[Goldmember] Older Forbes article on Sinclair

[bob]

Golden oldie
Bernard Condon, 12.10.01

Having called the top of the gold market 22 years ago, a goldbug now 
thinks that he has found the bottom.
In 1977 James Sinclair boldly predicted that gold would rise from $150 
per troy ounce to $900. Gold never reached that mark, but it came close 
on Jan. 21, 1980, peaking at $887.50. The next day, says Sinclair, he 
unloaded his entire gold position, personally netting $15 million. 
Pointing to the U.S. Federal Reserve's efforts to fight inflation, 
Sinclair then predicted at an annual gold conference that the metal 
would languish for the next 15 years. It did. On Friday, Jan. 20, 1995, 
it closed at $383.85.

So this is a guy to listen to. He's bullish again. Why? Because he 
believes, despite the whiff of deflation in the October producer price 
index, that the U.S. is headed for mild inflation. He thinks that the 
dollar is due for a fall. He is also impressed that mining companies, 
which routinely sell unmined metal forward at fixed prices to protect 
themselves against further price drops, have recently pulled back from 
placing these hedges, a move that should prompt gold prices to rise. If 
they do, Sinclair expects a squeeze on gold speculators, who have $36 
billion in short positions. Sinclair figures that the shorts will cover 
their positions soon after gold hits $305, a move that could force the 
price to $350, even $430.

Persuaded? On the New York Mercantile Exchange you can buy an option to 
purchase 100 ounces of gold in six months with a strike price set at a 
slight premium to today's price. An option exercisable at $300 will cost 
you $9 an ounce. If gold hits $350 you pocket $4,100 in profits.

Sinclair is not buying just futures and options. Since 1996 he has 
invested $11 million to develop 5,600 square kilometers of barren land 
in central Tanzania that he's convinced hold vast gold deposits. 
Drilling on the property is still in the early stages, but Barrick Gold 
is already pulling metal from an adjacent site whose proven and probable 
reserves have nearly tripled to 10 million ounces in the past two and a 
half years.

It's a gamble not many investors would make, but Sinclair has always 
stood apart from the crowd. On the walls of his office hang six 
photographs of Shri Sathya Sai Baba, a guru in India whom Sinclair 
visits several times a year. Sinclair's love of carrot juice recently 
turned into a 25-kilo-a-week habit that was brought to a halt only when 
his doctor grew alarmed at the orange tint to his skin. A loner, 
Sinclair paid $3 million in 1983 to turn a 19th-century barn into a 
reception hall for his house but has held only three parties there.

After his 1970s career as a goldbug, Sinclair retreated to his 
Connecticut estate, where he played with his helicopters, show ponies 
and collection of Ferraris. He didn't stay idle long. He built cable 
systems at Cross Country Cable, a company he started with two friends, 
then made millions selling some of them to John Malone's TCI.

"Jimmy is different," says his onetime cable partner Vincent Tese, the 
former New York State banking commissioner and now a Bear Stearns 
director. "But in the trading business people don't care if you're 
purple, just as long as you're making money."

In 1989 Sinclair got back into metals after buying a small stake in a 
Vancouver, Canada, mining company called Sutton Resources. During a trip 
to Tanzania for the company that year to check out a potential nickel 
site, Sinclair became intrigued by a 140-square-kilometer patch of land 
called Bulyanhulu. It was studded with greenstones, volcanic rocks 
marked by long seams that are often rich in minerals. Some greenstone 
mines, such as those in Canada's Kirkland Lake Camp, have been yielding 
gold for a century and do so now at the relatively low cost of $200 an 
ounce.

"The opportunity stared at me as it did with cable and gold," he says. 
"The only way to make big money is to have the courage to put your eggs 
in one basket."

Sinclair helped Sutton buy rights to mine Bulyanhulu, then lobbied for 
it to do the same in adjacent lands. Sutton balked and eventually sold 
Bulyanhulu to Barrick. Sinclair decided to go it alone.


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Page 2 of 2 from Golden oldie
Bernard Condon, 12.10.01

By the summer of 1999 he had invested $4 million in the lands near 
Bulyanhulu. He faced a sickening prospect. Gold had just hit a 21-year 
low of $246. Bears were predicting $150 soon, a price that could wipe 
out the profits from even the most efficient of Tanzania's mines.

"I felt a pit in my stomach, like hunger," Sinclair recalls. "When I was 
a young trader, I used to think that I was invincible. Now I feel the risk."

Simple logic mitigated his fears. It costs most companies $250 
(including back-office support) to extract an ounce of gold. With gold 
trading below cost, it made no sense for mining companies to hedge 
against further price reductions. Recognizing that such hedges meant 
that an important force pulling gold down would soon disappear, he 
reasoned that the bottom was near.

Over the next nine months Sinclair spent $1.5 million on tests that 
measured magnetic pull to help locate seams in his greenstone. Soon 
after the tests ended, in February 2000, news broke that some big mining 
companies had indeed stopped placing new hedges. Sinclair reached into 
his pocket for $5 million to buy more mining rights in surrounding 
lands. Barrick expects that the $199 an ounce it is paying to mine gold 
at Bulyanhulu will drop to $130 over the next three years.

Sinclair hopes to sell his operation to a big mining company soon. To do 
that he'll need to prove that his gold can be as richly mined as it is 
in Bulyanhulu. And pray that bullion doesn't plummet again.

Sinclair's bullishness is catching on. One well-regarded bear, Andrew 
Smith of Mitsui, surprised the markets in September by announcing that 
he expects the metal to go to $340.