By Kishori Krishnan Exclusive To Gold Investing News
The recent rally in American and Canadian equity markets is soon to give way to a gut-wrenching collapse that will push equities to shocking new lows, with gold prices reacting by rallying to new highs. After having correctly anticipated the timing and extent of the March 9th to April 3rd market rally, this is the latest dire warning from Heiko Seibel, a leading German stock market strategist.
The Director of Research for Munich-based CM-Equity AG now believes that the U.S. benchmark S&P 500 Index will dramatically drop to an ultimate low of around 450 points in late June or in July. The odds favor him being proven right – that is if his talent for correctly anticipating market moves continues. “Within a few weeks, we will see the stock lows of our lifetimes,” he nonchalantly declares.
So, is this good news or bad and what does it say about gold? “When there is a total loss in confidence in the stock market, then gold will rally. Gold bullion is historically an inverse proxy to the stock market. So, it’s only logical that this will happen,” he says adding: “We should see a culmination of massive price weakness in stocks within weeks, which will cause gold to reverse its current trend to establish new highs beyond $1,000 early in the third quarter of this year – maybe even testing the $1,200 mark,” he adds.
As fresh jobs data fueled hopes that the U.S. economy is stabilizing, deflation worries have reduced gold’s attractiveness as a hedge against rising prices. “There is a knee-jerk reaction to the earnings news and jobs data that are stripping gold of the safe-haven bid,” said Brian Kelly, chief executive officer of Kanundrum Research, a commodities and macroeconomic research firm. Gold investors are closely watched for signs of deflation, as the metal is seen as a hedge against rising prices. In gold trading, it’s “almost a tug of war between buyers and sellers, inflation or deflation believers,” said George Gero, a precious-metals trader for RBC Capital Markets.
On Thursday, the metal broke below its 100-day moving average at $885, and sell stops were triggered. “The close below $885 could indicate more pressure to come over the next couple of sessions, with $869 the next support level. It’s seeing some technical selling,” said Pat Donnelly, senior broker at Peak Trading Group.
Incidentally, there are more or less 30 major gold mining companies and several junior companies that contribute to the roughly 74 million ounces of annual gold production. Many of the major mining companies are not keeping up with reserve replacement at their mines and are also showing declining production and reserve profiles. They have predominately been able to add ounces through acquisitions and by raising the gold price used in reserve calculations: essentially turning waste to ore.
Back to buying
One more firm to join the list is the listed Australian company in the Robert Friedland stable, Ivanhoe Australia Ltd (ASX: IVO), which joined Australian explorers in pulling in their horns on spending early this year and is now back in the acquisition game.
Ivanhoe Australia is strengthening its gold exposure in Australia by taking up a strategic investment in junior explorer Emmerson Resources Ltd (ASX: ERM) which holds a substantial exploration holding in the Tennant Creek goldfield of central Australia. Early this year Ivanhoe Australia began clipping its exploration budget in line with market sentiments in Australia. However, more recent reporting by Ivanhoe Australia indicates it is rebuilding momentum, given that it had to December quarter reporting still $A57.6 million (US $ 41.98 million) in its coffers.
The company was spun out of Ivanhoe Mines in August 2008 after raising about $A 125m (US$ 90m). The bulk of properties vended into Ivanhoe Australia, for which Ivanhoe Mines retained an 80 per cent stake, were copper and copper-gold properties in north and north east Queensland.
The deal with Emmerson gives the Australian company a 10 per cent stake in Emmerson, based on a placement of 22.61 million shares at A13 cents/share. Ivanhoe Australia also gets 27.9 million options exercisable at A20¢/share within two years, which upon exercise would see it inject $A 5.58 million (US$ 4.01 million) into Emmerson to increase its stake to 19.9 per cent - the Plimsoll Line for triggering a compulsory takeover bid.
Confusing calls
The latest statement from the Democratic Republic of Congo’s deputy Mines Minister, Victor Kasongo casts further doubt on the state of mining contract negotiations with some key mining companies – notably Freeport McMoran, which has just brought the biggest project of all on stream at Tenke Fungurume.
According to a Reuters report, the DRC has rejected contract revisions proposed by six of the biggest mining firms there and will extend a much delayed review by six months. The firms whose contract negotiations are reportedly still pending also include First Quantum (TSE:FM), Mwana Africa (LON:MWA), AngloGold Ashanti (NYSE:AU) and Gold Fields (NYSE:GFI).
Also gold exploration company Banro (TSE:BAA) is noted in the statement, although this must be confusing to the junior Canadian gold explorer as it was not among the 61 companies whose contracts were up for renegotiation in the first place, and has also received official government confirmation only two months ago that its licenses were compliant with Congolese law and has not heard anything since.
The DRC’s mining contract review was designed to bring contracts signed during previous administrations’ tenures, many in the midst of a civil war, up to more normal standards and, at the same time, to boost state revenues. The original program was to last six months, but has now continued for close on two years without final agreements yet being reached with some of the biggest global mining groups which are presumably finding the suggested Congolese terms unacceptable. Negotiations between the six companies, representatives from state mining companies and the mines ministry broke down late last year. The government accused the companies of walking out of talks, a claim the miners denied, and earlier this year extended talks an additional 45 days.
“These companies have over 60 per cent of our proven reserves. We can’t just leave it like this … They can come to discuss how to improve their proposals, or, in six months time, we’ll shut down everything,” Kasongo was reported as saying. That agreement has still not been reached with these major players and potential investors in the DRC’s mining sector, which boasts some of the most exciting copper, cobalt and gold prospects anywhere in the world.
Company News
Some firms are intent on taking new ideas into old areas, like the Long Canyon gold discovery of AuEx Ventures, Inc. (TSX: T.XAU) and Fronteer Development Group (TSX: T.FRG). At Long Canyon, Nevada, AuEx and Fronteer are in the very early stages of proving up a gold deposit that could be part of a new district. This is Carlin-style gold mineralization in a new geographic setting. This year’s drilling will target mineralization on trend and at depth.
Other firms are cashing in on old ideas and branching out into new areas. Eurasian Minerals (TSX: V.EMX) and joint venture partner Newmont Mining will be testing a new high-sulfidation gold system in Haiti. Surface trench samples and geology show all the signs that the property has the potential to host a large gold deposit.
Then there are others that offset the high cost, high-risk drilling and development stage of an exploration program to a better-funded partner. Like Miranda Gold Corp. (TSX: V.MAD) active in Nevada, Rimfire Minerals Corp. (TSX: V.RFM) exploring in Western Canada and Australia and Mirasol Resources (TSX: V.MRZ) in Argentina and Chile. Each has the best technical team in their little piece of the world and a management focused on creating real shareholder value in this very risky business.
