Sailing is on the brain. I’m off to Alaska tomorrow, to join my parents as they explore the Panhandle on their 31-foot sailboat. I’m just a touch excited.
Getting the boat from Victoria to Ketchikan was not easy. When there was wind, it was usually against them. Tides are big up there this time of year, near impossible for a small boat to fight. And it’s simply a long way in a boat that doesn’t move that quickly: Dad’s assessment when they reached Alaska was that an old man on a bicycle could probably have made better time.
But they made it. And they are so happy to be up there, a place they have dreamed of sailing around for many years.
To do it required a combination of conventional sailing expertise and new situation ingenuity. They got up early many mornings to catch the tide. They hugged shorelines to get shelter from opposing winds. They didn’t move on days when the weather was against them and put in long days when the winds were in their favor. When one of the gennaker sheets wrapped around the prop, they sailed 12 miles to dock and found a
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Continental Gold (TSX: CNL) released a preliminary economic assessment of its Buritica project in Colombia earlier this week, which was roundly applauded for its strength and conservative approach.
On the news Continental’s share price gained 52¢ in two days to reach $2.53. Gold price gains on those days certainly helped but CNL’s 26% gain doubled that of the Junior Gold Miners ETF – so clearly the market liked the Buritica PEA.
There was much to like. My favorite part was a 31.5% after-tax internal rate of return at a gold price of US$1,200 per oz. Importantly, at US$1,000-per-oz. gold Buritica would still generate a 24.1% after-tax IRR.
I don’t think gold is going to US$1,000. However, I do think that an after-tax internal rate of return of at least 20% using conservative metal price assumptions is a key indicator of a great project. If prices do better, it’s all upside.
Essential to Buritica’s good economics is grade. The current resource supports a mine churning through 20 million tonnes of ore over 18 years – ore bearing an average grade of 7.8 grams gold and 19.35 grams silver.
Continental (or whoever buys them out…) will have to dig
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I’ve been saying for weeks that we are at a broad bottom, that the worst of the pummeling is over.
My certainty has increased since Nov. 5th, when the price of gold and the Venture index both hit multi-year lows.
The Venture closed at 747 points on Nov. 5th, its lowest since late 2008, the worst point of the global financial crisis.
Gold closed at US$1142 per oz. on Nov. 5th, its lowest point since spring 2010.
In the seven trading days since, the Venture gained 4%. Gold also gained 4%, muc of that on Friday.
From here, shifts down will be minimal compared to the big picture. Important in that big picture is:
- 1.The loss to date. The Venture is down 78% from its 2007 high, down 64% from its 2011 high. Gold is down close to 40%. Silver is off 66%. Copper has lost 32%. Metallurgical coal is off 60%. These are big losses.
- 2.The gain to come. The rebound will not be one smooth ride to riches. It will come in fits and starts, in lulls and accelerations. But it will happen. And it will push metal and equity prices
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A merger here, an acquisition there. A financing, a new listing.
Gold prices may be trembling and swaths of companies flirting with their 52-week lows, but deals continue to get done.
More deals will surface in the coming weeks. Individually, none seem very exciting.
Collectively, they show a sector using today’s opportunities to prepare for tomorrow.
“There have been a couple deals – nothing super exciting, but it’s cleaning things up,” my broker said yesterday. “And things have to get cleaned up before they can get better.”
Lots of mining messes have already been tidied. Producers have cut costs and trimmed debts. Explorers to miners have reduced overheads and rationalized priorities, even when that required writing down huge (but now impossible) acquisitions.
The heady days of high-cost growth are gone. It was a long and painful process, but today’s pared-down survivors are focused on future opportunity rather than fixing past mistakes.
“Now that most of the cost cutting has been done, miners must move ahead and focus on the next stage of growth,” says PriceWaterhouseCoopers Global Mining Leader John Gravelle, in the firm’s annual mining survey. “It will continue to be a delicate balance of risk
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The uranium spot price added another US$2 per lb. on Friday to reach US$39, marking a 40% gain in three months.
In those same three months, uranium equities are down more than 20%.
The gap grew because, while Fukushima continues to loom over the sector, uranium remains part logic, part emotion.
On the logic front, upward pressure is building.
Uranium is transacted in two markets – spot and contract – and a quiet contract market takes the legs out from under the spot. And contracts have been very quiet: in 2013 reported contract volumes totaled just 20 million lbs., compared to 191 Mlb. in 2012. With prices low and supplies available, utilities simply stepped away.
Contract volumes are already better this year, with 70 Mlbs. changing hands, and volumes will likely keep climbing as utilities look to seal in access to cheap uranium. Indeed, I keep hearing that nuclear utilities are in the market looking for supply.
Why now? Because the cure for low prices is low prices. Four years of declining prices have the uranium market at a bottom, which means (1) prices will go up from here and (2) supply reductions, implemented because many mines
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I have spent hours, days even, immersed in technical analyses of the price of gold, the sustainability of the Dow’s rise, the duration (and endpoint???) of the Venture’s slide, the copper supply-demand-stockpile situation, and whatever other data seemed important that day.
I have spent an equal amount of time reading about the randomness of the market, how tradeable patterns only happen three times before traders annihilate them, how that action irons out big picture trends, and how you’re better off betting on a race between drunk puppies.
The truth is somewhere in the middle. Some events or developments are predictable; others are not. The market reacts to each in different yet related ways. Emotion and momentum definitely create significant patterns, some of which are tradeable.
But the harder you look, the more patterns you will see. Which brings me to my two new favorite technical analyses of the price of gold.
Vampire fans will love the first, which proves that gold moves with the moon’s cycle. I mean, every full moon corresponds to a gold peak, trough, or price acceleration. Clearly.
Credit to tech analysis guru Tom McClellan of McClellan Financial Publications, who used
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When the economic crisis hit in 2008, I was not yet an investor. I spent my days researching mining stocks as an objective journalist.
One story I followed very closely those days was Teck Resources. The coal and base metals miner almost went under during the crisis, pummeled by a massive debt load. Teck’s share price plummeted from $50 to less than $4 in just a few months.
The company sold assets, restructured its debt, closed mines, and laid off employees. Then, as the market bounced, Teck’s share price went on a tear.
A year after its near demise Teck was trading at $40, a ten-fold increase. A year after that TCK.B shares reached $64.
Teck’s tale was particularly dramatic, but other miners followed similar paths. Barrick, Newmont, and Yamana shares all more than halved in value during the crisis, then regained almost all their lost ground over the next year. New Gold shares went on a wilder ride, falling from $9 to below $1 during the crisis and then climbing to $14 three years later.
Investors brave enough to invest during the crisis made a lot of money in that rebound. I did not –
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I cannot stop. Reading, talking, questioning, researching – the markets are so up and down, excitable and depressive, liquid and illiquid.
There are so many questions, each with such a range of answers.
Is the end of quantitative easing in the United States significant? Did the greatest financial experiment in the modern world work? How long will Japan’s surprise move into QE fuel global markets? Is Europe sliding into recession and/or deflation? How high can the greenback go? Where and when will gold bottom? Why is silver always so confusing? Will the Fed raise interest rates? When will supply constraints start driving metals back up? Is cheap oil a good thing?
The list of questions goes on. None are easy and all are interrelated. Thinking it all through feels like a Choose Your Own Adventure book, full of binary decisions that dictate what will happen.
For example, if I decide that the US recovery is real and markets have already accounted for the end of QE, it follows that the greenback will continue to strengthen and gold decline while North American equities trend upwards.
But wait a minute. Major indices are up 200% in just
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When precious metals struggle, investors favor bullion over stocks. It is sensible: the gold price can fall but cannot go to zero, while stock prices most certainly can. Thus bullion is safer.
As a result, the ratio of gold equities to the price of gold falls in a weak market. In 2001, the post Bre-X low, the ratio dipped to about 0.16. Over the next six years, during gold’s best bull market ever, it averaged twice that.
Then in the 2008 crisis the ratio again crashed, falling below 0.08. Over the subsequent 20-month recovery it almost doubled.
Today, following gold’s three-year slide, the gold equities-to-gold price ratio is just 0.05 – far below either of those bottoms. Gold equities are as friendless as they have ever been.
However, the gold price is rising – and setting up for a bull run, because production can’t meet demand in the medium term and fiat currency questions abound.
The disjoint means investors have to return to gold equities at some point, because if the market wants more gold it has to support the publicly traded companies who discover, develop, and produce the yellow metal.
The astute John Embry, chief
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In the last decade we saw $140 billion worth of Canadian juniors taken over. Many of the deals targeted copper projects, which means bigger fish already own many of the best copper deposits.
The same is not true of gold. Some gold discoveries were taken over but many are still held by juniors. And they will stay there until share and metal prices start to climb for real, because until then majors will stay mostly on the sidelines.
But that will change when the gold price moves confidently above $1,200 per oz., a number that has become imbued with significance by a three-way coincidence.
The first is that $1,200 is just enough above where gold bottomed – at $1,140 per oz. on Nov. 5th, as called by yours truly – to provide confidence the worst is over.
And confidence is so important with gold.
Gold is the most reliably cyclical of all metals, so in a down cycle speculators simply bide their time, awaiting a clear bottom before returning for the ride back up. The fact that gold has hovered near $1,200 for two months is providing precisely that confidence.
The second coincident happening
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