The Peter Grandich Letter

May 12, 1997

U.S. Stock Market

Who's crazy, them or me? The rally in the Dow has once again given a false sense of security to the vast majority of investors who continue to hear about new, all-time highs, but see their own holdings greatly under-performing.

I continue to believe that we are witnessing a massive blow-off in the Dow and a serious, long-term bear market is on the horizon. It's better to be a day, week, month (or whatever) early than just one day too late.

U. S. Bond Market

The bulls would like you to believe the Fed won't raise rates, but when you realize how many Fed Governor's have continued to echo caution and error on the side of tightness (including Fed Chairman Greenspan), I believe it's best to side with the Fed and not Wall Street. The cry of "Don't fight the Fed" is very good advice.

Precious Metals

It's looking more and more like my scenario is playing out. We are now going through that double bottom process I envisioned, followed by a base building phase.

On a pure valuation basis, gold is now as cheap as it was in the mid-'70s, (adjusted for inflation). It is also very cheap when compared to equities. It's virtually opposite of where it was in the early '80s.

You won't get "instant gratification", but I think if you begin to build a substantial position in the precious metals now, you will be glad you did in a year or two, particularly if you compare this with purchasing equities (non-mining types).

Oil

Seasonal weakness behind us. Rally back to $25 is possible but the trading range of $18 - $25 looks good for the rest of the year.

U.S. Dollar

I continue to believe it wins by default. We are in the final up leg but it still can go substantially higher before we renew the overall multi-decade decline.

CRB Index

As expected, the CRB is rising again. I feel there will be new highs by summer and nothing is changing to alter that view.

Bre-X After

Now that I spend the majority of my work time in the mining industry, I have been able to personally witness the impact of the Bre-X fiasco.

First, let me say on behalf of the overwhelming majority of honest, hard-working folks within the industry, we too are saddened, upset, and angry at those who knowingly participated in, what is all but obvious now, one of the biggest frauds ever - anywhere.

Unfortunately, individuals not deeply involved within this industry have assumed, based on media reports, that this event goes on more than once in a blue moon. I personally heard a TV commentator, say "Hey, it was a Canadian stock and involved in gold mining, what else could you expect?"

I took great exception to that remark. That commentator should have looked at his gold ring or watch. It wouldn't be a surprise to find that gold came from a mine that was first discovered by a Canadian junior resource company. For every "tampered" assay result, I am willing to bet tens, if not hundreds, of thousands (maybe even millions) of assays have been honestly taken, processed and the results (good or bad) were made known.

I am obviously biased, particularly since I left Wall Street to work and personally invest full-time in what I believe is truly a once in a lifetime opportunity - that is, exploring for natural resources in areas of the world that have never had modern technology scratch their respective surfaces. This exploration is being led by Canadian juniors and while dishonesty is still possible (just like in any other industry), the vast majority of players are going at it the right way - fair, honest, and with the highest integrity.

From The Globe and Mail, May 9, 1997

..It should be no surprise to see the New York Times weigh in with a broadside about the shady Canadian stock markets. "It seems like Canada produces more stock fraud, at least per capita, than do other countries," the paper said. U.S. journalists have been raking Canadian mining companies over the coals for years, routinely portraying the most successful mine-financing industry in the world as a pit of scams and scallywags. The Times comment, triggered by Bre-X, is just another to add to the files.

For the record, here are some facts:

The Toronto Stock Exchange is the largest gold mining exchange in the world. Its gold and precious metals index has a market capitalization approaching $30-billion, compared with about $13-billion for the Sydney exchange and $10-billion for the Standard & Poor's index of New York golds.

Toronto has become the centre for global mine finance. During 1996, $5.4-billion in mining financings were raised through the TSE, compared with $1.5-billion for Sydney, and $1.4-billion in the New York. The Toronto numbers do not include Vancouver, where as much as $1.5-billion more was raised last year.

Canadian companies own an estimated 7,300 producing and exploration properties. According to numbers compiled by the Prospectors and Developers Association of Canada, 600 Canadian junior exploration companies are searching for minerals in 99 countries.

One indicator of Canada's importance to world mining was a comment in The Sydney Morning Herald. Rather than harp about Canada's failure to adopt Australia's mining code, the paper's concern was that Canada would cease to be a source of funds for Australia's gold mining industry...

KEEP IN THE BACK OF YOUR MIND

The best actor ever to occupy the White House (not Ronald Reagan who acted before he got in, not after), Bill Clinton and his supporting actress, Hillary, are getting deeper into you know what. Keep tuned because I think the media has finally realized that the old "fool me once, fool me twice" is now up to fool me ten times.

LIST OF STOCKS

Adikann Goldfields - They were almost giving it away at 25¢, particularly since their best project hasn't even been drilled yet. The next few months will likely be the most important, so stay tuned.

AfriOre - One of the most undervalued juniors ever (in my humble biased opinion). If you're looking for a solid, multi-faceted junior with triple-digit return potential, may I suggest you call AFO as soon as possible at 1-800-900-0341. Ironically, success has caused pressure on the share price. I know that sounds crazy but call Warren Newfield at AFO and ask him why I feel that way.

Britannia Gold - I am a people-believer (or non-believer). My gut (no cracks on how big it has gotten) has been among my best tools in evaluating a company. My gut tells me John Greenslade and staff are honorable, hard-working folks who just happen to have put together a series of attractive exploration projects from grassroots to fairly advanced.

Canarc Resources - My Albatross but it's never been cheaper relative to its projects.

Consolidated Magna Ventures - Three times CMV's President has personally said to me his stock is a buy. The first two times were just before the drilling season in Voisey Bay in 1995 and 1996, and the stock more than doubled. Recently Brad Aelicks said "I now have a company-maker in Mexico". Brad has always been candid so he deserves another kick at the can.

Columbia Gold - Batter up. We are about to enter a very interesting drilling season. I won't be surprised to see a run towards $2.

Crystallex - I am not now, nor have I been, a compensated consultant to KRY. The company did pay a reprint fee for a report I did on them last year. I have repeatedly written and spoken about my great admiration for KRY's President, Marc Oppenheimer. Again, a gut factor. The recent developments regarding PDG and the Las Cristinas only enhanced the overall bullishness I hold in KRY. One doesn't need to hear whispers to appreciate the potential for KRY and its ongoing actions regarding Las Cristinas. I will say it one more time. The chances appear quite strong that KRY will end up with a worthy deal on Las Cristinas, most likely with PDG. (PDG may come out of it better too; that's why it looks like a win-win.) If they do, the stock has the potential to double or triple. If they end up without the Las Cristinas it probably will fall $1-$2 initially, but works its way back to current levels over the next 12 months on company fundamentals other than Las Cristinas.

You don't have to be a rocket scientist to figure out the risk-reward ratio is tilted towards reward.

Donner Resources - Another batter up cry as DRZ, along with its deep pockets JV partner Teck, is about to begin drilling what Teck (not DRZ) called, at its annual general meeting, a "geological twin to Diamondfields", Voisey Bay project. If anybody deserves to hit, it's Dave Patterson, Howard Louie, and staff at DRZ. Good things should happen for good people.

East Asia Gold - Incredibly cheap! The projects are way ahead of its share price. Usually it's the other way around.

Eldorado Gold - My recent update on ELD just may have caught the bottom in the share price. New highs soon won't surprise many.

Fairstar Exploration - I had the pleasure of sitting down with management at the recent Toronto Gold Show. They are very confident that their future is bright. I believe them. But to be fair, let's not forget, seeing is believing.

Goldbrook Exploration - If you can believe it, I still have not heard from management. I did alert a Board of Director member to this fact so I truly don't know what to say.

Greater Lenora Resources - I spoke with Franco Nevada top management regarding their interest in GEN. They have high hopes for the Harker-Holliway project. Stock looks cheap relative to underlying fundamentals, particularly if sister company RJK is onto something in Brazil.

International Dunlap Resources - The market seems to think "last out of Indonesia please turn off the lights". There's no doubt Bre-X has negatively impacted Indonesia plays but those who survive and prosper again, of which I think IDZ will, are very, very cheap now.

Jordex Resources - An attractive play.

Kazakhstan Minerals - Very, very cheap but so was $3.

Kensington Resources - Every time I am about to write a report, the company has news that is a material change. KRT has until June 2nd, I believe, to raise the capital for the Chinese project. Whether or not they are successful, the opportunity I was attracted to was the Fort a la Corne Diamond project, of which we will see a significant drill program upcoming. I also have put my faith on the shoulders of KRT's chairman. He's trying like heck so at under $1 it appears to be quite reasonable now for high risk speculators.

Manhattan Minerals - I think MAN's time is now. I anticipate a series of news events in the next few months. New highs in the next 90 days is possible.

New Westwin Ventures - Personally, it's the largest share position I ever held in a junior resource company and I wouldn't be surprised if I am the largest single non-institutional shareholder (I am under 10%). Let's recap why I have done this.

I began buying NWW based on the suggestion of one of the most honorable guys I ever met in the business. His word is truly gold in my book. He pointed out that NWW was likely to bring into production a small mine in Arizona. This would be the backbone to let the company go out and look for good exploration deals. Kind of backwards to the norm - find exploration then go into production. The share structure was quite favorable and the price I began buying at (around current levels) seemed worthy. For months I built this position and towards year-end '96, the stock was "puked" out at 30-35¢. I kept buying.

A couple of months ago, the stock began to pickup in volume and price. I was told some significant players saw what I thought I saw and were buying.

Sure enough, the company has been able to secure two exploration plays very near to Francisco Golds hot play in Mexico. I am told they are working on some more deals in the area. If Francisco has additional worthy drill results, this camp could really light up. Obviously, a land play will occur and NWW is clearly on the map.

The small mine is looking even better, so the stock is cheaper relative to developments since I first began buying.

Please, Please, Please, don't assume just because I am in it it's a sure thing. Just come and look at some of the stock certificates on my wall to know I lose just like others. However, I like what's developing here and if you're truly in an affordable position to lose part or all of your capital in exchange for potential big gains, may I suggest you call NWW for a due diligence package as soon as possible. 1-888-818-4653, ask for Ken Berscht.

Nevsun Resources - Fire sale when under $5. $8-$10 is fair value in my book.

Northern Crown Mines - More good drilling results. I want to state again for the record, I am quite comfortable to be involved with John Brock deals.

Prime Spot Media - Just announced two very well recognized advertising executives have joined their board. I keep hearing "any day now". Well I am patiently waiting and so should you.

RJK Exploration - Their first drill hole in Brazil was very, very encouraging. If not for an ugly market at the time, the shares would have likely done better. More results due out soon so stay tuned.

Royale Energy - Stock is not acting well technically. With the Dow at dangerously high levels and oil and natural gas prices well off their highs, perhaps if one owns this stock a stop at 4¾ would be wise.

Major Mining Shares - I recently advised to buy the majors if the XAU got under 95. It did. They have appeared to have bottomed.

Some of the better choices appear to be: Barrick Gold,
Cambior, Freeport MCMN Copper & Gold,
Golden Star Resources, and Newmont Mining.

Palladium, platinum and silver are the most common substitutes for gold that closely retain its desired properties.

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