TGR: Can companies in Canada and Australia take advantage of the exchange rates to help cash flow and profitability?

MB: Most definitely, but these things can go both ways. Australian gold producers have definitely benefitted from a favorable exchange rate environment. African costs are often linked to the euro. That has also been favorable in comparison to the U.S. dollar over the past couple of years. Companies can take advantage, but the exchange rate is the wrong tool to bail you out when you do a bad job. It might be a bit of a tailwind, but first and foremost, you need to do a good job on the ground by being very cognizant of your cost structure.

TGR: How do you use that unique perspective to evaluate companies?

MB: We have very simple investment criteria. We consider companies that do not manage more than five different assets. We are of the view that even a very good management team is not able to efficiently manage more than that, particularly if the portfolio includes geographical diversification. Another criterion is that companies be run as proper businesses, not lifestyle projects for management. Management must align its interests with the interests of shareholders. We look for companies that are able to self-fund future growth with generated cash flows and just a little bit of outside funding. We look for companies that are able to extend their life of mines, usually through exploration. Companies have to be able to be successful in today's metals price environment and have a sound balance sheet, operating in the lowest quartile of the cost curve. That filter gives you a relatively limited number of companies to look at closer.

TGR: Let's talk about some of the specific companies in your portfolio.

MB: Endeavour Mining Corp. is operating in various domiciles in West Africa. It grew relatively quickly through acquisitions. It's managed by a very savvy investment team that has cut operational costs quite significantly and may soon be expanding the resource with another project. It is now in a position to pay back debt and generate free cash flow. If Endeavour can continue to show this strength, the market may soon reward these types of companies with a premium or at least a rerating.

Kirkland Lake Gold Inc. in Canada has been like a dog's breakfast for a long time and a cause of frustration for a lot of investors, like a lot of these companies have been. A new management team led by George Ogilvie came in and turned the company around. He is very diligent and focused. Running a mining operation is a lot of hard work, and the company did the right stuff. It was focusing on grades. It was focusing on implementing the right strategy. Now costs are coming down significantly and the company is generating cash flow for the first time in a while. Kirkland Lake is actually creating shareholder value. It's one of these high-grade operations, with relatively long life of mine and a lot of exploration potential, run by decent people. That's something we appreciate.

Another name that we like is Guyana Goldfields Inc. It also has a relatively long life of mine. It's based in Guyana, which doesn't scare us off, despite the hapless picture painted by "The Gold Rush" series on National Geographic about an unprofessional crew working in the area. Guyana Goldfields will be in commercial production by the beginning of next year producing 200,000 oz (20 Koz). Guyana has a great cost structure and good life of mine that can be extended by going underground. I think it has the potential to create a lot of shareholder value.

Torex Gold Resources Inc. operates in Mexico under an experienced and cautious management team that is well connected. President, CEO and Director Fred Stanford is doing a very good job bringing that project to production. We expect the first gold pour toward the end of this year, and it will go commercial next year. It has all-in sustaining costs of about US$650/oz normalized, about 355 Koz of annual production and life of mine of 10 to 12 years with prospectively the same for exploration success at El Limon and Media Luna, the next project. I think it's one of the more exciting new gold producers that actually will be on the market next year. It's a fascinating gold district with some challenges. Some banditos there can make your life miserable, but that can be dealt with.

Northern Star Resources Ltd. is a blueprint on how a 21st century gold producer should be managed. It has an excellent management team that took unloved, underexplored assets from big producers like Barrick and Newmont and turned them around. Now, Northern Star pays a dividend, has no debt and generates free cash flow. This success has been reflected in the share price of late, which is not in line with the market in general. Hopefully, the company doesn't get ahead of itself and continues that path.

MAG Silver Corp. is actually not in production yet, but it is a scarcity story because it's one of the best silver projects around. MAG Silver has a very strong joint venture partner and a lot of exploration upside. You can have an agnostic view on silver, and that company will do well. If you have a more constructive outlook on silver, that company has the potential to do very well. We like companies that have that special touch. MAG Silver is one of them.

TGR: You've talked about the importance of management teams that have interests aligned with shareholders. What's an example of someone who knows how to make projects work?

MB: We can give you a long list of examples of how it shouldn't be done. But one that is doing the right things is Brad Mills, founder of Plinian Capital, who runs an operationally competent and financially savvy team. His investment company is acquiring underutilized, unloved, underexplored and badly managed assets and turning them around. The company has avoided the huge correction that took place over the past few years. Most important, it is a substantial owner in the companies it takes an interest in and pays themselves dividends in line with all other shareholders instead of taking obscene salaries.

One of the companies in that portfolio is Mandalay Resources Corp. It is operating in Chile, Australia and Sweden. Mills serves as CEO and Director and fellow Plinian Capital Principal Sanjay Swarup is CFO and Director. Former PHP Vice President and Plinian Capital Principal Mark Sander is president there. It is paying a dividend and advancing projects. We like that.

Brad Mills is also an independent director at Helio Resource Corp., which is a developer working next to Shanta Gold Ltd.'s producing property. These are two small companies operating in Tanzania. Their assets are in very close proximity to each other. Common sense would tell you that it is nonsense to develop in the middle of nowhere a parallel infrastructure by two rather small companies. Hopefully, common sense will prevail, pride will be swallowed and they'll sit around the table and do the right thing in the long run to the benefit of shareholders.

TGR: What words of wisdom do you have for investors who are looking to adjust their portfolio to fit a changing resource world?

MB: Gold moves in big cycles. It is at the inflection points that you make the best returns. Right now, the gold industry is going through a significant change and costs—including long overinflated management costs—are coming down significantly. That will lay the foundation for much healthier companies with stronger balance sheets and lots of cash that, hopefully, will be distributed to shareholders.

TGR: Thank you for your time, Markus.