Individuals who trade gold might be interested in recent climb above $1,300 per ounce

By HY Markets Forex Blog

Individuals who trade gold might be interested in the precious metal’s recent climb above $1,300 per ounce, as well as the factors that helped drive this appreciation.

Spot gold rose to $1,301.76 an ounce by 14:03 GMT on May 19, which represented a 0.7 percent gain for the session, according to Reuters. At this time, the dollar was 0.1 percent lower compared to a basket of other currencies. Gold tends to have an inverse relationship with the greenback.

In addition to the key role that the falling dollar played in bolstering the precious metal, anticipation surrounding the future policy moves of the European Central Bank was cited as having an impact on the value of gold, the media outlet reported.

Market participants will also look to the minutes released after the Federal Open Market Committee meeting to see any change that these key government officials are going to make, according to MarketWatch.

Individuals who trade gold have been scrutinizing the statements of central banks for the last several years. Many consider the precious metal to be an inflation hedge, and if the central banks announce a slowing of their quantitative easing, this development will cause the money supply to grow less quickly.

This in turn could give market participants less reason to buy gold in order to protect themselves against the possibility of sharp rises in the price level.

The post Individuals who trade gold might be interested in recent climb above $1,300 per ounce appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

Why Western Areas Share Price Rose Today


What happened to the Western Areas Share Price?

Shares of Western Areas [ASX:WSA] rose by 4.01% on Tuesday, closing at $4.41. This is close to its highest level since the beginning of 2013. The share price has increased over 85% since the start of this year.

Why did the Western Areas Share Price Rise?

Western Areas is Australia’s second largest sulphide nickel miner, producing roughly 25,000 tonnes per year of nickel in ore from its Flying Fox and Spotted Quoll mines.

The WSA share price has nearly doubled in price since the start of this year; a time when Indonesia, the world’s top supplier of the metal, began talking about enforcing a ban on nickel exports (now enforced).

On top of this, recently Vale SA [SA:VALE5] was ordered to shut down one of its largest nickel processing plants by the New Caledonia government. The plant encountered a spill of ‘acid-containing solution,’ a small amount of which entered a nearby creek. Vale is the world’s second largest nickel producer.

In this case, the nickel spot price continues its volatile climb. Spot nickel reached $21,625 per tonne on May 13, the highest level since February 2012. The price has increased roughly 43% this year.

What now for Western Areas?

The company is living up to its slogan, ‘Think Nickel, Think Western Areas’.

Fundamentally, the company’s nickel assets look good — very high grade and low cost.

Flying Fox is a very high grade mine with a current reserve estimate of 1.5 million tonnes at an average grade of 4% nickel. Nonetheless, with the company mining Flying Fox at a production rate of roughly 300,000 tonnes of nickel per year, the remaining mine life is just 4.5 years.

Saying this, there is significant exploration upside at deeper depths for the company, which could materially upgrade its mine life.

The Spotted Quoll mine is also very high grade nickel, at roughly 5.5%. The mine life and reserves are likely to extend beyond 10 years.

Nonetheless, the share price has nearly doubled since the Indonesian nickel export ban was enforced. Furthermore, with speculative interest focusing on nickel, the price is volatile.

The market is concerned about supply, mostly because of Indonesia’s export ban. If Indonesia decided to reverse its ban, Western Areas shareholders could be in for a lot of pain.

Western Areas looks like it will continue to be a roller coaster ride on the Nickel price.

Jason Stevenson+
Resources Analyst, Diggers and Drillers

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Why the Treasury Wine Estates Share Price Blew Up Today


What Happened to the Treasury Wine Estates Share Price?

Shares in winemaker Treasury Wine Estates Ltd [ASX:TWE] exploded to the upside this morning, gaining almost 18% over the day. The stock has regained all of its year-to-date losses in just one trading day.

Why Did this happen to the TWE Share Price?

This morning TWE’s management announced that they had rejected an offer from US private equity firm KKR and Co. L.P. [NYSE:KKR] to buy TWE for $3.05 billion.

KKR’s bid valued Treasury at $4.70 per share. On the day TWE rejected the takeover approach nearly five weeks ago, its shares were trading at $3.70, so KKR’s proposal would have represented a 27% premium.

Speculation about mergers and acquisitions can push stock prices up with tremendous momentum…particularly when an offer comes in cash, like KKR’s bid for TWE. The prospect of a bidding war for their company has got TWE shareholders excited today.

What now for Treasury Wine Estates?

Long-suffering TWE investors should rightly be cheered by today’s price action. But you should recognise that buying any stock because it’s viewed as a potential takeover target is a high risk strategy. Potential suitors can get cold feet very quickly if financial markets turn sour.

You’ve also got to factor in a bruisingly competitive market, with crucial Chinese demand dampened by austerity measures. The company told us as much this morning when it admitted that ‘trading conditions in Australia continue to be difficult, underpinned by intense competitor activity and a challenging retail environment.’

And lest we forget, this company has form when it comes to failing to meet investors’ profit expectations.

Enjoy their products if you like, but there may be better opportunities for your investment dollar elsewhere.

Tim Dohrmann+
Small-Cap Analyst, Australian Small-Cap Investigator

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Why Fortescue Metals Share Price Went Higher Today


What happened to the Fortescue Metal Share Price?

Shares of Fortescue Metals Group Ltd [ASX:FMG] gained nearly 4% Tuesday, following a week of price falls.

Why did this happen to the Fortescue Metal Share Price?

The company reported a 1.16 billion tonne increase to its Greater Solomon mineral resource. This takes the total resource at Greater Solomon to 2.66 billion tonnes. The mineral resource for the Solomon Hub, which includes the Firetail and Kings Valley projects, is now up to 4.5 billion tonnes.

What now for Fortescue Metals?

The Fortescue share price has come under a lot of pressure. Fortescue’s production costs are much higher than BHP Billiton [ASX:BHP] and Rio Tinto [ASX:RIO]. Furthermore, Fortescue has a huge amount of debt that it needs to finance through cash flows.

If the iron ore price or demand for iron ore from China fall, this could have a big impact on Fortescue’s ability to repay its debt.

There is plenty to be concerned about with Fortescue, but if China continues to move from an emerging market economy towards a more developed economy, the current low share price could prove to be a short term event.

Bottom line: for the Fortescue share price to improve iron ore prices need to remain above US$100 and demand from emerging economies needs to continue to grow.


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Central Bank News Link List – May 20, 2014 – Australian interest rates to stay on hold, RBA minutes show


Here’s today’s Central Bank News’ link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

Sri Lanka holds rate, wants banks to pass on lower rates

    Sri Lanka’s central bank maintained its monetary policy stance, as expected, saying pointedly that it expects commercial banks to pass on the benefits of its rate cuts since December 2012 “without further delay.”
    The Central Bank of Sri Lanka left its Standing Deposit Facility Rate (SDFR) at 6.50 percent and the Standing Lending Facility Rate (SLFR) at 8.0 percent. In January the central bank rejigged its policy framework with the SDRF rate replacing the previous benchmark repo rate.
    The central bank embarked on an easing cycle in December 2012 and has cut the repo rate by a total of 125 basis points, most recently in October 2013. The Statutory Reserve Requirement (SRR) on rupee deposits has also been reduced by 2 percentage points during the easing cycle.
    “Responding to the eased monetary policy stance, both market lending and deposit interest rates have adjusted downwards substantially, although there is further room for downward adjustment in long term lending rates,” the central bank said.
    Credit extended by banks to the private sector rose by 7.6 billion rupees in March with an increase of 15.3 billion in credit extended to the private sector from domestic banking units while repayments by BOI companies to offshore banking units dampened overall credit growth, the central bank said.

    “The sharp decline in pawning advances contributed largely to the continued low growth of credit to the private sector,” the bank said, adding its monetary board had approved the implementation of a credit guarantee scheme on pawning advances on behalf of the government in order to counter the effects of the continued decline in pawing advances on the productive sectors of the economy.
    The central bank cut its rates since December 2012 due to benign inflation and the bank said the outlook for inflation remains favorable.
    Sri Lanka’s headline inflation rate rose to 4.9 percent in April from 4.2 percent in March – well within the central bank’s 2014 target of 4-6 percent – while core inflation was steady at 3.4 percent.
    The central bank said it expects inflation to remain benign in the months ahead although weather-related supply disruptions could cause some “marginal variation” in some food items.
    In 2015 and 2016 the central bank will target inflation of 3-5 percent.
    The central bank noted that Sri Lanka’s trade deficit contracted by nearly 12 percent in the first quarter, boosted by high export volumes in March, with export earnings up by 28.6 percent year-on-year, surpassing US$ 1 billion.
   “Further, the outlook for export earnings remains positive on account of the firming up of the recovery in advanced economies,” the bank said.
   Inflows from workers’ remittances also rose strongly in March while earnings from tourism also rose in the first four months, with tourist arrivals surpassing the half-million mark in the first four months.
    End-March, gross official reserves were $8.1 billion and since then reserves have risen further due to the proceeds from the seventh sovereign bond issued in April.
   Sri Lanka’s economy expanded by 7.3 percent in 2013, up from 6.3 percent in 2012 and the central bank has forecast growth of 7.8 percent for 2014.


Is China’s Economy Cooling or Overheating?


You may know the Doctor Dolittle stories.

One of the characters is the pushmi-pullyu. It’s a creature with two heads…one at each end of its body.

When the creature wants to walk, each end wants to walk in the opposite direction.

Needless to say, confusion ensues.

It’s a situation we see happening right now in the financial markets. News comes out and the market wants to go in two different directions.

Is it bad news or is it good news? The truth is it’s neither. It’s just news. And yet the market is determined to make something out of it.

What has the market fretted about most over the past few months?

That’s right, a slowing Chinese economy.

What else has the market fretted about over the past few months?

That’s right, the potential for an overheating Chinese property market.

So now what has happened? The markets are worried because China’s housing market has slowed. According to the Financial Times:

A report published over the weekend showed new home prices in the 70 cities tracked by the government rose 6.7 per cent in April from a year ago. In January, the annual pace of growth was 9.6 per cent.

It’s a classic case of worrying about one thing and then worrying twice as much when the opposite happens.

The long or the short

There’s no doubt there are a bunch of risks with China.

Our new emerging markets analyst Ken Wangdong has personal experience of living and working in China. He knows the exact details of those potential problems.

But he also knows about the potential to build enormous wealth by betting on a resurgence of the Chinese economy.

You can read more from Ken in tomorrow’s Money Morning (subscribers to any one of Port Phillip Publishing’s paid investment services can also read a bonus contribution from Ken in today’s edition of Scoops Lane, out this afternoon).

The simple fact is that right now the world’s economy is going through the post-boom bust.

This is where economies and businesses expunge all the excesses of the boom. The bust can happen (generally) in one of two ways. It can either be a quick and painful affair, resulting in high unemployment, economic contraction, businesses going bust, and low interest rates.

Or it can be a long and painful affair, resulting in high unemployment, economic contraction, businesses going bust, and low interest rates.

You’ll notice they are similar.

Regardless of the length of the bust, the symptoms and the outcome are the same.

After the 2008 meltdown, governments and central banks had a choice. They could choose the long version or the short version. They chose the long version.

Economies worldwide are feeling the effects of that today, six years later.

Just as we predicted

The thing is, this shouldn’t come as a surprise to contrarian investors.

At the time we predicted things would turn out pretty much as they have. We predicted there would be a big ‘blow off’ stock rally as the stimulus and low interest rates kicked in.

That happened.

We advised investors to load up on small-cap stocks to profit from it — something we also advise investors to do today.

We also predicted that the stimulus effects wouldn’t last. We said that the market would sink again, as the stimulus merely had the effect of delaying the downturn rather than preventing it.

That happened.

We advised investors to start taking profits on small-cap stocks towards the end of 2010. We copped a lot of flak for taking that position.

Of course, it’s impossible to predict things precisely. For example, we didn’t expect US stock markets to reach record highs this soon. But in terms of everything else, contrarian and non-mainstream investors and analysts got most things right.

But now is the time to move into the next phase of this market cycle. That means considering what comes after the bust — assuming, as we do, that the bust has just about ended.

Well, this is where it gets exciting.

Breaking news: cycles are cyclical

Remember that market cycles are called market cycles for a reason — because they are cyclical.

That means the economy goes through periods of booms, busts and recoveries. Once it has gone through that cycle it goes through it again…and again…and again.

It’s as regular as clockwork and as certain as the Sun rising in the east and setting in the west.

This is exactly why we’re beefing up our team of analysts to help you take advantage of the market as it shifts from the bust phase, into the recovery phase and eventually into a new boom phase.

It’s why we hired Sam Volkering last year to work on the Revolutionary Tech Investor project. And it’s why we’ve now hired Ken Wangdong to work on a new emerging markets project.

Historically, during periods of economic recovery and boom it’s the tech sector and the emerging markets sector that tend to perform best of all. You saw that in recent years following the dot-com bust and the 2008 financial meltdown.

On both occasions these markets led the way. But over the past two years the emerging markets sector has taken a drubbing. It has gone through the bust that many predicted — including our old pal Greg Canavan.

But now our bet is that emerging markets are about to hit the road to recovery. At the moment many analysts and commentators are talking as if the entire world is about to stop dead in its tracks. But that’s not how things work.

Even in the worst of times things still happen. Economies begin to grow, and entrepreneurs and capitalists begin to invest and innovate. Before you know it the economy begins to recover and investment markets begin to rise.

Unfortunately not many people can see that at the moment. Instead, all they can see are the headlines in the mainstream press about China’s economy overheating and cooling at the same time.

For a long time the mainstream press denied that the Chinese economy could ever slow down. At the same time contrarian investors said it was inevitable.

Well now it’s happened.

Finally the mainstream can now see what contrarians foresaw years ago, and they’re now calling for China to crash. So while they’re preoccupied with predicting the crash that has already happened, contrarian investors can grasp the opportunity to invest in high growth assets at beaten down prices.


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Ink + Paper Doesn’t Equal Value: Prechter on Fiat Money

By Elliott Wave International

My dad will turn 84 this year. When he was born, you could walk into a Federal Reserve Bank or the Treasury and redeem your paper money for gold. It actually said you could on every piece of U.S. paper currency:

“Redeemable in gold on demand at the United States Treasury, or in Gold or lawful money at any Federal Reserve Bank.”

You can’t do that today, which helps explain why my dad is so grumpy.

But, seriously, I mention my father to make it personal. The move away from the gold standard did happen in the lifetime of some folks who are still around. Is that such a big deal?

Well, it is a big deal when the government unilaterally changes all economic and financial transactions, from having a basis in something, to …

… A basis in nothing.

Now, a discussion of what money is — and how society can have a convenient way to exchange goods and services — gets abstract in a hurry, so I’ll save that for another day.

I will use one not-so-common word, which is fiat. It sort of means what happened when God said “Let there be light.” Out of nothing comes something.

But in the story of our currency, what we have is fiat money. As in, the Treasury and Federal Reserve put ink on paper and say, “Let There Be Value!”

The problem is: You can’t create value from fiat.

Here’s some context: The Federal Reserve Bank was created in 1913. The idea was to keep the financial system from hurting itself.

Did it get less pain? Well — less than 20 years later — “hurting itself” only begins to describe the pain of the 1929 crash and Great Depression.

The depression is why President Franklin Roosevelt and Congress moved away from the gold standard in 1934.

Was fiat money a real solution? Mind you, the government didn’t make this huge change all at once. In truth it took about 35 years. (When things move slowly, fewer people notice.)

The real question is: Are we better off with fiat money?

Bob Prechter just published a full-blown reply to this question. He dedicated his entire March issue of The Elliott Theorist to answering it.

Please know that Bob doesn’t write dry boring history — because he’s not dry & boring. He does connect the dots to today’s banking system and economy. Read the entire issue for yourself — for free — by starting your complimentary Club EWI Membership >>

This article was syndicated by Elliott Wave International and was originally published under the headline Ink + Paper Doesn’t Equal Value: Prechter on Fiat Money. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Central Bank News Link List – May 19, 2014 – Draghi as committed as a central banker gets


Here’s today’s Central Bank News’ link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

Time Is the Trigger for Equities and Bullion: Charles Oliver

Source: Brian Sylvester of The Gold Report (5/19/14)

Charles Oliver, lead portfolio manager with the Sprott Gold and Precious Minerals Fund, believes the only thing between investors and bigger investment returns on precious metals equities and bullion, especially silver, is time. In this interview with The Gold Report, Oliver discusses silver and gold demand drivers, as well as portfolio ideas that figure to get bigger with time as the trigger.

The Gold Report: “Sell in May and go away” is a common investing axiom but does it have any validity?

Charles Oliver: I recently went through some research on seasonality in the gold price. March has been negative in the gold space in six of the last eight years, April has proven negative four out of the last eight years, and May and June have both been negative five of the last eight years. However, we see a fairly dramatic turnaround in July where six of the last eight years have been positive. In August, another six of the previous eight years have been positive; September has been positive five of the last eight years. The “sell in May” adage could actually represent a great buying opportunity on the pullback.

TGR: What are some investment themes you expect to dominate through the rest of the year?

CO: It really comes down to printing money. The U.S. has reduced its money printing but it is still aggressively printing. Now we’re hearing about the Europeans potentially getting into quantitative easing. The debasement of currencies is an ongoing theme.

The other key theme is the demand for physical gold. China has become the world’s largest gold buyer, consuming about 40% of the world’s mine production. India, which historically had been the world’s largest gold consumer, has established some tariffs on gold imports, so there’s been some pullback there.

It’s noteworthy that over the last couple of decades the European central banks have been collectively selling gold. That stopped a couple of years ago. Some numbers from the Swiss Customs Authority show that Germany, France, Singapore, Thailand, even the United Kingdom, are fairly significant gold buyers. These are very positive events.

TGR: What about geopolitical events? Do you expect those to dramatically influence gold prices?

CO: Historically, wars and the risk of wars have been quite positive for the gold price yet recent events in the Ukraine haven’t seen gold do anything. In fact, it’s trading near the bottom end of its recent range. But should things escalate, I feel strongly that it will have a positive impact. I certainly hope that it doesn’t come to that but the risk seems significant.

TGR: What is the investor pulse in the precious metals space?

CO: A year ago investors were selling a little, as they had been for some time. The selling had mostly stopped by the end of the 2013 and the people who didn’t have long-term conviction had left. In early 2014 I was a bit surprised to see U.S. value investors streaming in because we had been through a period of net redemptions. When the Americans come into the market they can have quite a dramatic impact on prices. I’ll call it sporadic because it has not been a consistent stream.

TGR: What happened to those bids?

CO: Generally speaking, American investors, portfolio managers and pension funds were saying at the end of 2013, “We’ve had some good returns in the general market but the market is looking somewhat expensive.” They were looking for areas where there was good value. The gold price had been hammered over the last couple of years so they were starting to move some of their allocations into that space. We’ve also seen some private equity buying assets and taking them private. And some Asian interests dipping their toes in the water. People are starting to wake up and show some interest but they are still waiting for some sort of trigger in order to say that this is the time to jump in.

TGR: Any idea what that could be?

CO: I’ve spent a lot of time thinking about that question. I liken the 1974 to 1976 period to today. In 1974, the oil price was going up after the oil embargo and inflation was going up, too. It was peculiar because the gold price went from about $200 per ounce ($200/oz) to $100/oz over the next couple of years. Then in 1976 gold suddenly went from $100/oz to about $800/oz. I have spent a lot of time trying to determine the trigger for that event. Sometimes it is just time. When I look back at 2013, I see a lot of positive fundamentals—strong Chinese demand, huge amounts of money printing—yet the gold price went down. Sometimes it’s just the way the markets time themselves.

TGR: Do investors need to revise their price expectations for precious metals equities? There is zero froth in this market.

CO: I think that’s a good way of putting it. I’m continually trying to figure out where the market may go. Not too long ago I said that by the end of this decade gold should be approaching something like $5,000/oz, which would have a huge impact upon the markets and stock valuations. The market is valuing equities as if gold is going to stay at $1,200–1,300/oz forever. I believe that the market will be proven wrong over time.

TGR: Gold is trading at roughly 67 times silver. Does that make silver your preference?

CO: Yes. It was Eric Sprott who came up with the thesis and I fully embrace it. For over 1,000 years, the silver-gold price relationship was close to 16:1, so that implies that if gold is $1,600/oz, the silver price would be $100/oz. The last time that happened was 1980 when the gold price was roughly $800/oz and the silver price was around $50/oz. Over the next couple of years, I expect to see that 67:1 ratio migrate toward 16:1.

TGR: Yet the trend is moving in the opposite direction.

CO: In the short term sometimes these things happen. About 25% of the weighting in the Sprott Gold and Precious Minerals Fund (SPR300:TSX) is in silver equities, which is probably among the highest in the peer group for precious metals funds.

TGR: What’s your investment thesis for silver versus gold?

CO: About two-thirds of mined silver is used in industry, whereas gold has virtually no industrial usage. Gold is considered a reserve currency whereas silver is not. About 150 years ago many countries had silver reserves backing their currencies. Today they don’t but China has trillions of U.S. dollars that it is converting into hard assets. The Chinese are buying a lot of gold but if they ever decide to be a silver buyer we would see a huge shift in the price of silver. Look at every mined commodity out there today—copper, nickel, zinc, iron ore—China accounts for 40–50% of global consumption.

TGR: Is it all about margin for precious metals equities?

CO: A lot of these companies are producing gold at $1,000/oz or silver at $18/oz. Should silver go up to $30/oz, that $2/oz margin suddenly becomes $12/oz—a sixfold increase. Shifts in commodity prices could have huge impacts on the profitability of these companies.

TGR: Tell us about some of your top silver holdings.

CO: Among my top 10 silver holdings, I have Silver Wheaton Corp. (SLW:TSX; SLW:NYSE), Pan American Silver Corp. (PAA:TSX; PAAS:NASDAQ) and Tahoe Resources Inc. (THO:TSX; TAHO:NYSE), which operates one of the world’s newest silver mines. I visited Tahoe’s Escobal mine in Guatemala earlier this year to check out its ramp-up period because that can be challenging. The company is doing a very good job of ramping up to nameplate capacity. Tahoe’s Q1/14 results beat the expectations of most analysts and a number of them are revising their forecasts upward.

In the gold space I have companies such as Osisko Mining Corp. (OSK:TSX) and IAMGOLD Corp. (IMG:TSX; IAG:NYSE).

TGR: I thought the Osisko story was finished.

CO: A byproduct of the Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE)/Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) takeover bid for Osisko is a potential Osisko spinout company. For every Osisko share, investors would own one share of the spinco. It means roughly 15% of an Osisko share is represented by the value of the spinco and the other 85% consists of shares in Agnico-Eagle, Yamana and cash. An Osisko shareholder today will end up owning a combination of all three companies, plus the cash component of the offer.

One thing that keeps me excited about the spinco is that it is going to have a 5% royalty on the Canadian Malartic gold mine. It would also have a 2% royalty on the Hammond Reef and Kirkland Lake assets, as well as a large land package in Mexico. The Osisko spinco would be Canada’s newest royalty company and royalty companies often get a premium valuation.

TGR: Does the new company have a ticker?

CO: Osisko shareholders will have to vote to accept the Agnico-Eagle and Yamana bid. I expect it will pass and the Osisko spinco should be trading sometime in June.

TGR: Osisko was targeted largely because it had a large low-grade, low-cost asset in a safe jurisdiction. Does that make companies like Detour Gold Corp. (DGC:TSX) and Tahoe Resources takeover targets?

CO: Certainly both Detour and Tahoe would fit the model sizewise. Goldcorp Inc. (G:TSX; GG:NYSE)walked away from the Osisko bid and clearly it wants to continue to grow through mergers and acquisitions. What will Goldcorp do? I’m not expecting the company to come out tomorrow and make an acquisition on either of these names, but I think it will certainly do the diligence work.

Goldcorp already owns 40% of Tahoe, which has a world-class asset with world-class operating statistics. Goldcorp is already in Guatemala; I’m not sure if it wants to increase its weighting there.

In the case of Detour, yes, it’s in Canada, and from that point of view, quite attractive. Detour is still in the ramp-up stage and perhaps it has finally reached the point where it is producing and reducing its cash costs. But I think Detour is still a year behind Osisko on that front.

TGR: Detour just published Q1/14 results. It had an adjusted net loss of $0.20/share, while it produced roughly 107,000 oz gold. Your thoughts?

CO: I was impressed at what Detour was able to achieve because it was a tough winter. I had some concerns that the weather might have proven to be an impediment, but the company produced a significant amount of gold. I think the grade was 0.9 grams per ton. Some of that was from stockpiles to buffer the grade at the mill. There are always a few bumps in the road but Detour has done very well.

TGR: In early 2013 that stock was above $25/share. Now it’s about $11/share. What’s going to get it back above, say, $15/share?

CO: A couple of things. As I said earlier, I believe the gold price is going higher. With higher gold prices come higher margins. And I think the market is still putting a discount on Detour as it’s in the ramp-up phase. As the company brings down cash and operating costs quarter by quarter and approaches Detour Lake’s nameplate production capacity, the stock will get back to a higher valuation.

TGR: Do you have any more gold names for us?

CO: I’ll mention some of my larger holdings of nonproducers: Dalradian Resources Inc. (DNA:TSX) andAsanko Gold Inc. (AKG:TSX; AKG:NYSE.MKT) that form part of a diversified portfolio.

TGR: What is the Dalradian story over the next 18 months or so?

CO: The company will continue to derisk the Curraghinalt project in Northern Ireland. Dalradian will go underground and through further drilling convert a fair amount of the Inferred resources to the Measured and Indicated category. As the market gets confidence with those numbers, it will start to rerate the company. A lot of people were concerned about whether mining would occur in Northern Ireland. To address that, Dalradian is looking to make a concentrate instead of using cyanide. The company is doing things that will ultimately make it more attractive.

TGR: Why do you own Asanko?

CO: It used to be called Keegan Resources. The management of Asanko bought into the project for around $27 million. These are the people that ran LionOre Mining, which under a decade ago was the subject of a bidding war between Xstrata Plc (XTA:LSE) and Norilsk Nickel Mining Co. (GMKN:RTS; NILSY:NASDAQ; MNOD:LSE). They’re good people with good operational experience. Asanko merged the PMI Ventures assets with those that were in Keegan and now has two projects within about 10 kilometers of each other, which are expected to have synergies. The company also has a significant amount of cash.

TGR: The Sprott Gold and Precious Minerals Fund has held positions in Pretium Resources Inc. (PVG:TSX; PVG:NYSE), Guyana Goldfields Inc. (GUY:TSX), Unigold Inc. (UGD:TSX.V) and Kirkland Lake Gold Inc. (KGI:TSX). Does it still have positions in those names?

CO: Pretium and Guyana are among my top holdings. Unigold, which you mentioned, is a small-cap name in the Dominican Republic. Unfortunately it has been the victim of the small-cap market where investors have turned their backs on these types of companies through no fault of management. I think Unigold has an interesting property with lots of opportunities and drill targets, and could potentially have a mineable resource one day.

TGR: Guyana Goldfields’ flagship Aurora project has outlined 6.5 million ounces Measured and Indicated, yet the stock price is falling.

CO: The company is at the point where it is ordering equipment, getting its financing in place, and then it will start building and moving Aurora forward. Again, it’s time and execution.

TGR: Pretium had a bumpy ride in 2013. Do you still have faith in management?

CO: Yes. I visited Brucejack in British Columbia last year. It’s a “nuggety” project that’s difficult to model. It takes a lot of drilling to get that necessary level of confidence. Last year the company processed a 10,000-ton bulk sample that produced around 6,000 ounces (6 Koz) or about 0.6 ounces per ton. In February, Pretium sent another 1,000-ton sample to the mill and it produced around 3 ounces gold per ton. The important thing to look at with this company is that there is lots of gold underground; the model still needs work to figure out how best to mine it. Pretium is proceeding with further studies on Brucejack, but I think it will be a mine. It’s also a potential acquisition as it is a high-grade deposit in Canada.

TGR: Kirkland Lake Gold forecasts roughly 126 Koz in production in 2014. Is that realistic?

CO: It will probably come close to that number. Kirkland Lake has a new CEO, George Ogilvie, and a fairly dramatic change in ideology. A couple of years ago the company was focused on mining everything in the mine. Ogilvie is focused on mining more profitable ounces.

TGR: I understand that Kirkland has been attempting to lower costs. Is that working?

CO: Kirkland Lake is not yet profitable, but it has instituted a new program to mine higher grades. It will focus on the high-grade ore because that is where it will make a profit. This is the same strategy that Rob McEwen put into place at the Red Lake mine. I think Kirkland has huge potential but it ultimately comes down to strategy execution.

TGR: In March you said that gold would reach $5,000/oz within a few years. That seems optimistic.

CO: It’s based on the historical relationship between the Dow Jones Industrial Average and the gold price. Over the last 100 years there have been three times when it has cost 1 to 2 ounces gold to buy the Dow. The last time was 1980 when the gold price was $800/oz and the Dow was 800.

People roll their eyes when you forecast big numbers. In 2004 or 2005, I said gold would reach $1,000/oz. When it reached $1,000/oz, I moved to $2,000/oz and we almost got there. With the willingness of the market to continue to print money, I believe that we are going to get that 2 or 3 to 1 relationship with the Dow. With the Dow at 16,000, I think $5,000/oz is achievable. It’s not really that the gold price is increasing, it’s that paper currencies are depreciating in value.

TGR: Thank you for your time and commentary, Charles.

Charles Oliver joined Sprott Asset Management in 2008. He is lead portfolio manager of the Sprott Gold and Precious Minerals Fund. Previously, he was at AGF Management Limited, where his team was awarded the Canadian Investment Awards Best Precious Metals Fund in 2004, 2006 and 2007. His accolades also include: Lipper Awards’ best five-year return in the Precious Metals category (AGF Precious Metals Fund, 2007), and the Lipper Award for best one-year return in the Precious Metals category 2010.

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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.

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