Bond rally will be succeeded by gold rally, analyst says

PART 2, ROB-TV INTERVIEW WITH JOHN EMBRY,
JUNE 11, 2003

Host: Welcome back. This is quot;Market Call.quot; I'm Jim
O'Connell. On the show today we are focusing on
precious metals: specifically gold and others. We've
got John Embry here to answer your questions. John
is president of Sprott Asset Management. And if you
would like to ask him a question, our toll-free number is
1-877-667-6288. Toronto number: 416-957-8199. We'll
check the news and the markets and then we're back
to your calls.

(Commercial break)

Host: We're back with John Embry. I want your opinion, John,
on this market overall. This rally that we've had -- A lot of
investors are getting very enthusiastic about this. Does it
concern you?

Embry: It greatly concerns me, because it's basically floating
up on a sea of liquidity. I think Alan Greenspan is running
perhaps the most reckless monetary policy in the history of
the United States. He's started to take on dimensions of
John Law and the South Sea Bubble back in France in the
1700s. I don't know where it's going. I've seen some fairly
competent technical people who think it's going to 10,000.
But I really don't think it makes any difference, because he
can pump all the money he wants -- I don't think the economy's
really going anywhere. Because it's debt ... just overloaded
with debt, and I believe that this is a classic counter-trend
rally -- a mini-bull even to some extent -- in an extended
secular bear market. The secular bear is not over, in my
opinion, but time will tell.

Host: Do you see danger signs? We saw the mortgage
companies n the States have signs of trouble: Fannie Mae,
Freddie Mac.

Embry: I just have this nagging feeling there's something
very bad going on underneath the surface. And I mean that
Greenspan is prepared to throw all the liquidity in the world
into it to try to counteract it. That development with Freddie
Mac the other day sent chills through me because I still think
the Achilles' heel of this whole thing is the derivative area.
Warren Buffett used the expression quot;Weapons of Financial
Mas Destructionquot; and I agree with him. I think that this thing
has taken on a life of its own. You saw what happened to
Long-Term Capital Management five years ago. There's a
lot more of them out there now.

Host: And if it pops?

Embry: Then it's a whole different ball game.

Host: Let's go back to the lines. Frank is on the line from
Hamilton with a question. Hello, Frank.

Caller: Good afternoon Jim, John. I've been buying Kinross.
Is it worthwhile to accumlate that? I've been buying it since
2. Every time the gold price drops, I buy some more
Kinross.

Embry: I think you're following the perfect strategy in the
sense of using weakness to pick up gold stocks. I think
Kinross is a company with a lot of production and with a good
brand name in the business. In the event the gold price moves
materially higher, I think that will be viewed as one of the better
levered plays in gold. I think your strategy is absolutely correct.
Use periods of weakness here to accumulate an ever-larger
position.

Host: There was some news about a Greek unit Kinross inherited
in a three-way merger?

Embry: Those are the old Greek properties that TVX promoted
aggressively. It was probably the downfall of TVX at that stage.
I don't think there's any value in Kinross for them and if they can
get them cleared up and probably sold to somebody else it
would be a win. There's no negativity to it. It's just potential good
news. But I don't think they'll ever have any intention of
developing them.

Host: Let's go to Don in Toronto. Hello. Don.

Caller: Thank you. John, I had a question about Kinross as
well. The recent results that came out -- I think production
was considered fairly high. And yet at the same time I've
held that stock for what must be eight years now and I'm
looking at Goldcorp as another option. Kinross vs.
Goldcorp ... Have you got any thoughts about it?

Embry: I got a strong view of that. Goldcorp clearly is an
excellent company. It's generating tons of cash and I like
McEwen, who runs it. He's putting gold on the balance
sheet. But it doesn't have the leverage to a higher gold
price that a Kinross does. So what you're dealing with is
almost apples and oranges. If you believe, as I do, that the
gold price is going materially higher, I suspect you'll make
more money in Kinross. If the gold price does not do as
what I hope or suspect and it languishes or goes up
moderately: Goldcorp's the better bet. Because it's a
much safer company. It's got a wonderful balance sheet
and one of the lowest-cost mines on earth.

Host: You hear the skeptics say, quot;Gold bugs are always
bullish on gold.quot; Why are you so bullish right now?

Embry: It all relates to what is happening in the currency
markets. Gold is the monetary currency, or the metal
or the commodity currency -- whatever you want to call it.
But the real one. It has survived through the ages. Paper
money has come and gone. My favorite quotation is the
one I think Pierre Lassonde used in a presentation:
Voltaire said all paper money eventually seeks its
intrinsic value, which is zero. I see what's going on in the
United States today: $44 trillion in future commitments,
a budget deficit probably headed for half a trillion. A
current account deficit headed for $600 billion. This is
classic monetary debasement. Bush seems to want to
do everything. It's like the old guns-and-butter policy
that LBJ ran back in the late '60s, which led to the '70s.
Gold is an alternative to paper money. When people start
getting worried about sanctity of paper money, they will
buy Gold. And because gold is so small -- the gold
market in relation to the paper money market -- it can
have a huge impact at some point.

Host: OK.

Embry: But it hasn't started yet. It's just in the early
accumulation stages and I think that people who understand
what's going on are buying it.

Host: Let's go to Brad in Oshawa. Hello, Brad.

Caller: Hello. My question is about Geomaque Exploration.
They are supposed to be merging with Midas. I was
wondering if this is going to make the new company,
Defiant, stronger. Thank you.

Embry: Unquestionably. I'm a fairly significant participant
in this. Their new asset, by merging with Midas, is the one
in Mauritania, which I think is quite a robust project. There's
a minor problem here in the very short run. There's been
some upheaval in the government. I don't think it's an
overthrow or anything, but there's some unpleasantness
over there. But assuming that is sorted out, this is actually
a very interesting situation. I really like the asset over there.

Host: And Nick in White Rock, B.C. Hello, Nick.

Caller: Hello. I'd like to ask John about this gold they found
in Iraq. I feel that the administration in Washington are licking
their chops that they found this gold so they can maybe turn
it into money and push down the price. You understand what
I am talking about, John?

Embry: Sure. No. I've been sort of following that situation. I'm
not even sure I believe these guys. There's so much
disinformation coming out of Washington these days. Sure,
I think they might have found a bit. The number keeps changing.
One day it was $30 million, then it was half a billion dollars'
worth. I assume that Saddam was running around the country
with a bit, protecting himself with a little gold. But I'll believe
it when it hits the market. I think there's a physical shortage
building up. Even this amount of gold won't mess up the
market particularly. The gold market is being controlled by
paper derivatives. It's not physical excess that's creating a
problem.

Host: Let's take a short break. Be back in just a moment.
John Embry's our guest. We have him for another 20 minutes.
Top Picks coming up at the bottom of the clock. Stay with us.

(Commercial break)

Host: We're back. We're talking about gold, precious metals.
I haven't asked you about silver. What do you think of that
these days?

Embry: It has been getting smashed around. I still wonder:
What are the influences in that market? I guess, if there's a
negative, there is a fair amount of silver allegedly coming
out of China. That could be creating enough supply to keep
the silver price where it is. But I think there's more to it than
that. I think there's some very heavy short positions. I think
that this is a small market that, like the gold market, can be
controlled with paper. Because it just doesn't trade right.
I believed all long that when it goes, it's going to go a lot
further than anybody can conceive. But until it goes we're
going to sit here and wonder: Why is silver still trading at
$4.50? Drives me crazy!

Host: Got Mike on the line from Toronto. Hello, Mike.

Caller: Hi, John. I've been with Royal Bank since I was 14
years old. I started my first RRSP with gold.

Embry: Good for you!

Caller: And I've been in for a long time. I've made a ton of
money, especially in 2000, when we were trading up $4
and I haven't stopped since then. I've been doing some
research. There's one company I've had to research for
a while now: Thistle Mining. In 2001 they did about 19,000
ounces of gold sold. Last year alone they did 189,000. The
only concern I had was the cost, $268. I bought the stock
about a month ago at 51 cents and it's trading at 63 cents
and nobody really talks about it. What's your opinion on
the stock?

Embry: I know this one reasonably well because I bought
it for my fund last year at the bank at around, I think, 20 cents.
Tey've got the old President Stein Mine in South Africa. The
big problem down there, as you know, is the currency
bouncing around. When the rand got very strong, most South
African mines were starting to have difficulties. But Willie
McLucas, who runs Thistle, is a clever guy. He put on a big
currency hedge that he collapsed when the rand hit its high
in this most recent run. He used the proceeds from this trade
to remove all the debt from the company. It's an interesting
mine. It's not what you'd call a quality situation. But I like it for
the simple reason that I think the gold price is going
materially higher. In that event Thistle will be a very good
performer. I think you've done well buying it.

Host: Are you thinking of reacquiring a position in this?

Embry: I have reacquired -- in my past life at RBC. I've got
some in my new fund too. I like it.

Host: Your style, as you call it: torque.

Embry: Yes. If people want to buy gold, gold funds, etc.,
this is an area that delivers a lot of volatility, a lot of upside --
what I call quot;upside torque.quot; I think it's incumbent upon me to
try to find the companies, within some risk parameters, that
can deliver that. So I'm not interested in sort of big hedged
companies or companies with small reserve bases or what
have you. I'm more interested in ones that, if the gold price
goes up, will give you the best bang for your buck.

Host: About how long will you take before you say, quot;OK, that's
just right, I've got the fund where I want itquot;?

Embry: I'm close. Because the market has been pretty thin,
it hasn't allowed me to do everything I'd like to do. I need
more liquidity in the market and that's going to take more
interest in the juniors.

Host: Harry's on the line from your hometown, Winnipeg.
You're from Winnipeg aren't you?

Embry: Yes. I was just in Winnipeg last week. It was a
beautiful day.

Host: Harry, go ahead.

Caller: Hello, John. I want your thoughts on Bema Gold. I
have shares of this stock and, like the other callers, I've
been buying it when it has been dropping. But do you
consider this stock an underperformer? What do you think of
Bema Gold? A takeover candidate?

Embry: I don't think it's a takeout candidate. I've been a buyer
of Bema Gold for the first time in my life. I've always been a
little suspect of the thing. I like Clive Johnson's persistence --
the guy who runs the company. He has hung in through thick
and thin. He is acquiring gold assets. They're not quality gold
assets, in my opinion, though the one in Russia has quite a bit
of merit. But he's doing what I think should be done. He's
getting a lot of leverage into the company. I think that Bema
has got a great following. If the gold price goes up, money will
flow to Bema. Even though a lot of people hold their nose when
they look at it, I think it's great for this environment. I think you
should use periods of weakness in the gold price to
accumulate more here.

Host: And this is one of your holdings?

Embry: Oh, yeah!

Host; You own most of them, don't you?

Embry: I own the ones I think have got lots of leverage. I
don't own them all. But, yes, I have a lot of them.

Host: John's on the line from Mississauga. Hello, John.

Caller: Can you comment on Queenstake Resources?

Embry: That's a great question. I just spent an hour with the
president about two hours ago. So I'm real current on this
one. As you probably know, they're attempting to acquire
Jerritt Canyon from Anglogold and Meridian. It has been a
producer of 300,000 ounces of gold for 20 years running now.
The guy behind Queenstake, Chris Davie, thinks there's a lot
more ore there that Anglo hasn't been all that aggressive in
pursuing. So he's trying to raise the financing to purchase the
Jerritt Canyon from Anglo and Meridian. I'm very hopeful he
does it. I've just bought some stock in the company. I think I'm
prepared to support his deal because I looked at the numbers
and it looks pretty good to me. I think the stock's really
underpriced. If he pulls this deal off, the stock is severely
underpriced.

Host: This is a new position that you're acquiring?

Embry: I just bought a small piece.

Host: We'll be back in just a moment with your Top Picks.
John Embry's our guest. Please stay with us. We'll take a
peek at John's picks and he'll tell you about each one when
we come back.

(Commercial break)

Host: We're back and we've got Ted on the line with a
question from Toronto. Hello, Ted.

Caller: Hello, John, a question on Gold Reserve, which happens
to be beside Las Christinas, fortunately or unfortunately. What's
your view on that? And do you still like FNX?

Embry: Quickly on FNX. ... Yes, there's a lot of interesting things
going on there. I still like the stock a lot. I don't own it, because
I left it behind in my previous incarnation. It isn't gold and I'm
focusing more on gold right now. But I like the company a lot.
And Gold Reserve. ... They are the unfortunate victim of being
beside Las Christinas, which is embroiled in all sorts of
legalities with Crystallex and the Venezuelan government. But
eventually this is going to be resolved. Gold Reserve should
merge with whoever ends up with Las Christinas because it's
all the same ore body. Gold Reserve has got a lot of ounces
and the stock, if you've got a lot of patience, is actually very
attractive. I'm not nuts about Venezuela, but patience is the
key. Until these things get resolved, the stock's just going to
be overlooked.

Host: And that's one of your holdings?

Embry: I do own a small position. But it's very cheap.

Host: We've got Ray in Grimshaw, Alberta. Hello, Ray.

Caller: Claude Resources. It's trading at a little under half its
high for the past year. What is your outlook for that?

Embry: I used to own a lot of Claude at the bank and I don't
own any currently. I've been watching it as it kind of sinks. I'm
a little surprised. They made a little bit of money in the first
quarter at their C-V mine up in Saskatchewan and they
appear to be having some exploration success there. Then
they've got the Madsen property that Placer is exploring,
which I think is very prospective. I'm not sure why the stock's
so sloppy. I look at the package and it looks quite attractive
at these prices.

Host: You don't hold that?

Embry: I don't hold that. No.

Host: Ron in Sudbury. Our last caller. Hello, Ron.

Caller: I have five little stocks and two of them you never talk
about. I hold three of your favorites: Iamgold, Wheaton
River, and Kinross. The other two are Nevsun from out of Mali
in Africa and Claude Resources, but I think you just answered
that.

Embry: So Nevsun's the one we should discuss here? We
have a big position in Nevsun. It has been a very successful
stock for us. We may have gotten a little lucky because they
have an interesting development project in West Africa. But
they've gotten into a drilling program in Eritrea, which is not
exactly one of the world's garden spots. In fact they lost one
of their geologists. He was murdered over there recently, which
knocked the stock for a loop briefly, but it seems to have
recovered. This is a very promising exploration play. I would
stick with the stock as this thing plays out. I think that it still
has considerable merit, though I'm not as keen on it as I was when
it was probably half the price it is now.

Host: Top Picks time. Newmont Mining is your Top Pick today.

Embry: This is a repeat of last time I was on this show. I really
encourage viewers to own this one. This is going to be the flagship
gold stock for the next leg in the gold bull market. They're fighting
with the bullion banks and I think winning in terms of getting this
hedge off at Yandal, where they had leverage with the bullion banks
and presented them with a take-it-or-leave-it 50 cents on the
dollar, which is making those guys squirm, which makes me
happy. Besides that, they've got a huge reserve base. It will be
essentially unhedged by the end of the year. It's quot;the Big American
Gold Stock.quot; Americans are very patriotic. When they're going
to buy gold they're going to buy Newmont. So it's a good one.

Host: All right. And you're long on all three of these stocks?
Holding your positions?

Embry: Yes, yes, yes.

Host: Aurora Platinum Corporation. (ARP:TSX)

Embry: Aurora Platinum is a subsidiary of Southwestern
Resources. They own about 17 percent of the company. It's
what I call a quot;Poor Man's Fort Knoxquot; or FNX Mining. They've
acquired a lot of assets up in the Sudbury area that belonged
to Falconbridge. I think that, much as FNX has exploited the
properties they got from Inco, the same thing's going to happen
with Aurora. On top of that they own about 60 percent of Lakeshore
Gold, which has put together an interesting approach. They've
got all of Inco's airborne exploration; they've acquired that over
northwestern Ontario and then the Abitibi belt. So this is just one
of these undervalued stocks that there's absolutely no interest in.
It's reasonably thin, so if you buy it, I wouldn't go crazy. But
under two bucks, I think they're just giving it away. So I love this
thing.

Host: Your third pick is hot off the press! Aurelian Resources.
BYO.P :TSX Venture Exchange.

Embry: This one was a private company until last Friday. I
invested in it and I own 9.9 percent of the company. I bought it as a
private. I'm greatly impressed with it. There's a couple of really
bright geologists (Patrick Anderson and Keith Barron), one of
whom I've been reading on the internet for years (Keith Barron).
And when I met him, the guy's really a heads-up guy. And he's
put together a large property package on the Ecuador/Peru
border. It was in the area where they used to fight between the
two countries. So it was very dangerous. It was totally unexploited
because nobody would go in there. Now they got that all solved
and he has gone in and staked the whole area -- in the extension
of the northern Peru belt, the Yanacocha and all these wonderful
places. He's got terrific initial gold shows. It's a new one coming
out of the box. It's inexpensive, obviously. But again, I would warn
people not to be too aggressive, because it's quite thin here. If
you went at it hard, it might really shoot up and you're going to
have to get some results. But I think this is another one of these
ones you accumulate. It's going to be a really good-looking
stock.

Host: We're out of time. That went by fast, John. Thanks so much.
Good to have you here.

Embry: Always a pleasure, Jim.

Host: John Embry. John is president of Sprott Asset Management.