BERAL, INC.
Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944
E-mail: mlikar@aol.com

Pocketful Of Miracles

A Futuristic Essay

April, 2006

Even though gold has hit $600 an ounce and silver a 22-year high of $12.00, these movements were tied to the decline of the dollar hegemony. A congressman from Texas, a Republican, John Paul, recently made a speech in the house sadly describing what he called the end of the Dollar Hegemony. It sounds like the monetary equivalent of negative campaigning, and as a result the price increase of gold instead of being greeted as the emergence of a currency of value, and a higher value for exchanging more goods, the negative interpretation creates an atmosphere exactly as it is.

There are various announcements that support the strength and the valuation and importance of gold. The Russians may go from 4% to 8% of their reserves in gold. The Saudi Arabians are also on the increase, and nobody knows where the Dubai billions position themselves. Gold price increase actually brought more monetary values to many people. It is supposed to be a positive contribution to many people, many corporations, mines, governments, and it is not.

With these thoughts, I attended last week the Toronto Gold Conference. The atmosphere was frankly rather strange. Most of the companies were doing infinitely better than a year ago or two years ago, but the atmosphere was an expectation of being bought by another bigger company. Let's be honest. The climate was very frankly one where almost everybody knew everybody. There wasn't too much of a competitive atmosphere but meeting after meeting for all the executives, with the singular purpose of selling out to a Big Daddy.

The two popular companies were Goldcorp and U.S. Gold, two companies that make a series of acquisitions in the last twelve months. There was no tension and frankly no announcements of any mergers except expectation of takeovers in the future.

From my readings, I have found that the Chinese are making very big progress. They have organized their refining activities, trading activities in the Shanghai Gold Exchange. They are consolidating a number of companies. There are two or three major companies listed in Hong Kong, but frankly the largest, XYZ, has a yearly production of 340,000 ounces of gold, whereas Goldcorp in America alone has two million ounces in shipments a year.

A new company, which is the largest, ABC, is going public in two months. The famous British company, Cazenove, and its office in Hong Kong, is bringing public a company with a $100 million offering and market capitalization of over half a billion dollars.

The news from China is quite good. There is constant discovery of certain mines. There is a tremendous effort to coordinate the production, refining and selling of Chinese gold, while keeping a reserve of eventually maybe 8% of 9% of the total dollar reserves of the country. The Chinese by all means and measures are pro gold. They also have $900 billion reserves. Switching into the Euro is meaningless and the Ruble is ten years early. They respect the monetary value.
A new nation that is coming into being as a monetary world power, they consider gold as part of their reserves and it is totally unknown what future values they will allocate. Chinese gold selling is technically unknown. The European countries have a certain minimum allocation they can sell every year, and recently the Bundesbank created an upheaval when it refused to sell its yearly allocation and ran into some political battles on this program.

It did occur to me that the Chinese gold is a proxy for a big hit. The gold market, apart from the logical evolution of the value in the monetary system, and its increased value of the last two and a half years from $260 to $660 does need a big hit. Gold would welcome, and the world would welcome, in terms of gold, a "Pocketful of Miracles."

Let us assume the following. An announcement would come that China discovered a new mining territory with a minimum valuation of 20-30 billion ounces of gold. The reports would probably indicate that the valuation can go to $100 billion if sufficient time is given and luck would turn in the geologists' direction. First of all, it would be a front page story. Secondly, it would raise the Chinese gold reserves substantially and would indicate that if the possibility exists to have 100-200 billion ounces gold reserve territory, it would meaningfully change the composition of the Chinese monetary reserves.

Like any other mining discovery, if there is a major hit, you have a whole series of smaller mines that can also be used for exploration and they, in turn, represent value in the investment world. Since China has a number of stock markets for different kinds of mining companies, besides the major Hong Kong stock exchange, it could create a big rush to purchase those mining shares from almost every part of the world.

Some of these companies would have a secondary offering or go public, and Hong Kong would be besieged by the best underwriters like UBS, Merrill Lynch, Cazenove, to accommodate the gold buyers. The effect of such a Chinese gold rush coming almost two hundred years after the San Francisco gold rush, would meaningfully alter the picture of the world, as the importance of gold and mining discovery in China could take the place of other ideas or events that currently occupy the front pages.

First of all, interest from Iraq would shift substantially. The various Chinese gold and other mineral mines--small, medium, large--would be listed on the various stock markets in the world and public offerings would absorb many investment pools. Dubai is likely to increase the number of flights to Beijing and Hong Kong from three to six, or even ten, serving as a bridge between Europe and the Far East.

The Iranians would realize that their oil income may cover their need to buy mining resources, invest in mining discoveries, but cannot at the same time be allocated to uranium exploration and the construction of their nuclear warheads.

The Palestinians are likely to size up the world situation and apply for Marshall aid to build light industrial power in their country, including the Gaza Strip. After all, the atmosphere would change and neither the Iranians nor the Syrians would be rushing to continue to give aid for their military programs. The regular meeting of North Korea may have an unusual twist. On a day when the North Koreans arrive well-dressed, properly at eight o'clock, nobody would turn up until twelve. At that time a collect call to the White House would indicate that the diplomats which were supposed to be with the North Koreans are all busy flying to China.

The United Nations would slow down in discussing various crises in the world, but at the same time there will be a tremendous increase in demand for international contracts. The fourth floor, which occupied the business of the Security Council, would be converted to a law office and staffed by the top international lawyers of Wachtel Lipton, Skadden Arps and Milbank. The President would dispatch Dr. Henry Kissinger, Ambassador Holbrook, and Secretary Baker to Hong Kong to be present to negotiate financial transactions and international contracts in an orderly fashion and at the same time moderate the gold market. After all, China is up, New York is down.
The world would be talking enthusiastically and happily about gold. Economists and commentators would fill out the pages of the newspapers with predictions of the improvement of the world's monetary structure by injecting eventually a trillion dollars worth of gold into the system and with the demand for other minerals at higher prices, the change of the mineral and oil prices could affect international trade.

Actually, the year 2006 may substitute for 2001, as the beginning of the century of peace and the century of gold-given peace to mankind. Charlie Chaplin's movie "The Gold Rush" would be given belatedly an Oscar. Correspondingly Bette Davis for her performance in "Pocketful of Miracles" and Charlie Chaplin's performance in his own movie would be given as repeated rerun. There will be ten million CD's printed about the gold rush and it would be translated into about twenty languages.

It would be a new world. It would replace North Korea, Palestine, Iran. It would replace the world with a new currency system. It would create jobs for millions in the growing need for mineral exploration and production. It would be a world which President Franklin Roosevelt promised the American people during the war. He stated that we are fighting so that your children and my children and your grandchildren and my grandchildren would be living in a world characterized by an opportunity of a decent job for all. Solid savings for everybody, for international trade to replace meaningless stupid international tension.

This world you couldn't get in the Cold War. We did not get it in the last fifteen years. But a vast increase in the price of gold coupled with a miracle of gold discovery may bring in a "Pocketful of Miracles."

The world needs a miracle. The world needs a world which we have failed to create in the last sixty years. The world that we had prior to this gold miracle in China is trying to cope with what we emotionally defeated already. This world doesn't need an Iraq. This world doesn't need the dismemberment of General Motors. This world does not need an Enron. This world does not need tobacco lawyers. This world does not need Palestinian dreams -- a world without Israel. This world does not need the fear of a dollar collapse. But let's face it, our politicians and industrial leaders haven't been able to create it.

Gold has always been considered a savior of mankind. In fact, when I was seven years old after the war, yes, we were saved by my stepfather's intelligent accumulation of gold before the war. Suppose China is putting all its energy into gold. Suppose it turns lucky and hits $100 billion worth of reserves. Suppose the monetary and banking system permits benefits through market purchases, securities purchases, the benefits to many many people.

Theodore Sorenson said before the last election, "This country needs another John F. Kennedy."

I say the world needs $100 billion or more in Chinese gold discoveries. The world needs a pocketful of miracles.

***

It could happen in China, but it could happen in America, too. In Nevada, a couple of major gold companies like Barrick and Placer Dome have become multi-billion dollar companies. Currently, a new company called U.S. Gold, organized by Robert McEwen, the former chairman of Goldcorp (now the second largest gold company in the U.S. and Canada), has acquired the third largest territory in Nevada. In about six weeks time, he will start deep mine drilling.

If, however, U.S. Gold finds a major gold find, its $1,000,000,000 market cap could easily expand to two or three billion dollars. The smaller companies around it would go from $50 million to $200-300 million. This was the lightning rod that people at the Toronto gold show were expecting.

The U.S. Gold potential discovery is possible. It would represent the 21st Century's version of the much rewarded "Pocketful of Miracles". We will back at 34th Street and no doubt Bette Davis and Charlie Chaplin would become in retrospect honorable citizens of the gold rush of 2006. In fact, both the Nevada and the Chinese gold rushes may happen. Alone or together, they represent the American Dream.

Disclaimer

Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.

 

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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail: mlikar@aol.com

Copyright © 2011 Andrew Racz. All Rights Reserved.

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