This and how Pinetree picks stocks

[Editor’s note: For part I of this article, please click here.]

With more than 20 years of experience in the investment industry,Sheldon Inwentash, chairman and CEO of both Pinetree Capital and MegaUranium sheds some light on the future of gold and navigating the“murky and tricky” junior space.

TGR: On the equity side, in terms of having a mixture ofseniors and emerging juniors, obviously the big concern everyone haswith the emerging juniors is we’re not geologists. We can only try tofind people who know about geology. How do you really find out ifthere’s proven gold in the ground?

SI: It’s a bit of an art, not a science. You have to talk topeople. You have to find out who the winners are. You’ve got to look atmanagement teams. You’ve got to look at analysts and what their viewsare. You’ve got to do your own due diligence and I think a lot ofpeople have been hurt because the investment community, the brokeragefirms, are in it for commissions and if it’s the flavor of the day,they’ll say how this is great or they’ll maybe pull back and not put asmuch of their own view on the line.

And then you have a lot of new players come in and it just createsdeals and investments, but you really have to do your own homework.Even many of the analysts out there, their work’s tainted becausethey’re really just trying to help their firms. From our standpoint atPinetree, we really do our own homework and we’ve had a number ofsuccesses where we’ve invested and help found companies like Aurelian Resources (TSX: T.ARU, Stock Forum), Gold Eagle and Guyana Goldfields (TSX: T.GUY, Stock Forum).We have a number of junior gold investments that have been sold tomajors. At the end of the day that’s the real test because the majorsreally understand how these deposits evolve.

TGR: So you have a team of geologists and quasi analysts at Pinetree?

SI: We have a couple of analysts internally, but we really goout and speak to other people that we know. We sometimes contract themto look at things. I invest with other people, too, who are very, veryknowledgeable, who are geologists or have run companies, so we have anextensive network that help us with our appraisal of what separates thereal stuff from the junk.

TGR: If we look at Pinetree’s investment philosophy and yourenthusiasm related to gold, and I look at the last several investmentsthat Pinetree made, I see germanium, moly, nickel. I see really onlyone that I can identify specifically as gold.

SI: Yes, there are others. We’ve been exceptionallysuccessful in uranium. I’m quite a strong uranium enthusiast. Withthese corrections out there, we’ve been actually buying gold anduranium, but what you see in press releases is just where we get abovea critical percentage ownership. So it’s not the disclosure of all thethings we buy. It’s just what meets a certain threshold for regulatoryreasons. For example, last week we announced that we went over 10% of acompany called Queenston Mines (TSX: T.QMI, Stock Forum)and the value of that investment is substantial and it’s actually oneof our favorites right now. So you have to look at it in context. Someof the others have an immaterial value, but we own the largerpercentage of the company and have to report it.

TGR: Could you give us some senior mining stocks that youlike and junior emerging companies that you would recommend peopleinvest in or, as you say, do their own due diligence on and why youlike them?

SI: I’m a fan of two seniors, Goldcorp and Kinross Gold Corporation (TSX: T.K, Stock Forum),because of management and because of their pipeline of projects; thefact that they’re willing to acquire new deposits and they’reaggressive. I believe you have to be aggressive into a rising goldprice/gold market and they’re willing to make moves, whereas many othercompanies just sit on their hands and don’t do anything.

In the juniors, we like Queenston (QMI), which recently came up withsome spectacular results. We think it’s absolutely one of the top onesto own. The other one we really like is Colossus Minerals (CSI). It’sin Brazil. It’s the old Serra Pelada Mine. Grade is extremely importantin investing today and both of these names have terrific grades.

There are a lot of companies that announce massive holes of twograms over big widths. They say they have all these ounces of gold, butthe cost of mining is expensive. It’s a big dirt moving operation orunderground operation that makes a lot of these things not asattractive from an investment standpoint, so we like higher grade. Wethink that’s very crucial. Aurelian and Gold Eagle were both bought bymajors and we think it is the grade that resulted in those deals.

SI: There are lots of them, but these are nicely advanced. Wethink Guyana Goldfields is very cheap now. It’s got almost 5 millionounces of gold, so that is also an encouraging one and we’ve added tothat recently.

TGR: What about Evolving Gold (TSX: V.EVG, Stock Forum)? What’s the story there?

SI: Yes, we own Evolving Gold. They just came out with somemore results on their Rattlesnake deposit, some higher grade, somelower grade. They’ve got a lot of projects. I have a lot of respect formanagement there. They’re all geologists; some worked at big companiesand have some interesting theories. They have raised money, and at thisprice, we think there may be some value. These “junior” juniors are notgetting as much attention yet in the gold space and we’re going to haveto wait for the trickle down theory to occur, but I believe that if youbet on the right people and if you’re patient they’ll come through foryou.

TGR: You briefly mentioned Colossus. I’m looking at itschart. It seems to have found its bottom at 50 cents and has moved up.The same thing here? Things look good for ’09 as their project inBrazil moves forward?

SI: It’s one of these projects that in some ways is almosttoo good to be true, but it needs more drilling. It’s got a partnershipwith the local people, and that’s very strategically important. VicWall and Augusto Kishida are tremendous geologists. I know them both.So I know that geologically you’re dealing with great people and theyare also are shareholders in the company. They’re not just advisors orconsultants.

The other thing great about this project is that there is ahistorical database that was done by Vale (formerly CVRD) where theydrilled this up and this is quite a unique project where you have veryhigh grade gold, platinum, palladium all together in a geologicalsetting unlike anything else in the world. And the deposit metallurgyseems to be really good.

TGR: How would you describe Pinetree for the typical investor? Why should an investor look at Pinetree?

SI: Why investors have looked at it and bought it is becausethey find it very difficult, as you said before, to pick which juniorto buy just looking at the geology. We own a lot of companies, so thisis a way of participating in sectors, by having other people (us) dothe due diligence.

We have a great track record. We’re going to be volatile with thespace because that’s our business. We’re in the junior market, so we’llget hurt when the junior market gets hurt. But we have a pipeline and arecord of finding new deals that become winners. For the averageinvestor, it’s a good way to participate in a space without having tospend the time and take the risk. Also, they can buy the shares. Ifthey don’t like it, they can sell the shares. We’re very transparent.We list many of our holdings on our website.

TGR: If somebody buys into the precious metals market, it’s a leverage bet.

SI: Exactly. If you look at Queenston, our position istrading at 20% to 30% of the whole value of Pinetree and we haveinvestments in a lot more companies than just Queenston.

My feeling is right now this is one of the best buying opportunitiesthat we will see, for those that care about this particular space,junior resource, gold first, uranium second. There are so manycompanies trading at a discount to cash that have qualified assets andare trading at 10 cents on the dollar and that’s what I do daily. Weare buying millions of shares of these little ones and people arejust—pardon my expression—just puking them up.

TGR: Again, going to a prediction, where do you see gold going in 2009?

SI: Higher.

TGR: Higher. Substantially higher?

SI: Substantially higher. I’m not a numbers guy. I think itwill get a life of its own. Everybody gets fixated on these numbers andthey don’t realize today, with inflation and costs, these numbersaren’t the same as they used to be. These companies aren’t making a lotof money at $800 gold.

Sheldon Inwentash is Chairman and CEO of both Pinetree Capital (TSX: T.PNP), a Canadian investment company with a portfolio of investments primarily in the resource and energy sectors, and Mega Uranium (TSX: T.MGA),one of the fastest growing junior mining companies. Mr. Inwentash hasmore than 20 years of experience in the investment industry. AChartered Accountant, he was an Ontario finalist for the 2007 Ernst& Young Entrepreneur of the Year Award. He founded Pinetree in1992. T he fair value of Pinetree's investments surpassed $100 millionfor the first time in 2005, and in 2006, Pinetree ranked 5th out of 300small-cap companies by Canadian Business Magazine for total 1-yearreturn.

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