Gold & Precious Metals

#2 Most Viewed Article: Big Picture: Most Important

Posted by Mary Anne & Pamela Aden

on Saturday, 23 August 2014 16:43

With gold again on the decline, it’s time to take a look and focus on gold’s big picture.

This eases a lot of doubt, especially when companies like Goldman Sachs are bearish on commodities. We’ll focus on silver and palladium too.

GOLD: Still looking good

Looking at gold’s big picture since 1968, you’ll see what we mean.

Chart 1A shows that gold’s decline of the last few years looks small in the big picture, within the mega uptrending channel since 1968.

34890 a large

Note that gold has had two major bull markets, in the 1970s and in the 2000s.

The major rise in the 70s didn’t break its bull market red uptrend until several years after the peak in 1980.

The bull market red uptrend since 2001, however, is still intact. On a big picture basis, it’ll be important to see if this trend holds.

That is, as long as gold stays above the lows of last year, at $1210, this trend will stay solid.

And according to gold’s leading long term indicator (B), it’s extreme low area…

Since these low areas tend to coincide with bottoms in the gold price, this tells us that gold is totally bombed out and the lows of last year are unlikely to be broken.

All things considered, it increasingly looks like 2015 could be the year of a strong change to the upside.

SILVER: Big Picture is bullish

Silver is similar to gold (see Chart 2). It’s still in a major uptrend since 2002 within an almost 50 year uptrending channel. And its leading indicator is similar to gold’s.

34890 b large

Silver tends to outperform gold when both are bullish. So once gold starts rising in earnest, silver could then make up for lost time.

PALLADIUM: In its own league, but also leading
Palladium has risen 21% this year. It’s clearly one of our star performers.

It’s actually been in a perfect storm type of situation this year (see Chart 3).

Palladium is produced by Russia and South Africa. The ongoing tensions in Russia and uncertainty have been keeping palladium strong. The long strike in South Africa gave the extra push upward.

34890 c large

Palladium’s big picture is bullish. The chart shows palladium approaching its 2001 record high area, as it continues heading towards the top of its 44 year upchannel.

Its leading indicator also backs up a bullish scenario. Technically and fundamentally, palladium is set to rise much further.

You want to stay onboard! For now, that goes for gold and silver too.

 

Junior Mining Companies that Will Make Beautiful M&A Music: AgaNola’s Florian Siegfried

Posted by Brian Sylvester of The Gold Report

on Thursday, 21 August 2014 1:02

FlorianSiegfriedrevFlorian Siegfried, head of precious metals and mining investments with Switzerland-based AgaNola Ltd., knows where the music is playing in the mining M&A space. In this interview with The Gold Report, Siegfried notes that well-financed juniors with low production and capital costs, or intermediate cash-flowing producers, will be hitting the M&A high notes, and suggests a sextet of companies capable of making beautiful music.

COMPANIES MENTIONED: ASANKO GOLD : B2GOLD CORP. : ENDEAVOUR MINING : GOLDCORP INC. : GOLDQUEST MINING : GRYPHON MINERALS LTD. : KIRKLAND LAKE GOLD : LAKE SHORE GOLD :PRIMERO MINING : ROMARCO MINERALS : ST ANDREW GOLDFIELDS : TOREX GOLD RESOURCES :VICTORIA GOLD

The Gold Report: As of Aug. 1, 2014 the SPDR Gold Trust ETF (GLD) was up about 7% year-to-date, while the Market Vectors Junior Gold Miners ETF (GDXJ) was up about 30% and the Market Vectors Gold Miners ETF (GDX) was up about 22%. These are generally considered proxies for gold and gold mining equities. Is the mining sector bear dead?

Florian Siegfried: We have to distinguish between the short term and medium term and take an overall picture of where we stand. Gold has found a floor at the $1,280/ounce gold ($1,280/oz) level, which is encouraging for the short term. If we are in fact in the late stages of a good basing action in gold, that means the speculative money will go back not only to the metal, but also mining shares in anticipation of higher gold prices.

If we move below $1,280/oz in the short term, the bears will remain in the driver’s seat for at least a few weeks, perhaps months.

TGR: And in the medium term?

FS: If we see a continued rotation out of broad market equities and into precious metals then I would say, yes, the bear is dead. An encouraging sign that the bear is indeed dead is that gold is rising against the U.S. dollar and precious metals shares are largely outperforming the metal itself. This is encouraging but it doesn’t yet confirm anything.

TGR: If the gold price falls below $1,280/oz, how many months could the bear stick around?

FS: Midcycle corrections in gold tend to last up to four years. It has been more than three years now, probably 3.5 for the miners. I wouldn’t be surprised to see a sideways trend for the next six months, if we go by past cycles.

TGR: Share prices seem to be getting ahead of metals prices. Do you expect that to even out or continue?

FS: If we see continuing weakness in equities and bonds, this rotation into precious metals will continue. But if we see heavy liquidation in stocks and rising yields in the junk bond market as liquidity evaporates, precious metal shares will not outperform gold because the sage money will primarily go into gold itself. As long as we remain in this rotation, I would expect shares to outperform the metal in the medium term.

TGR: Some of the companies that you follow are performing well year-to-date: Kirkland Lake Gold Inc. (KGI:TSX) is up 60%, while Lake Shore Gold Corp. (LSG:TSX) is up about 170%. What do those companies have in common?

FS: Lake Shore Gold and Kirkland Lake are turnaround situations. Lake Shore Gold was extremely oversold last year and the stock was trading at $0.16/share in June 2013. Basically, it refinanced its business in 2012 before the gold price collapsed by raising the necessary debt and convertible debentures to improve operations. It stabilized the grade and costs went down.

Kirkland Lake is a similar case. The new management team has started to bear fruit. Kirkland is focused on fewer higher-grade stopes in order to reduce tonnage and dilution. Costs have gone down but it’s an ongoing process. The expansion capital projects are basically completed, however, the balance sheet has little room for operational errors. Both stocks are performing better than the index year-to-date, but they also lost a lot in the downturn.

TGR: Are turnaround stories the sweet spot for precious metals investors?

FS: This is where you can have the best returns if the market continues to go up. It’s about being selective and trying to find turnaround candidates. The problem is that many companies are cutting capital expenditures (capex) to reduce their all-in costs, which lifts profits temporarily but poses new problems in the longer run. Lots of stocks are 80–90% below their all-time highs and they’re down for a reason. You have to find the ones that have stabilized their operations and that have sufficient cash to go through the restructuring period as they make operational progress. At $1,300/oz gold few producers make much money but they have leverage to the gold price. When the gold price shoots higher, these companies should become very profitable. You can still buy them at depressed valuations at this stage.

TGR: Let’s go back to the fundamentals. Tocqueville Gold Fund’s John Hathaway recently told The Gold Report that the bottom of the precious metals complex will be confirmed when gold trades above $1,400/oz. Your thoughts?

FS: We should see a close around $1,330/oz in the short term. That would confirm a breakout for me in order to see $1,400/oz. Gold has been trading sideways between $1,280/oz and $1,330/oz for several months. A breakout above this level would confirm the next leg up.

TGR: Mining is largely a sentiment driven market. What is the current sentiment among investors and money managers that you talk with?

FS: The traditional gold equity funds have mostly stabilized after the drop last year, but they are basically not seeing big inflows from the traditional investor base. Those investors have largely sold out. Interestingly, there are many first-time buyers, including private equity, investing in the sector because it is ridiculously cheap at this point.

In Asia, investors are more into the high-beta stocks or turnaround stories. Overall, the sentiment toward gold and precious metals in Europe is definitely much more supportive than in North America.

TGR: How much of an impact are Asian investors having in the space versus what was happening three to five years ago?

FS: A lot of Asian institutions sold out just as everyone else did because those funds received the same redemptions as everyone else. The mood probably remains quite depressed, but the difference is that they are trying to play the next upswing by picking up those fallen angels, the midtier producers that are priced at much lower valuations than the senior stocks like Newmont Mining Corp. (NEM:NYSE) or Barrick Gold Corp. (ABX:TSX; ABX:NYSE). Selective buying from Asia has given the market some support.

TGR: What are European investors seeking when it comes to precious metals equities?

FS: For European investors looking for gold mining companies, it’s all about quality, management, profits and sustainable operations. Investors are increasingly selective. In the last run up in 2009–2011, an investor could virtually buy any company with gold in its name and it went up when gold went up. A rally has been in place since the beginning of the year but not every stock is joining in. It’s now about stock picking.

TGR: You’re not a geologist but you have a background in finance and a fair amount of experience in this space. How do you vet these companies?

FS: I make a short, diversified list of companies. There are hundreds of names but in the end I end up with probably 50–60 that I can really track. It’s a risky business. I have to consider all the different factors—financials, management, jurisdictions. I eventually try to pare the list down to the best names.

TGR: What are your investment strategies to get the most out of the next move in the cycle?

FS: Investors have to have a core portfolio of low-cost, well-financed junior and intermediate producers because that is where the music is playing if mergers and acquisitions (M&A) activity continues. Increase positions where you see momentum gaining strength because this is a market driven by momentum and sentiment.

For turnaround situations, I prefer 100,000–200,000/oz (100–200 Koz) gold producers that are bottoming, demonstrating quarterly operational progress and have cash in the bank. But only selectively build positions on the down days because those equities remain volatile in this market.

For M&A, the developers that are fully financed or fully permitted will take center stage in the next M&A wave. I would definitely have some exposure there.

If we see higher gold prices in the next few quarters, I also like cheap advanced-stage exploration stocks trading between, say, $0.10–$0.30/share. These stocks are basically an option on gold.

TGR: So you are saying the music is playing the junior and intermediate producers space for M&A?

FS: Let’s look at B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX) takeovers of Volta Resources Inc. and Papillon Resources Inc. Those were junior names. If you buy a company for valuation purposes, there are definitely plenty of opportunities in this sector and that will attract suitors. You said that Market Vectors Junior Gold Miners ETF is up 30% versus the Market Vectors Gold Miners ETF, which is up only 22%. That, for a good part, reflects growing M&A speculation.

TGR: Are there large caps that will be seeking to fill some needs via M&A?

FS: Possibly Goldcorp Inc. (G:TSX; GG:NYSE) because it has the balance sheet to make transactions. Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) and Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) just completed the Osisko deal. Barrick remains in divesting mode as it fixes its balance sheet. It has to define a new strategy before it considers acquisitions. Newmont and Kinross Gold Corp. (K:TSX; KGC:NYSE) are in similar positions. They all acquired companies at the top of the market and have had huge write-downs. I don’t see those companies entering into M&A in this market.

TGR: So will the biggest M&A players be the midtier and one-mine producers that are looking to build production by 50% or more?

FS: Yes. Being a single-mine operation is just risky; these companies are vulnerable and volatile. Most of them want to be more diversified and attract institutional investors by having greater liquidity. Many of these junior producers are thinking, “How can we attract the fresh money coming to the sector?” The generalist investors coming into the space do not have a lot of experience in the resource world. They typically want to see a good diversified portfolio of operations so that if anything goes wrong the stock doesn’t lose 50% in one day.

TGR: What are some companies that you follow that you consider potential targets?

FS: Everyone wants growth, high grade and some kind of world-class deposit in their portfolios. Romarco Minerals Inc. (R:TSX) has the Haile project in South Carolina that has a resource of 4.8 million ounces (4.8 Moz) grading 1.6 grams per ton (1.6 g/t ) gold: 4 Moz Measured and Indicated and 800,000 oz (800 Koz) Inferred. The final decision on its Wetlands permit—the last one it needs—from the Army Corps of Engineers is expected in November. It will cost $320 million ($320M) to build, and should produce 250 Koz annually at cash costs around $600/oz. This is the kind of near-term, low-cost, low-capex company that would fit into the portfolio of any midtier producer.

TGR: Does a suitor looking at Romarco wait for the decision from the U.S. Army Corps of Engineers before making a move?

FS: A suitor would probably wait. There is little opposition but Romarco’s market cap is $580M. I don’t expect a move before Romarco receives the final decision.

TGR: What’s another potential target?

FS: Asanko Gold Inc. (AKG:TSX; AKG:NYSE.MKT) in Ghana. It’s a fully financed, almost fully permitted near-term producer with a massive resource. The Asanko gold deposit contains 7.5 Moz of Measured and Indicated reserves, running 1.68 g/t gold, which is exceptionally high for an open pit these days. Asanko has $250M cash plus a debt facility of $150M. That should be sufficient to bring this mine into production. The first five years of production should produce 220 Koz annually. Asanko offers high-grade ounces at reasonable cash costs for an open-pit mine. The capex is similar to Romarco’s, and includes about $80M in pre-stripping.

TGR: What is the all-in cost of production?

FS: It has relatively low all-in costs of around $800/oz. In the second stage of production Asanko should produce around 400 Koz annually for multiple years. When Asanko acquired PMI Gold Corp. in December 2013, the stock collapsed and nobody was excited about the transaction. But Asanko got the Obotan resource, now named the Asanko mine, and $80M. The market now realizes that that was actually a value-added transaction.

TGR: What is an acquirer waiting for?

FS: The shopping list of potential targets is quite short because a company needs to have good grade and low capex in a reliable jurisdiction with access to infrastructure. Stocks with these criteria are performing better than the overall market because acquirers have to buy quality and have to pay the right price. Asanko is a world-class deposit that is on the radar screen of many companies.

TGR: Are there other companies that you believe are takeout targets in West Africa?

FS: West Africa overall is quite lucrative for M&A because a company can quickly build a mine and bring it to production. For example, in Côte d’Ivoire Endeavour Mining Corp. (EDV:TSX; EVR:ASX) commenced construction of the Agbaou mine in June 2012 and announced the pouring of its first gold bar in November 2013. Not only was the mine built ahead of schedule and below budget, but also the production is running well ahead of plan based on strong recoveries, high mill throughput and head grade.

For takeout names there are many companies that are getting close to a development decision, likeGryphon Minerals Ltd. (GRY:ASX). It is an Australian developer that has A$37M cash in the bank, $60M mandated debt by Macquarie bank and the fully permitted Banfora gold project in Burkina Faso, which hosts a 3.6 Moz gold resource. But that stock is trading at A$0.16/share, so it’s too early to make an M&A call.

TGR: What other companies are on your takeout list?

FS: Another company on the radar screen is Torex Gold Resources Inc. (TXG:TSX), which has the El Limon-Gaujes project in the Guerrero Gold Belt, about 180 kilometers (180km) southwest of Mexico City. It’s a world-class deposit, with 4.8 Moz gold Measured and Indicated and the grade is phenomenally high at 2.79 g/t. It’s fully permitted. The capex is higher at around $700M but the project is fully financed. It should produce about 360 Koz annually once it reaches commercial production, which is expected in 2015. Cash costs should come in around $500/oz. On top of that Torex has another deposit, Media Luna, with an Inferred resource of 5.8 Moz gold equivalent, and it’s basically open in all directions.

TGR: What are your thoughts on Mexico in general?

FS: The 7.5% mining tax that was enacted in 2013 basically hurt the whole industry, especially as it was introduced when gold lost 30% in value, which caused massive write-downs and losses for the miners. Goldcorp’s decision to go after Osisko was in part to seek more growth outside Mexico. Goldcorp is one of the biggest foreign direct investors for the country. At the same time, I think it’s difficult to say that companies operating gold mines in Mexico are underperforming since the tax was introduced.

TGR: What are some other potential takeout targets with projects in North America?

FS: Another name that has a good deposit is Victoria Gold Corp. (VIT:TSX.V). Victoria has the Eagle Gold project in the Yukon, which is probably one of the world’s safest mining jurisdictions. It has an NI-43-101-compliant resource of 2.3 Moz gold. The grade is 0.78 g/t. Victoria continues to drill and make higher-grade discoveries in its Olive zone, which is only 2km away from the fully permitted Eagle project. If the Olive resource continues to grow, it could turn into a game changer and will most certainly have positive implications on the economics of Eagle. Victoria could start to build Eagle as a standalone mine tomorrow but it needs about $400M in working capital to fund the project. It has around $25M in cash.

TGR: The feasibility study says Eagle has a net present value of $1.2 billion but the market cap is about $50M. Is it going to get financing?

FS: At these share prices, no. But Victoria’s project is quite leveraged to the gold price. If gold moves higher, that makes it much more attractive to lenders. The company will probably need $400M. To dilute at $0.15/share is basically not an option for shareholders.

TGR: Do you have one more North American name?

FS: St Andrew Goldfields Ltd. (SAS:TSX) has some properties in an area where there has been some recent M&A activity. Primero Mining Corp. (PPP:NYSE; P:TSX) bought Brigus Gold Corp.’s Grey Fox gold project, which is in the same geological trend as an adjacent St Andrew property. Should there be more consolidation in the Abitibi Gold Belt, St Andrew could be part of the equation. St Andrew has a big land package and a centralized mill that is currently not operating at full capacity. There are some strategic advantages around many of the St Andrew properties. The company also has a $190M tax pool. Sooner or later it will likely be part of another group in the same area.

TGR: What makes the Timmins Camp prolific?

FS: It’s one of the world’s richest gold mining districts and a historical belt that has produced more than 170 Moz gold since 1901 from more than 100 mines. The two biggest camps are Timmins and Kirkland Lake where companies are still making good discoveries. It’s a mining-friendly jurisdiction with infrastructure and I think that is the reason we see M&A activity taking place. It has a mining culture.

TGR: Earlier you mentioned Kirkland Lake as a turnaround story. The mining plan there is focused on less ore at higher grades. Obviously, that’s working now, but is that sustainable?

FS: That’s always the question. It’s difficult for me to have a clear opinion because I’m not a geologist. During the last two quarters the mined material was 0.4–0.42 oz/ton compared with 0.3 oz/ton previously. Importantly, in the last quarter the mined grade was above the reserve grade for the first time. I think that’s the result of a more sophisticated mine plan in order to make this operation more profitable because the company needs the grade, not the tonnage. The challenge for Kirkland Lake now is to get enough high-grade feed to increase its throughput, which currently stands at 1,050 tons per day, and I expect this to gradually increase over the coming quarters.

TGR: You have several different roles in the mining sector. One is as a director of GoldQuest Mining Corp. (GQC:TSX.V). The company is developing the Romero gold-copper project in the Dominican Republic. Tell us what shareholders can expect from GoldQuest over the next few months.

FS: In the first quarter GoldQuest completed an extensive airborne electromagnetic geophysical survey covering its 100% owned Tireo project in the Dominican Republic. The company has identified multiple favorable targets. Based on this survey and follow-on ground work, GoldQuest has identified a new chargeable zone around 7km northwest of Romero, called La Bestia. This new anomaly appears to be geologically similar to the Romero project and surface sampling and mapping was encouraging. On Romero GoldQuest published a preliminary economic assessment (PEA) earlier this year and it put Romero’s Indicated resource at roughly 2.1 Moz gold equivalent. From the Romero discovery to the PEA it took less than two years.

Typically the mineralization within the Tireo concession appears in clusters. The new targets to the northwest had never been drilled before and drill results on some of these targets should be coming out soon. It’s a big land package and recently GoldQuest has increased its land position by 21%, and the new ground encompasses several targets defined from the airborne aeromagnetic survey.

TGR: Do you have some parting advice for investors?

FS: This market is driven by sentiment and momentum. Get the timing right. If you think the timing is right, buy the shares before they look as if they could breakout.

Don’t buy too many juniors; buy fewer names with the right ingredients and try to time the market. If something goes wrong, don’t hesitate to sell because that was a big mistake and it’s still a big mistake. Then go to the next name. Always do your own homework.

TGR: Thank you for talking with us today, Florian.

Florian Siegfried is head of precious metals and mining investments at AgaNola Ltd., an asset management boutique based in Switzerland. Previously Siegfried was the CEO of Precious Capital AG, a Zürich-based fund specializing in global mining investments. Prior to this Siegfried was CEO of shaPE Capital, a SIX Swiss Exchange-listed private equity company that was founded by Bank Julius Baer & Co. Siegfried holds a masters degree in finance and economics from the University of Zürich.

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DISCLOSURE: 
1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None. 
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Asanko Gold Inc., Primero Mining Corp., St Andrew Goldfields Ltd. and Victoria Gold Corp. Goldcorp Inc. is not affiliated with Streetwise Reports. Streetwise Reports does not accept stock in exchange for its services.
3) Florian Siegfried: I own, or my family owns, shares of the following companies mentioned in this interview: GoldQuest Mining Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. AgaNola Ltd. does not assume any liability with respect to incorrect or incomplete information (whether received from public sources or whether prepared by itself or not). This material does not constitute a prospectus, a request/offer, nor a recommendation of any kind, e.g., to buy/subscribe or sell/redeem investment instruments or to perform other transactions. 
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

 

 

Arguably London’s most accurate gold forecaster for the past 15 years, Sharps Pixley CEO Ross Norman is warning of single digit gains only for the yellow metal this year, though he has not lost his sights on ‘very much higher prices’ in 2015-16.

His gold forecast last year suggested that 2014 would be a ‘goldilocks’ year – not too hot and not too cold – with rally fade to both the upside and downside as the market reverted to the mean – so far that view appears to have held true.

Speaking from his office in Berkeley Street he told ArabianMoney that gold and silver prices will only really shine again when there is again a perceived serious inflation threat and he just can’t see one on the immediate horizon.

Stock market crash?

Indeed what may loom this autumn is a stock market correction or crash that would likely also be bad for gold and silver prices initially as a deflationary force in commodity markets. Gold and silver would then bounce back quickly as they did in 2008 as the Fed responded to this crisis.

In fact it could well be this response that provides the ‘inflation trigger’ for higher gold and silver prices that Mr. Norman expects in 2015-6. He is a long term player and so is his 236-year old firm now owned by Degussa who are said to be the largest sellers of physical gold into the retail sector in Europe.

Mr. Norman is charged to expand the company from its modest current offices into a boutique showroom in London to encourage the trading of precious metals. Sharps Pixley clearly wants to be highly visible when the real business opportunity comes and Mr. Norman is setting up the stall.

If he is right then 2014 will be a positive year for bullion investors but fall shy of the hopes of a major price breakout. That is probably still to come as the money printers return with a vengeance after a major correction, or perhaps more optimistically when a recovering US economy comes up against capacity restraints and consumer price inflation takes a hike.

ArabianMoney has always been skeptical about the reality of the US recovery with the doubling of Americans on food stamps reminding us of the Great Depression.

What recovery?

It’s also been the weakest recovery on record and with the rest of the world slowing down we wonder where the impetus for further progress will come from now with the QE money printing program due to end in October.

The US stock market looks ripe for a correction with valuations stretched to breaking point thanks to QE and the low interest rate regime that is close to ending. That would definitely also can any economic recovery.

Autumn is the usual time for stock market crashes and corrections and the leaves on the trees are beginning to turn, so Mr. Norman could well have delivered another accurate forecast.

http://www.arabianmoney.net/

  1. In any market, but especially precious metals, price pullbacks rarely proceed according to expectations. 
  2. Most “buying opportunities” are perhaps better defined as gulags and torture chambers. Regardless, it’s almost impossible to build retained wealth without enduring a significant amount of pain, so please click here now. 
  3. That’s the weekly CRB general commodity index chart. I’ve suggested that 2014 is a key year of transition, away from system risk and deflation, towards some growth and lots of inflation. 
  4. Lead by gold, the CRB began the year with a strong rally, as the Fed began to taper its QE program. The rally lost momentum in March, and a decline began in June. 
  5. The 284 – 287 area is a key Fibonacci and HSR (horizontal support and resistance) zone. Note the position of the 14,3,3 Stochastics indicator, aka the “weekly chart stoker”. Downside momentum appears to be waning, and gold has outperformed most commodities during the decline.
  6. The next intermediate trend movement for the CRB index, and for gold, should be to the upside. 
  7. On that note, please click here now. At about 2PM on Wednesday, the next FOMC minutes get released, and key US housing start numbers will be reported today. The bottom line: With the CRB index approaching solid support, any gold-negative news is not likely to move the price of gold lower than $1275.
  8. The upside numbers of importance are $1325, $1347, and $1392. This is a different market than it was, when QE was the main theme of global gold price discovery. While it will likely take much longer than most investors expect for gold to rise significantly, it will still rise, and gold and silver equities are poised to do extremely well.
  9. A lot of gold analysts believe that the Dow is poised to collapse, and when it does the Fed will bring back its QE program, causing the price of gold to soar. 
  10. Unfortunately, I think they are dead wrong. The Dow is certainly overdue for a significant sell-off, but most value investors are on the sidelines now (including myself), and they would likely buy any decline of size. As the economy builds momentum, factory capacity utilization continues to grow, creating inflation. 
  11. The money created by QE is likely to make higher inflation appear faster than a normal economic upswing would, and many institutional money managers would be likely to buy gold stocks rather than gold, as that happens. Gold is bought when system risk is perceived to be the main theme in play. Gold equities are bought when strong growth, and inflation created by that growth, are in play.
  12. In a worst case scenario, where the economic recovery suddenly stalls and reverses, I would emphatically argue that the Fed might engage in a one-time stimulus, but a return of QE is highly unlikely. 
  13. A return to QE would make the Fed look weak, which it isn’t.
  14. Instead, a “gold band” would likely be the next tool the Fed brings out of its tool box, if the economy crashed. 
  15. A gold price band is simply a watered down form of gold revaluation. In an emergency situation, the Fed could be authorised by the US Treasury to quickly establish a moderately higher trading band for gold, likely between $1500 and $1800 area. That would be phenomenal news for gold and silver equity investors, but perhaps not such good news for anyone caught holding giant leveraged short positions on the COMEX.
  16. Please click here now. That’s the GDXJ daily chart. Over the past month, most commodities have suffered nasty declines, while junior gold stocks have shown tremendous resilience. Note the nice green up channel that is now in play.
  17. Copper is in the news, and according to some mainstream media it is declining, and that’s “bearish” for commodities. Please click here now . The commercial traders are now slightly net long copper. Please click here now. This daily copper chart suggests there is little cause for concern about deflation. Note the bullish posture of my stoker oscillator, at the bottom of the chart! 
  18. The Western gold community is likely on solid footing in 2014 – 2015, regardless of whether the economy grows and creates inflation, or whether it suffers a black swan crash event. The weight of the evidence suggests that strong economic growth, and even stronger inflation, is what lies ahead over the next twelve months.
  19. While a number of lightweight analysts and mainstream media analysts have spent the past week comparing Chindian gold demand to the demand during the spring of 2013, heavyweight bank economists are focused on the overall bullish trend in play. Physical gold demand must be compared to a multi-year trend, not simply to QE-oriented selling of ETF holdings that occurred during the spring of 2013. 
  20. Please click here now. As this snapshot of SPDR holdings shows, once again Western investors have bought price weakness. Over the past week, SPDR holdings increased nicely, from the 795 tons area, to about 797. The new breed of SPDR investor is not QE-oriented. They’re likely inflation-oriented, and certainly strong-hand buyers of price weakness.
  21. Globally, there is a tremendous fundamental floor for gold. Please click here now. Thailand is a significant source of gold demand, and the top bullion dealers there are working on a spot exchange that could rival or even surpass the Singapore market. 
  22. China is also “on the move” in the gold world. Please click here now. This snapshot, courtesy of The Economic Times, shows China adding 3 more gold importers to its roster, with the goal of bolstering its role in global gold price discovery. 
  23. Please click here now. This chart compares the US dollar to the Indian rupee. There’s a bearish wedge in play for the dollar, and the central bank is generally quite happy with the current trading range. 
  24. With interest rates at 8%, the Indian central bank is likely to embark on a modest rate cutting cycle in 2015 -2016, while the Fed gently tightens, in response to growing concerns about inflation. That could cause enormous amounts of capital to flow into Indian equity markets, and out of US stock and bond markets. Gold benefits tremendously, from these twin price drivers. As an asset, gold feels spectacularly strong in its year of transition, and it’s getting stronger…. every day!

Aug 19, 2014
Stewart Thomson
Graceland Updates
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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an invetor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

Are You Prepared?

As much as we’d all like significantly higher silver and gold prices, Chris Thompson of Raymond James doesn’t expect them. The good news, he argues, is that the relative stability now characterizing the market permits investors to make informed decisions about which companies can build value and demonstrate cash flows at today’s prices. In this interview with The Gold Report, Thompson lists a handful of gold and silver miners prepared to do just that.

COMPANIES MENTIONED: ASANKO GOLD : ELGIN MINING INC. : FIRST MAJESTIC SILVER : FORTUNA SILVER MINES : PAN AMERICAN SILVER : SANTACRUZ SILVER MINING : SILVERCREST MINES : TAHOE RESOURCES

The Gold Report: In your previous Gold Reportinterview of Dec. 31, 2013, you predicted 2014 prices of $1,400 per ounce ($1,400/oz) for gold and $25/oz for silver. Do you think that gold and silver can still meet those prices this year?

Chris Thompson: Those figures referred to the high side of the anticipated trading range for both metals. Today, our prediction for the high side in 2014 is $1,350/oz for gold and $22/oz for silver. In other words, we see silver potentially trading up to $22/oz this year but do not imply in any way that we expect silver to average $22/oz this year.

TGR: Several recent Gold Report interviewees have expressed surprise and even astonishment that the deteriorating global political situation combined with continuing weak U.S. economic performance has not resulted in significantly higher precious metals prices. What’s your view?

“Asanko Gold Inc. has our favorite junior gold company project.“

CT: We think gold and silver have performed relatively well this year and showed strength toward the end of the second quarter. My feeling is that stronger gold and silver prices that we have seen earlier than anticipated this year is a reflection of global political tensions and maybe just a reminder that we are not out of the woods as far as U.S. economic performance is concerned. Earlier is better, and so we look for gold and silver prices to retain most of their gains in the third quarter.

TGR: After gold fell significantly under $1,200/oz, there was a loud chorus to the effect that gold had been overvalued and overbought for a long time. Has this negative atmosphere been dissipated?

CT: It was not just gold bullion that was hurt by this negative atmosphere. It was the gold-mining companies—in fact, the entire gold industry and its participants.

TGR: Could you elaborate on that?

CT: What we’re seeing at the moment is a restoration of market credibility, especially from the mining company side of things. The mining industry enjoyed for a long time a never-ending climate of strengthening metal prices; that was reversed last year. As a result, companies have had to deal with this reverse by slashing costs, revising their operating plans and, frankly, delivering what investors have always wanted from them: real growth and the generation of real cash flows at current metal prices, not growth at any cost.

TGR: The Dow Jones and the S&P 500 have continued to hit record highs even as many worry about a bubble. Does it surprise you that precious metals equities have done so poorly in the last three years compared to the broader indices?

“Tahoe Resources Inc.’sEscobal asset stands to deliver significant cash flow in the near term.“

CT: Not at all. Because of their dependence on ever-higher metals prices, the investment appetite for precious metals equities has been muted. Investors and institutional clients have in fact made money by notinvesting in precious metals. As you suggest, however, our view is that perhaps clients should start looking for quality, precious metal-focused stories that are arguably undervalued today. Indications are that clients have been giving the precious metals sector a second look.

TGR: Do you think that the broader indices are in bubble territory?

CT: My view is that it’s all about real return. It doesn’t matter what the commodity is or what the company is. So long as companies can offer real returns from doing what they do, and there’s a value opportunity in what they can deliver. Companies aren’t overvalued, regardless of sector, if they deliver real returns. Also, investors have to be realistic about what returns to be satisfied with.

TGR: With regard to offering real returns, how difficult is it for mining companies to make money at $1,300/oz gold and $20/oz silver?

CT: There are companies that can make money at those prices and others that will struggle. It comes down to two criteria. The first is a management team that can demonstrate the ability to reduce costs and keep them low. The second is deposits that make sense in today’s metal price environment: good grades that come without significant technical challenges.

TGR: What’s your favorite junior gold company project?

CT: Asanko Gold Inc. (AKG:TSX; AKG:NYSE.MKT). We initiated coverage a couple of months ago primarily because of the company’s management team. The company has brought together two projects in Ghana, the Obotan and Esaase projects, into one large potential operation. Capital expenditures for Phase 1 of the Asanko gold mine are only $295 million ($295M). Phase 1 is fully funded and fully permitted for construction and production.

TGR: Asanko shares are trading around $2.70. Your 52-week target price is $4. On what do you base this valuation?

CT: We derive our value assessment in this instance from a net asset value estimate at a 5% discount rate. For Asanko, we see initial production occurring in Q2/16. For that year, we forecast 160,000 ounces (160 Koz) gold production at an all-in cash cost of about $900/oz. We see that increasing the following year, obviously a full year of production, to over 200 Koz at similar all-in cash costs. Then, ultimately, when the project fully ramps up, we see both projects, Phases 1 and 2, offering the potential to deliver over 400 Koz gold production by 2020. Recognizing our metal price forecast of $1,350/oz and a 5% discount rate, this operational and development scenario warrants a value of $4/share, in our opinion.

TGR: You previously predicted several 2014 sector outperformers in silver. Have these companies met your expectations?

CT: Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) and Tahoe Resources Inc. (THO:TSX; TAHO:NYSE) have absolutely met my expectations. First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE) has lagged the sector somewhat because of operational redesigns currently occurring at two of its key operations in Mexico. We do, however, see a good value opportunity here and expect First Majestic to catch up somewhat to its peers.

Fortuna is a rare example of a company that operates two mines in two countries efficiently and cost effectively. One of those mines has had tremendous exploration success through the discovery of a new high-grade zone.

TGR: Would that be at Caylloma in Peru or San Jose in Mexico?

CT: San Jose. Its new high-grade zone, Trinidad North, is within easy reach of existing development. What this means for Fortuna is a tremendous opportunity for organic production growth and cash-flow growth. The grade of this new discovery is better than the head grade of its current operation. For example, select assays published July 14 include 399 grams per ton (399 g/t) silver and 2.15 g/t gold (528 g/t silver equivalent) over 13 meters. So Trinidad North will have a very favorable effect on San Jose’s overall cost structure and growth profile.

Fortuna is the sort of company we really look for and really like. We see potential here for an additional lift in valuation. That will be determined by its ability to increase San Jose’s production capacity beyond the current 2,000 ton per day (2,000 tpd) mill rate.

TGR: What can you tell us about Tahoe’s Escobal project in Guatemala?

CT: The project was commissioned earlier this year, and, by all accounts, its ramp-up seems to be going smoothly. Tahoe is a company that offers an exceptionally well-qualified and well-respected management team. The Escobal asset is an anomaly in many respects in the silver sector. It is a very high-grade and a very economically robust project, one that stands to deliver significant cash flow in the near term. So in many respects Tahoe commands a premium valuation in the silver market at the moment for these reasons.

There are a couple of key items that we’re looking for from Tahoe by the end of 2014. The first would be, obviously, the completion of its production ramp-up to 3,500 tpd. The second would be the declaration of a dividend, which the company had announced previously it intends to deliver. The third would be a balance-sheet reorganization. We anticipate that the company will take on a level of debt, which in many respects would be a relatively small component of the company’s current capitalization. As far as our outlook for Tahoe goes, while we consider it fairly valued at current metal prices, we recognize the excellent job that management has done in building the industry’s largest and most profitable silver projects.

TGR: How do you rate Guatemala as a jurisdiction, especially after the increased cost of mining in Mexico due to its new tariff?

CT: Guatemala’s mining industry is relatively immature in comparison with Mexico’s. Mexico is, by far, the better jurisdiction. It has a longer history of mining and produces many more silver ounces than Guatemala. Guatemala is a more challenging place to operate from a geopolitical and a community perspective. It is much poorer than Mexico, with a nominal per-capita GDP of only 31% of its northern neighbor. And when you have one of the largest and most profitable silver mines in the world being developed in such a poor country, it can be a contentious issue.

TGR: How has Mexico’s 7.5% flat tax on earnings before interest, taxes, depreciation and amortization (EBITDA) affected mining companies? 

CT: It has been largely factored into market prices for the Mexico-focused precious metal producers. Mexico remains a very important jurisdiction for world silver production. It offers a trained labor force and, as far as infrastructure is concerned, remains the preferred destination for developing silver exploration opportunities. These realities far outweigh the negative effect the flat tax has had on Mexico’s ranking as a mining jurisdiction.

TGR: No one likes paying more to the government, but mining companies are looking for stability. Do they continue to see Mexico as a stable mining regime? 

CT: Nationally, Mexico remains a stable mining regime, but understand that Mexico is a large, federal jurisdiction with many states that differ in how accepting they are of mining.

TGR: Could you comment on other silver companies with operations in Mexico?

TGR: Pan American Silver Corp. (PAA:TSX; PAAS:NASDAQ) has performed very well in the marketplace over the last year. This is one company that has adapted well to a lower silver price environment. It is well managed, and I expect it to continue to pay an attractive dividend. It has one of the strongest balance sheets in the sector. At current metal prices, I consider it fairly valued in the market today.

SilverCrest Mines Inc. (SVL:TSX; SVLC:NYSE.MKT) is a very interesting story. It is in the process of redeveloping its key asset, the Santa Elena mine, from a heap-leach deposit to an underground milling operation. I understand that commissioning is proceeding on plan and on budget. (Editor’s Note: SilverCrest announced on Aug. 11 that it completed the mill commissioning.) My feeling is that Santa Elena at depth offers significant production-growth potential. The key will be whether the company can maintain a low-cost profile while remaining cognizant of the higher costs associated with underground production.

TGR: How does the grade compare underground?

CT: The grade is higher than the heap leach. The benefit, though, will be the mill, whose operation will engender higher recoveries.

TGR: Were there any other companies you want to mention?

CT: Our preferred micro-cap story in the silver space is Santacruz Silver Mining Ltd. (SCZ:TSX.V; SZSMF:OTCQX; 1SZ:FSE). It is ramping up production from its Rosario mine in Mexico a little slower than anticipated but pretty much on track with our outlook for the operation. A key component of Santacruz’s valuation will be its development-stage project, San Felipe. We await a preliminary economic assessment of this, which will better define how much of an opportunity it is. Santacruz is definitely a company to watch.

TGR: Having been hurt so much in the recent past, many investors await evidence that the tide has turned before they return to mining stocks. Do you think the worst is behind us?

CT: I don’t think the mining sector is in a bull market at the moment. What is working in this sector’s favor now is reduced volatility, not only with metals prices but also equity prices. If these trends continue, we can expect to see companies like the Fortunas and Tahoes of the world make tremendous strides in adding value at current prices. Such companies will find traction in the marketplace, and their shareholders will be rewarded.

Our outlook doesn’t in any way suggest that the whole market will move in unison, but provided that metal prices stay stable, we do expect that well-managed companies meeting expectations and delivering real cash flows will shine brightly.

TGR: Chris, thank you for your time and your insights.

Chris Thompson, PGeo, is an analyst for Raymond James specializing in precious metals and small to mid-cap developers and producers. He worked previously for Haywood Securities. He holds a Bachelor of Science in mining and exploration geology, a Master of Science in mineral economics and a graduate diploma in mining engineering from the University of the Witwatersrand in South Africa. He was awarded the 2011 StarMine Top Analyst Award for Stock Picker in the Metals and Mining sector.

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DISCLOSURE: 
1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None. 
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Asanko Gold Inc., Fortuna Silver Mines Inc., Tahoe Resources Inc. and SilverCrest Mines Inc. Streetwise Reports does not accept stock in exchange for its services. 
3) Chris Thompson: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. Raymond James disclosures are available here. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
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