Gold Too Hot?
Email this article By Kishori Krishnan Exclusive To Gold Investing News
They are In Demand and they could be getting too hot to handle. Gold stocks have investors in a frenzy, and despite the gold price shining strong above the $1,000 bracket, investors appear to be lapping up gold stocks like there is no tomorrow.
Why the frenzy? Is it a mere bubble? What is behind the volatile rise in prices? There appear to be too many questions and too little answers.
For sure, there is intense interest among the world’s 100 most-in demand listed gold stocks. And why not? A selection of 100 of the world’s most in-demand gold stocks yields up a current aggregate market value of $197 billion.
Collectively, these names comprise the world’s most demanded mining subsector at this point in time.
Miners shine
Last month saw a number of “new entries” into the list of most in-demand gold stocks, not least CanPlats Resources, owner of the rather spectacular Camino Rojo discovery in Zacatecas state, Mexico.
The company has completed more than 38,000 meters of drilling at Camino Rojo and has outlined 3.44m ounces gold and 60.7m ounces of silver, with further ounces of both metals likely to be graduated up the ladder as work continues.
For all this, CanPlats carries a relatively modest market value of US$ 136 million, which may be compared with the US$ 1.1 billion carried by Andean Resources, with 2.3 million ounces of gold outlined at its Cerro Negro project in Argentina.
While further ounces are likely to be declared for Cerro Negro, either Andean is overvalued or CanPlats is undervalued. For some time, Andean has been the subject of notable promotion by a number of professional gold analysts.
Exeter Resources too has zoomed back into focus with its Caspiche Project in Chile (close to being fully optioned from Anglo American Chile Limitada), a gold-copper porphyry system, 15 kilometers south of Kinross’s Maricunga (formerly known as Refugio) gold mine (+8m ounces of gold), and 10 kilometers north of Cerro Casale, jointly owned by Kinross and Barrick.
Gold reserves at Cerro Casale stand at around 24 million ounces, plus more than 5 billion pounds of copper. Andina Minerals’s new Volcan gold deposit, 35 kilometers north northeast of Caspiche, has seen 10 million ounces of gold outlined; Exeter’s Caspiche itself has outlined nearly 9 million ounces of gold and 2 billion pounds of copper.
Investors see fit to accord Andina as a whole a market value of just US$ 136 million and Exeter just US$ 266 million.
Ventana Gold, busy drilling at La Bodega in Colombia, is valued at US$ 459 million by investors. The Toronto-listed explorer whose stock has risen 22-fold this year, said that its top shareholder – a fund controlled by Brazilian billionaire Eike Batista – had boosted its stake in the company to 17.5 per cent from 12.3 per cent.
La Bodega appears to be an extension of Greystar’s magnificent Angostura project, which for some considerable time has held 15 million ounces of gold resources, with expansions likely.
For all this, Greystar’s market value is US$ 187 million. Either Greystar is undervalued, or Ventana is overvalued. There has of late been moderate profit taking in Ventana.
Other fresh names among most demanded gold stocks include Archipelago, with 1.7 million ounces of gold outlined at its Toka Tindung property in Indonesia; Troy Resources (ASX:TRY), with operations in Australia and Brazil and also with interests in Mongolia; Goldrich; Reed Resources, and Ascot Mining, amongst a host of others.
A substantial list of the normal suspects continue to benefit from seemingly indefatigable investor support and demand: Semafo; Norseman Gold; Int’l Tower Hill; Osisko; Northgate; Seabridge; Sino Gold…the list appears endless.
Investors are advised to keep digging…and unearth some of the best picks.
Gold price
The precious metal has decided to take a breather. On Tuesday morning in Asia, gold fell slightly as investors locked in profits a day after the precious metal tested an all-time high above $1,060 an ounce.
Gold is seen as being in consolidation mode now that the $1,060 mark is said to be providing short-term technical resistance, although the overall trend remains bullish unless gold were to slip below the $1,000 mark.
Lackluster trade in currency markets ahead of major corporate earnings kept traders from taking large gold positions as a recent rally in the precious metal has mainly been driven by a weaker dollar.
Spot gold was quoting at $1,054.50 per ounce at 0251 GMT, down 0.1 per cent from New York’s notional close of $1,055.25. It rose as high as $1,058.75 on Monday, near the record of $1,061.20 set on October 8.
US gold futures for December delivery were at $1,055.60 per ounce, down 0.2 per cent from the previous settlement after rising $8.90 on Monday.
The dollar stayed on the defensive on Tuesday on expectations that robust US corporate earnings would sustain risk appetite and lessen the allure of the US currency.
A weaker dollar also makes gold cheaper for non-US investors, and seasonal demand from India, the world’s biggest gold consumer, has been underpinning the precious metal, traders said.
India’s festival season peaks with Diwali, the Hindu festival of lights, set to commence this week. Buying traditionally typically increases in India during Diwali and weddings take place during the festive period, with jewelry forming an essential part of the festivity.
The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings stood at 1,109.314 tonnes on Monday, unchanged since October 7.
Gold on a high
The yellow metal is all set to hit $1,600 mark in the coming months. That is if the predictions of the head of one of world’s biggest gold mining companies come true.
After watching the gold price movement, Nick Holland, chief executive of South Africa’s Gold Fields, world’s No. 4 gold producer, said the yellow metal is set to cross $1600 an ounce in the next six to 18 months.
In a month when gold hit more than $1000 an ounce, the head of the world’s fourth biggest gold producer said it might tip to an all-time high of $2,200. His prediction is directly linked to the oil price.
While some say oil is going up to $100 a barrel in the next six to 18 months and if one takes into consideration the long-term relationship between gold and oil, gold is set to go to $1,500 to $1,600 easily.
Pessimists though maintain that the yellow metal is unlikely to climb to $1,600 unless there are big changes in the global financial markets.
Gold is often used as a hedge against inflation and because of that, oil and gold typically move in the same direction.
Kazuhiko Saito, chief analyst at Fujitomi Co Ltd, said the moves in currency markets and crude oil were providing support for gold.
“There is considerable psychological resistance around $1,020, however,” he said, adding that buyers are likely to recede at that level.
“Crude oil seems quite strong for the moment given that it rose despite news that a Nigerian militant leader agreed to halt fighting,” he said.
In a review of the metal, the Royal Bank of Scotland confirmed that gold was a good store of value during financial crisis and has advised investors to have some exposure.
The Association of Mining and Exploration Companies’ chief Simon Bennison has noted that gold producers had a very optimistic outlook over the next 12 to 18 months.
Raising money
Gold miners (as opposed to developers) are having a tough time generating free cash flows, but investors are not allowing the fact to get in the way of “good stories”, and remain highly responsive to a constant stream of capital calls from gold stocks.
Recently, several gold miners have decided to take advantage of a market rebound to raise cash.
The world’s largest gold miner, Barrick Gold Corp. (NYSE: ABX), flagged off the trend by announcing it would raise $4 billion on the same day gold flirted with $1,000. There are several conspiracy theories to this though.
For Barrick Chief Executive Officer Aaron Regent, this so-called “bought deal” was a conscious strategic move. Barrick has a reputation for wisely using hedges to its own advantage. The strategy served the company well in its copper-production business. And when gold prices fell in the late 1990s, Barrick turned to this strategy again – and again benefited nicely.
Recently, however, Barrick’s bankers have been coaxing the company’s leaders to ditch the hedges in order. The reason: In an environment of rising gold prices, hedged bets dampen profits. Removing those hedges, by contrast, elevates profits. But it also elevates the company’s risk.
So when a company such as Barrick makes a strategic decision to raise equity capital in order to close a large portion of its infamous hedge-book, that’s a highly bullish sign for gold prices.
On October 12, the company announced that it was set to acquire 70 per cent interest in the El Morro project. Barrick Gold Corp (ABX) is to buy the stake in a Chile gold-copper project for $456 million.
Gammon Gold Inc (TSX:GAM) also plans a $100-million bought-deal financing to raise money to fund debt repayment, expanded operations explorations, and general corporate expenses.
A syndicate of underwriters led by BMO Capital Markets and UBS Securities Canada Inc have agreed to purchase 11 million common shares of Gammon at US$8.90 per share.
While Shore Gold (SGF.T) is planning to sell 14.3 million common shares at C$1.05 each and 10 million flow-through shares at C$1.25 each, to raise a total of C$27.5 million, Gold Hawk Resources Inc (TSX V:CGK) has announced that the company will undertake a non-brokered private placement of up to 4,600,000 common shares in the capital of the company at $0.05 per share, to raise gross proceeds of up to $230,000.
Argentex Mining Corporation (TSX-V: ATX) has announced that its 2009-2010 exploration and engineering program has commenced in Santa Cruz province, Argentina. The company is mulling raising funds.
Another gold miner has decided to raise funds for its liquidated subsidiary. A Bendigo company has said it will try to raise money over the next few weeks to pull its subsidiary out of liquidation.
GBGM Operations was placed in liquidation last month, after going into administration last year. Its parent company, Greater Bendigo Gold Mining, has said it will issue shares soon to try to recapitalise. Managing director John Cahill says it is planning on recommissioning an Inglewood gold mine that closed last year.
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October 13th, 2009 at 2:18 am
Gold is a currency more trusted than the others
October 13th, 2009 at 6:17 am
You might want to take note that Shore Gold is not a gold company.
October 13th, 2009 at 9:12 am
David,
You are correct. Shore Gold does not have any gold properties. This news should have been reported on Diamond Investing News. Thanks for pointing that out.
Mike Rodger
Dig Media
October 13th, 2009 at 12:05 pm
Nevermind that the level of writing is weak, this article is hilariously simplistic. Who the hell is your audience? Sorry.