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Title: Anticipating the Coming 550% Gold Gains
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Published: Mar 19, 2016
Author: Gerardo Del Real
Post Date: 2016-03-19 21:20:15 by BTP Holdings
Keywords: None
Views: 122
Comments: 2
Anticipating the Coming 550% Gold Gains By Gerardo Del Real | Saturday, March 19, 2016 To the surprise of absolutely no one, Federal Reserve Chair Janet Yellen kept rates unchanged... but did signal that instead of the four rate hikes planned for 2016, there would be perhaps two more this year. The combination of dovish monetary policy from the European Central Bank (ECB) and the Bank of Japan (BoJ) combined with meager wage growth here in the U.S. is forcing the Fed to tread carefully. Gold reacted positively on the news and was up a strong 2.8% on Wednesday at $1,266 per ounce. Gold is now up 20% for the year. Silver moved as well — a robust 5% since the announcement — and is flirting with $16.00 per ounce again. Crude oil is near $40.00 per barrel for the first time in 2016. And even copper caught a bid and currently sits near the $2.30/lb. level. We continue to expect profit-taking as the quarter winds down. The consensus tends to be that we may see two quarter-point rate hikes by year-end, with the first possibly coming in June. Amid the rallies, there were warnings in the statement that shouldn’t be ignored. Here’s what Fed Chair Yellen said in her statement: The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments continue to pose risks. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2% over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. That's a long way of saying what we’ve discussed in the past: that monetary policy is becoming increasingly ineffective, especially against the backdrop of ZIRP (zero interest rate policy) now giving way to NIRP (negative interest rate policy). The bottom line is that eventually the Fed will have to raise rates to maintain the appearance of credibility. And while the rate hike will be inconsequential here in U.S., it could provide the catalyst for additional capital to flood into U.S. equity and Treasury markets. We agree that the dollar will weaken — eventually — but before that, we see a scenario developing where capital inflows from worried investors overseas flood into the U.S., strengthen the dollar, and cause what we’re expecting to be a brief but violent commodity sell-off, including gold. We’ll be ready for that sell-off, and we will be looking to add companies that have the highest-quality assets and management teams. In India — which is behind only China for gold demand — there was speculation that the 10% import duty on jewelry might be eliminated. Instead, the government decided it would levy an additional 1% tax on all gold jewelry sold in the country. Gold jewelry is India’s largest source of demand. We’ll see if this is a short-term blip in policy or if it has a more pronounced effect on the second-largest consumer of gold. We’ll be buying assets that may be bought out regardless of the price of gold and high-margin assets that can perform well in the face of a lower gold price. Everyone is a genius when the price of gold and their favorite company is rising, but the truth is that very few of those companies will do well if our scenario plays out. If we’re wrong, we’ll enjoy the upside; if not, we’ll sleep well knowing we’re positioned in companies that protect our downside. The Week in Juniors Although this time of the year typically brings about a flood of news releases regarding upcoming drill programs, this year is once again light on actual exploration and development — a symptom of the protracted bear market. Access to capital is available to the best management teams but often not on the most favorable terms. And the trauma of the past few years has left many companies timid to spend their last dollar on the potential for a discovery. There are exceptions, however... B2Gold (TSX: BTO)(NYSE: BTG) On March 15, 2016, B2Gold announced financing arrangements to fully fund the Fekola Mine construction in Mali. The announcement outlined gold prepaid sales financing arrangements of up to $120 million, a Fekola Mining Equipment Facility for $81 million, with Caterpillar to finance the fleet, and an increase in the Otjikoto Equipment Facility by $4.5 million to $45.4 million. Based on current assumptions, the Fekola Project remains on schedule to commence production in late 2017. And it’s managed to achieve this without a dilutive equity financing. Based on current assumptions, the company is projecting gold production in 2016 of between 510,000 and 550,000 ounces, increasing to between 800,000 and 850,000 ounces in 2018 from its mines in Namibia and the Philippines and operations in Nicaragua. In a sector that’s known for inefficient allocation of capital, it’s nice to see a company’s interest aligned with shareholders. Although we’re primarily focused on exploration and development companies, B2Gold is a producer that seems to be executing well and one we will be watching. Gold Standard Ventures (TSX-V: GSV)(NYSE: GSV) Also on March 15, 2016, Gold Standard Ventures announced an updated National Instrument (NI) 43-101-compliant resource estimate for its Pinion gold deposit on its 100%-owned and -controlled Railroad-Pinion Project in Nevada’s Carlin Trend. Here’s a map of the Pinion and Dark Star open-pit resources. Gold Standard Ventures (NYSE: GSV)Pinion Resource Update(Click to Enlarge) The estimate outlines an Indicated Mineral Resource of 31.61 million tonnes grading 0.62 grams per tonne (g/t) gold (Au), totaling 630,300 ounces of gold, and an Inferred Resource of 61.08 million tonnes grading 0.55 g/t Au, totaling 1,081,300 ounces of gold, using a cut-off grade of 0.14 g Au/t. The company has the second-largest land package on the Carlin Trend — adjacent to or near Newmont’s Emigrant, Rain, and Elko mines — with three established gold deposits: >Pinion, with 423,000 indicated Au ounces and 1.02 million ounces Inferred >Dark Star, with 375,000 ounces in the Inferred category >North Bullion, which is undergoing additional drilling GSV also counts OceanaGold (TSX: OGC)(OTC: OCANF) and Goldcorp (TSX: G)(NYSE: GG) as major shareholders, with each owning 19.9% and 9%, respectively. We like shallow oxide deposits in great mining jurisdictions like Nevada. We like the US$13.4 million exploration program for the Railroad-Pinion Project planned for 2016. We like the C$44 million in the bank. And we like the fact that OceanaGold and Goldcorp are large shareholders. But we don’t like it enough to buy in at these levels. A market capitalization of approximately C$287 million seems rich considering what they’ve proved up. We’ll watch and see if the 50% institutional support it enjoys hangs in there if there’s a sell-off in the gold price, as we expect in the next few quarters. Canasil Resources (TSX-V: CLZ)(OTC: CNSUF) More news from March 15 as Canasil Resources announced a non-brokered private placement of 4,100,000 common shares at a price of C$0.22 per share for gross proceeds of $902,000. The following day, Canasil announced it had closed the non-brokered private placement. Seems easy enough. Wonder why everybody doesn’t do it? Canasil is a Canadian mineral exploration company with a strong portfolio of 100%-owned silver-gold-copper-lead-zinc projects in the Durango and Zacatecas States, Mexico, and in British Columbia, Canada. The company and its partner, Orex Minerals (TSX-V: REX)(OTC: ORMNF), have seen some very exciting drill results from what appears to be a new silver discovery on their Sandra-Escobar Project in Durango State, Mexico. Hole SA-15-001 yielded a 61-meter core length (43.1 meters true thickness) intercept grading 359 g/t silver, starting from surface. Within this is a sub-interval of 18 meters (12.73 meters true thickness) grading 748 g/t silver, which includes 9 meters (6.36 meters true thickness) grading 1,204 g/t silver and 3 meters (2.12 meters true thickness) grading 2,271 g/t silver. They’ve followed that up with drill hole SA-15-006 yielding a 37-meter core length (33.50 meters true thickness) intercept grading 328 g/t silver, starting 10 meters below surface. Within this is a sub-interval of 14.00 meters (12.68 meters true thickness) grading 596 g/t silver, which includes 3.05 meters (2.76 meters true thickness) grading 1,365 g/t silver. Hole SA-15-006 is located 350 meters east of hole SA-15-001. Drill hole SA-15-002 yielded 51.00 meters core length (45.00 meters true thickness) grading 218 g/t silver from surface, including a sub-interval of 17.00 meters (15.00 meters true thickness) grading 404 g/t silver. Orex has an option to earn up to 65% interest in the project through total cash and share payments of $1,000,000 and exploration expenditures of US$4,000,000 over five years. The company has a 52-week low of C$0.03 cents and currently trades at C$0.27 cents — and is a great example of how a decent share structure, great entry point, and great exploration results can make us a lot of money. Canasil Resource Chart Silver Stock(Click to Enlarge) These are the kinds of gains we anticipate during the next cycle. We suspect that Orex will continue drilling. And with a market cap of C$22 million fully diluted, Canasil is on our radar. Lydian International (TSX: LYD)(OTC: LYDIF) On March 17, 2016, Lydian announced it had closed its previously announced public offering of 115,000,000 subscription receipts at a price of C$0.29 each, for total gross proceeds of C$33,350,000. Each subscription receipt is good for one Lydian ordinary share and three-quarters of one ordinary share purchase warrant. Each warrant will entitle the holder to purchase one ordinary share of Lydian at a price of C$0.36 for a period of 18 months from their date of issuance. Exactly two years ago on March 18, 2014, Lydian traded at C$1.28 per share. Today, shares trade at C$0.27. Lydian International Gold Stock Chart(Click to Enlarge) The gold is still there. It’s an emerging gold developer focused on its 5 million ounce-plus (across all categories) 100%-owned Amulsar Gold Project, located in south-central Armenia. The company's current mine development and construction plan for Amulsar is aimed at achieving average production greater than 200,000 ounces of gold per year and establishing the company as a high cash-flow producer. All-in sustaining costs are estimated to be C$585 per gold oz. So why the downtrend? Because management decided to finance their mine at the bottom of the cycle by diluting their shareholders to the point where even if they succeed, there isn’t the kind of upside left for new shareholders — or existing ones, for that matter — to risk their capital. Especially in the context of the opportunities available to us in the current market. Share structures matter. GoldQuest Mining (TSX-V: GQC)(OTC: GDQMF) GoldQuest announced a C$3 million non-brokered private placement at C$0.20 a share. GoldQuest is a Canadian-based exploration and development company focused on gold and copper in the Dominican Republic. The company is focused on developing its 100%-owned PEA-stage Romero Copper-Gold Project, which consists of approximately 2.4 million gold-equivalent (AuEq) ounces in the Indicated category grading 3.81 AuEq and another 790k AuEq ounces in the Inferred category. The company has 209 million shares fully diluted — 224 million if the placement is fully subscribed — and currently trades at C$0.24, giving it a fully diluted market cap of approximately C$54 million. Its Romero project has solid economics outlined in its preliminary economic assessment (PEA) with an after-tax net present value (NPV) of C$219 million using a 6% discount rate and an internal rate of return (IRR) after tax of 34% with all-in sustaining costs (less corporate G&A) of $572/oz AuEq. Payback is estimated at 2.7 years. GoldQuest has decent exploration potential and is advancing its pre-feasibility study (PFS), which is scheduled to be delivered in Q4 2016. The project has merit and upside, especially in a better gold market. I'm not a huge fan of the share structure. This time last year, shares traded at C$0.10 cents. They're currently at C$0.24. I like that the financing doesn’t include a warrant. In a broad-market or summer sell-off, it’s worth keeping an eye on. If it gets attractive enough for a speculation, we will dig more into metallurgy, the consistency of the deposit, permitting risks, etc. In the meantime, we’ll keep an eye on how many companies are able to hold onto their PDAC-inspired gains. And we’ll keep an eye on what’s going on overseas — Europe, Japan, and China. We'll also keep working on putting the finishing touches on our first issue of Resource Stock Digest Premium, which will be open for new charter membership soon. To your wealth, Gerardo Del Real, Editor, Resource Stock Digest Click for Gerardo's Editor's Page Poster Comment: Some exciting mining ventures abound. Good silver yields in Mexico. Smoke 'em if ya got 'em.
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#1. To: BTP Holdings (#0)
You mean for shareholders, right? Increased production works against retail prices as I understand it.
Of course, for shareholders. If you are in on the ground floor you can make it big time. Right now, the mines are holding their metals until the prices go up, especially gold. They just sell enough to keep the mines running. The rest stays in the vault. ;) "When bad men combine, the good must associate; else they will fall, one by one." Edmund Burke
#2. To: NeoconsNailed (#1)
You mean for shareholders, right?
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