'Silver is the investment of the next decade'

Last Updated : 20 September 2011 at 12:05 IST

James West has gone from writing the audacious and controversial newsletter Midas Letter to raising over $1 billion for a series of funds called Midas Letter Funds based in Luxembourg. The Gold Report caught up with James in Colorado Springs at the Denver Gold Forum, where he was searching for quality companies to include in his next newsletter. He agreed to sit down with us to find out how this juggernaut of rapid financial evolution came about, and where it is heading next.

Companies Mentioned: Confederation Minerals Ltd. - Gold Canyon Resources Inc. - Kinross Gold Corp. - Mineral Mountain Resources Ltd. - Newstrike Capital Inc. - Orbite Exploration VSPA Inc. - Prodigy Gold Inc. - Prophecy Platinum Corp. - Southern Arc Minerals Inc. - Sunward Resources Ltd.

The Gold Report: James, it seems every time we talk to you, something new is happening. You started off with the Midas Letter in 2008, started the Midas Letter Opportunity Fund this year, and now, you're embarking on the structuring of two additional funds before you've finished raising the money for your first fund. What is your objective in all of this?


James West: Well, first off, let me say that I'm just walking through the doors that seem to be opening for me as a result of the good luck and success of the Midas Letter. When we began circulating the idea of the Opportunity Fund, we envisioned raising no more than 10 million (M) Euros, which is roughly CAD$13.6M, because we only wanted to participate in selected seed and pre-IPO investment rounds of TSX Venture–listed resource deals.

We found the participation appetite from our immediate universe was easily double that. Then an investment advisor who represents Chinese groups approached us with the idea of mirroring the Luxembourg fund in China for Chinese high net worth investors. That just wasn't feasible, given the obligation we now have to our unit holders in the Opportunity Fund.

Plus, the Chinese investors wanted to put in a starting figure of $200M. We put on our thinking caps, and came up with a fund framework that serves the objectives of all the involved parties. My stated mission for Midas Letter all along has been to use the letter to establish and perpetuate a global platform for the marketing of high performance financial products of any stripe.

With the Opportunity Fund, we have the small, high-speed Formula 1 vehicle we need to position our group in the best early stage deals, and provide unit-holders with the first right to finance follow-on financings. For the resource company entrepreneurs, involvement of our fund means non-brokered financings held by much longer time-horizon, European high net worth private family offices. That, in turn, means lower average cost of capital, and at the end of the day, better valuations and retained earnings.

So now, with our Chinese partners and some others, we are developing the Midas Letter Gold Capitalization Fund, which will lend capital for last-mile construction, or pre-feasibility stage, resource projects that are repaid from the commodity stream of the project. For example, we lend company x, which is building a gold mine, $80M to get through bankable feasibility and carry it to the point where it can access conventional debt financing, and we are repaid in a portion of the gold production.

So then we decided to create the Midas Letter Gold Bullion Trust, which will be held in a vault on Guernsey Island, and which will purchase the gold from the Capitalization Fund, refine it ourselves, and hold it in tax-optimized, independent yet British-protected Guernsey Island, in a Bank of England-approved, Lloyds of London-insured vault, with in-and-out fees of 1% and annual management of 0.5% annually. It will be the lowest cost physical bullion trust in the world where owners will be the registered owners of the gold held.

So by participating in the precious metals asset class from exploration to bullion trust, we will be optimally positioned to bring financial products to investors as the global economy moves closer and closer to a gold and silver-linked single currency. That is what we think is the inevitable result of the race to devaluation that is currently underway among all formerly prosperous nations.

TGR: So it sounds like you are quite bullish on gold.

JW: My outlook for Gold is best categorized as "Unrestrained Bullishness."

TGR: So just gold, or gold and silver? What about base metals?

JW: For me, the risk of the bloom coming off the Copper rose is too high right now, and so our funds have liquidated all copper holdings. Codelco is seeing order cancellations from European customers, and the Chinese demand for copper is not expected to grow, which means the former shortage of copper is quickly going to become a glut of supply and excess of production, no matter how much Goldman and J.P. Morgan and HSBC bury in their warehouses... read more>>