What a week!!!
Seriously. As last week wrapped up I was pretty darn confident: Biden win stoked hopes of stimulus packages without tax cuts and ushered in an early bottom for gold. The price running from US$1,866 per oz. as high as US$1,956 on Friday seemed evidence enough, especially since the gain pushed gold up through a descending wedge.
And then came Monday and news of the vaccine. Pzifer and partner BioNTech announced that early results of its COVID vaccine yielded 90% efficacy, with little evidence so far of negative side effects. Hopes had been for 50 to 60% efficacy so 90% blew everyone’s socks off.
(Because I’m a scientist at heart, here’s the situation in a bit more detail. It’s a 44,000-person trial. Half got the vaccine; half got saline injections. Since the trial started 94 of the 44,000 have gotten COVID-19. Of the 94, only 9 had received the vaccine: 9/94 is the 90% efficacy rate. It will take a few more months for the numbers to get big enough for statistical significance but this is a very strong result at this stage – and the surge in cases around the world will ironically shorten the time
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There are few things explorers like better than getting results back from the laboratory. It’s like Christmas! After months or even years of work – securing land access, permission to drill, deciding where to position the hole, possible drilling issues or delays, sending core samples to the lab for analysis* – finally, the results arrive!
Assay results are crucial for keeping junior explorers afloat. Releasing news of a strong drill intercept can attract new investment dollars for more exploration work. (Poor results, on the other hand, are filed away as lessons learned and exploration quietly continues.) For better for worse, it’s all part of the rollercoaster of investing in explorers.
But right now, Christmas is not coming fast enough, or at all, for many explorers. Geochemistry labs are seriously backed up and explorers are experiencing delays between submitting samples and receiving results (know in the business as TAT or turn around time) that are much longer than usual – like three months instead of six weeks.
It’s Not Working – For Anyone
Normally, labs can turn samples around in about six weeks. The time span from finishing the drill hole to releasing results is a bit more complicated than
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One piece of news from last week that certainly helped gold early this week was that Berkshire Hathaway invested in Barrick Gold. Yes: Warren Bufffet, a loud and longtime gold detractor, invested US$565 million in the world’s second largest gold miner.
Buffett is a value investor. He has said many times that gold is unproductive, unpredictable, and useless. So news of this move certainly took the market by surprise.
Lots of points to make:
- Gold producers are standing out among equities for strong balance sheets and earnings forecasts. That suggests Buffett sees Barrick as a value play. He doesn’t have to think that gold is going to the moon – as long as he thinks gold prices will remain strong for several years, then Barrick is a value buy.
- Taking that one step further: gold companies might now be in the early stages of being thought of as real businesses. A history of poor capital allocation plus a commodity with wide price swings has segmented gold miners to the side, as a niche sub-sector not to be trusted. But in the last bear market and in the sideways years since gold miners have largely said
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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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