTIC (AG) Sell $12.02 $1.79B $-0.68 $10.97 $19.08, 7/5/11 -27.63% Triggered

FORTUNA (FSM) Buy $8.35 $1.09B $-0.10 $9.85 $4.69, 2/5/13 103.21% $7.13

GOLDCORP (GG) Hold or Buy $16.02 $15.78B $-5.36 $1,067 $45.86, 3/10/11 7.28% $14.22

NEWMONT (NEM) Buy $40.52 $25.87B $0.15 $876 $39.12, 7/6/16 4.27% $34.40

TAHOE RESOURCES (TAHO) Buy $14.00 $4.12B $-0.19 $8.16 $15.56, 8/3/16 10.02% $12.45

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Royalties/StreamsCompany Status Price EV EPS (TTM) EV/CF Entry Gain TSL Today

FRANCO-NEVADA (FNV) Buy $74.11 $12.66B $0.32 45.4 $35.80, 2/10/11 116.68% $59.48

OSISKO (OR.TO) Buy C$16.02 C$1.31B C$0.30 38.9 C$14.19, 2/17/15 14.38% C$13.68

SILVER WHEATON (SLW) Buy $27.40 $11.83B $-0.42 24.6 $17.62, 3/18/08 93.89% $23.12

DevelopersCompany Status Price EV Cash Burn/mo Entry Gain TSL Today

PRETIUM (PVG) Buy $10.72 $1.94B C$371.6M C$34.6M $6.68, 2/3/15 107.68% $9.00

EnergyCompany Status Price EV EPS (TTM) Cash Cost Entry Gain TSL Today

KINDER MORGAN (KMI) Buy $21.92 $92.73B $0.03 N/A $17.99, 6/7/16 22.54% $17.03

UtilitiesCompany Status Price EV EPS (TTM) EV/CF Entry Gain TSL Today

AMERICAN WATER (AWK) Hold or Buy $74.80 $20.11B $2.74 15.7 $53.14, 1/09/15 43.45% $61.85

Metals FundsCompany Status Price NAV Net Assets Expense Ratio Entry Gain           TSL Today

iSHARES SILVER (SLV) Buy or Hold $18.44 $17.81 $6.74B 0.50% $19.38, 3/18/08 -4.85% N/A

SPDR GOLD (GLD) Buy or Hold $126.57 $126.4 $39.93B 0.40% $68.70, 4/20/07 84.24% N/A

SPROTT PT&PD (SPPP) Hold $7.29 $7.48 $110.5M N/A $9.64, 4/2/13 -24.38% N/A

Other FundsCompany Status Price NAV Net Assets Expense Ratio Entry Gain TSL Today

TOCQUEVILLE (TGLDX) Hold or Buy $43.94 $43.94 $1.5B 1.43% $84.55, 11/12/10 -48.03% N/A

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Parting Thought: Drucker on DecisionsPeter F. Drucker is as well-known a business and management guru as any. He’s known for well-reasoned and often predictive business thinking. He’s credited with coining the term “knowledge worker,” which certainly covers us. But it’s his words on decision making that we want to leave you with. We know it’s not easy making important decisions in the face of the unknowable future, but decide we must.

“Whenever you see a successful business, someone once made a courageous decision.”

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