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00:00We do see gold grinding higher here and ultimately what's driving gold is basically an economic backdrop that is generating sluggish economic growth. Gold's ultimately driven by what real interest rates are doing and in this environment where global growth is constantly being revised downwards. This should be a supportive environment for global growth and even if you look at the US you know the US which is supposedly now taking along really really well. And you know Atlanta Fed GDP now forecasts are just north of 2 percent and you can go back and you know the last time the US had economic growth north of 3 percent despite QE 1 2 3 Operation Twist taking rates down to zero. The last time growth was north of 3 percent was 2005 . And in that environment persisting should be positive for gold . Let's take a look at this graph here which let's let's put that up again if we could it's interesting because it shows a long term look at gold and the huge up cycles and the very dramatic declines that can you speak of us. Yeah sure. So you know we you know we're out there we're telling people that it's time to take a look at gold. We think that we're in a new bull market cycle. If you do subscribe to that a lot of people is sort of suffering from sticker shock saying Well well you know that the stocks are up 70 percent from their low point which is you know a 10 plus year low point and they're up 70 percent from that that point in time . We try to provide people with perspective and saying that if you do believe that we're in a new bull market cycle that there could still be a lot more to go. If you look back to 1970 there were seven bull markets. The average return was about three hundred and sixty percent and the average duration of the bull market was three point six years and we would argue that maybe this is going to be a little more pronounced than the average cycle considering that the bear market we were in was was so severe in terms of magnitude and duration when the stocks were down 80 plus percent over you know four plus year timeframe. So how do you find value in the gold sector. Do you see it. And what metrics do you use. So you know value is always in the eye of the beholder because it's going to be dependent on what gold price forecasts are using. But typically especially when you're in the early stages of a bull market and you're you know you're reviewing what analysts are saying and how people are modeling it you know they're constantly revising their gold price higher . So you know something that may look expensive today in a higher gold price actually looks cheap. So the two things that we sort of were the three things we look at price 10 Navy we would argue that that that stocks are still very reasonably priced on that metric especially if you compared to previous bull market cycles we look at price to cash flow. They're near the call at the bottom quartile of their 20 year band. And then we look at the at the ratio equity bullion ratio and if you look at that you know that's near at forty five year low which is indicative of both sentiment and considering the fact that gold bullion actually has done okay in various currencies over the past number of years. But gold stocks have not. Are you looking at midcaps large caps or that the whole universe. So you know art you know what where we add value as fund managers is really going to be in the small to mid-cap space. You know that's where we you know we've spent millions of years millions of dollars a year on due diligence. We have a team of dedicated geologists. You know we can do the work on an asset. We visit the asset we review the technical reports and we believe we're going to see significant M and A theme within the gold industry because of two things number one. No. Companies the bigger companies have not spent on exploration and that's going to drive basically declining production profile. And unlike something like oil and gas Riegel spend a few million bucks and you can be producing in 30 days. Mines take years to delineate to develop a mine plan and most importantly and most critically to permit. So a lot of these majors are beyond the point of no return or they're going to be facing declining production profiles. The only way they can dress a address that is through any activity and it's going to be predominantly targeting the small to mid-cap names the companies that are single lots of producers are the companies that are transitioning an asset into production .

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Sprott's Mayer: More Gold M&A On The Horizon

Jason Mayer, Senior Portfolio Manager at Sprott Asset Management joins Bloomberg TV Canada's Mark Bunting to discuss what will drive gold stocks' next leg of bull run. (Source: Bloomberg)

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