Gold is running, thanks to Switzerland, Europe, and fundamentals. Gold equities are rising and news is flowing. It's busy days.
What a week it has been.
Gold climbed above $1,300 per oz., a level it has not seen in five months. Today’s close above $1,300 marks a gain of almost 14% since gold’s early-November low of $1,142.
Gold was already on its way up, following Switzerland’s move late last week to abandon its currency’s peg to the Euro. Much can be said about the what and why of such a decision, but market reaction boils down to this: it gave investors a specific way to react to pervasive concerns about currency devaluation, quantitative easing, and economic stagnation, around the world but especially in Europe. And react they did, depressing the Euro, lifting the Swiss franc, and giving gold a shot of adrenaline.
Then gold got two more reasons to rise in the last few days.
The first came yesterday: the Bank of Canada’s surprise decision to lower interest rates by a quarter of a percent, to 0.75%. The rapid decline in oil prices clearly has economists worried that Canada’s economy will run out of fuel, hence the provision of interest rate stimulus.
The world did not much notice BoC’s move, but Canadians certainly did. Cheaper debt is good, but the other impact is a lower Canadian dollar. Much lower, perhaps: after declining 2.8% in the first 19 days of the year to C$0.8364 per US dollar, news of the interest rate cut pushed the loonie down another 3 cents to a touch above C$0.80. Expectations are it will fall farther yet.
A weak loonie has its pluses and minuses – but for miners it is a gift. Any company operating a gold mine in Canada now gets to sell its gold in nice, strong US dollars. Then, to cover its expenses, it changes its cash into a larger pile of loonies, the exchange rate providing a healthy bonus. Some of the miners reaping this benefit are AuRico Gold, Agnico Eagle Mines, Goldcorp, and Lake Shore Gold.
The bigger boost to gold came today from the European Central Bank, which announced a €1.1 trillion stimulus program. More money printing from a region whose currency lost 12% (against the dollar) last year amidst economic woes and worries of precisely this kind of action? The euro is off another 2% today and gold – the safe haven – is up.
The other safe haven is also up. The US dollar added 1.57% today, alongside gold’s 0.7% gain. Their dance continues. The last time gold and the dollar rose together? Early 2009, when gold rebounded to kick start the resource sector’s yearlong recovery run.
These moves happened in the wake of the Vancouver Resource Investment Conference, which took place Sunday and Monday. This annual event is a great way to feel the early-year vibe. My report? The crowds were consistent, the booths were busy and, despite much debate over the year ahead for the markets in general, the gold excitement was real. I certainly had a lot of interesting and informative conversation and it was great to meet some of you there.
A couple notable pieces of news were announced that Monday. The first was Goldcorp’s $526-million bid for Probe Mines. Probe owns the Borden gold project near Chapleau, Ontario. The company discovered gold on the site in 2010 and delineated 2 million underground ounces and 2.5 million open pit ounces in less than four years.
It’s a great project in a great jurisdiction. What really made the project attractive, however, was Probe’s success in consolidating ownership of the entire Borden gold district. Previously, other claims around and within Probe’s land package limited the company’s ability to explore and certainly to develop a mine a Borden. But in December, after a long negotiation process, Probe announced a $41-million deal to acquire those claims and sew up the district.
With the hurdle cleared, Goldcorp moved in. Goldcorp offered 0.1755 shares for each Probe share, valuing PRB shares at $5. In addition, PRB shareholders will get shares in a spinco that will hold Probe’s non-Borden properties and almost $20 million in cash.
The Probe deal is exciting for two reasons. First, it shows that majors are on the hunt for acquisitions. Mergers and acquisitions add major fuel to a rebound fire and, while the market as a whole is not rebounding yet, gold certainly is and a half-billion dollar gold deal like this helps.
Second, it affirms what I have been saying about targets in the gold space. Majors are going to go for gold projects with good grades located near infrastructure in supportive jurisdictions. Borden is a good example. Dalradian Resources’ Curraghinalt gold project in Northern Ireland is another – and I might note that, since being added to the Resource Maven portfolio in mid-November, DNA is up 43%.
I have one or two other companies with projects of this nature up my sleeve that I will likely add to the Maven portfolio soon.
Speaking of development-stage projects in good areas, another one of my favorites put out some good news this week. Kaminak Gold announced drill results from Double Double, the highest-grade zone at the Coffee project.
The preliminary economic assessment of Coffee included 117,000 oz. recoverable gold from Double Double in the mine’s first two years, from ore with an average grade of 3.32 grams gold.
In 2014 Kaminak drilled 47 infill holes at Double Double, which mostly confirmed what Kaminak already knew – but also encountered a previously unknown parallel structure that returned a whopper intercept: 32.8 grams gold over 6.1 metres. This intercept comes from outside the PEA pit shell, so the shell will grow. As a bonus, odds are good other similar structures remain hidden at Double Double and at Coffee in general, awaiting discovery.
Kaminak gained 9¢ on the news to reach $1.06, edging close to its 52-week high.
Maven companies were busy this week. Pilot Gold also put out some good news: a metallurgical test program showed that sulphide gold mineralization from Kinsley Mountain responds well to flotation, with recoveries in the 89 to 95% range.
This is particularly important at Kinsley, as some Carlin-style gold deposits do not respond to flotation. To get the gold out of those rocks requires roasting, a much more complicated and expensive flowsheet to build and operate. In addition, Kinsley contains a low sulphide content relative to its gold grade, which also bodes well for processing costs.
Chatting with president and CEO Matt Lennox-King and vice-president of corporate affairs Patrick Reid at the conference, the guys were very excited about this news. The market liked it too, adding 7¢ to PLG’s share price.
And IAMGOLD climbed on news of $500 million deposited in its account from the close of its Niobec mine sale and preliminary 2014 results showing production growth and cost containment. IMG is now up 62% since mid-November when Maven moved in.
Gold continues to rise, helped by Switzerland and Europe. As gold climbs major miners are starting to move on acquisition targets, as evidence by Goldcorp’s bid for Probe. Similar gold projects – offering good grades and economics with reasonable proximity to infrastructure in supportive jurisdictions – are next on the list, which is why stocks like Dalradian, Pilot, and Kaminak are doing so well.
It’s busy days – just how I like it.