Gold Trades Flat; Detour Gold Secures $135-million Cushion

Aerial image of the Detour Lake gold mine

Gold traded mostly sideways this week with a lack of catalysts to move the precious metal significantly up or down. 

The week started off with the gold price hovering around $1,580 per ounce, up slightly from last Friday’s close. Analysts quoted by Bullion Vault pointed to a bearish sentiment in the market, and referred to last week’s announcement that the SPDR Gold Trust, the world’s largest gold ETF, saw its holdings drop to the lowest level since 2008.

Bullion traders have been exiting their long positions as the economic picture in the United States appears to steadily improve. Last Friday’s employment report places the unemployment rate at 7.7 percent, the lowest level since 2008, and that has some speculating that the US Central Bank’s quantitative easing program could soon come to an end.

“Gold prices have built in the view that the US recovery is on a good footing,” said Societe Generale commodity strategist Jeremy Friesen, “and by the end of the year we should see the Fed exiting the stimulus, which should be bearish for gold.”

On the other hand, some analysts note that macroeconomic uncertainty could return as the May debt ceiling deadline approaches, and that could lift gold prices. Others say the sunny jobs report isn’t necessarily indicative of a prevailing trend; since the 2008 recession, companies have gone on hiring binges only to pull back the reins a few months later. Poor economic news is generally bullish for gold.

Gold enjoyed a bit of a lift on Tuesday following remarks from Bundesbank president Jens Weidmann, who indicated that the Eurozone crisis is “not over.” The yellow metal rose above $1,590 for the first time this month. The modestly bullish sentiment continued into Thursday when gold traders took advantage of a selloff in the US dollar to snap up bargains. At the close of the session gold futures for April delivery were up $2.60 at $1,591 per ounce, while spot gold was last quoted up $4.60, at $1,592.75.

Company news

First Quantum Minerals (TSX:FM,LSE:QM) is a step closer to completing its hostile takeover of Inmet Mining, (TSX:IMN) which is constructing a $6.2 billion copper-gold mine in Panama. Vancouver-based First Quantum stated on Tuesday it is changing the terms of its takeover bid and extending the deadline by 10 days until March 21st. Inmet earlier this year rejected First Quantum’s C$72-per-share offer as “financially inadequate,” prompting First Quantum to change the terms of the takeover proposal. The new terms allow the minimum tender condition to be satisfied if more than 50 percent of Inmet’s outstanding shares have been deposited before the new deadline.

The British Columbia Securities Commission has become involved in Hecla Mining’s (NYSE:HLpending takeover of Aurizon Mines (AMEX:AZK,TSX:ARZ). In a hearing scheduled for today, March 15, the commission will determine if a cease trade order will be issued to block Aurizon Mines’ poison pill shareholder rights plan announced last week. The BCSC was asked by Alamos Gold, (NYSE:AGI,TSX:AGI) the company also bidding for Aurizon, “to remove the second Aurizon poison pill and payment of what Alamos claims is an illegal break fee to white knight Hecla,” Mineweb reported.

Archipelago Resources (LSE:AR), a UK-based gold company focused in Indonesia, is looking to acquire a target that would boost its output, Reuters reported. The firm’s CEO, Marcus Engelbrecht, told the news outlet “[w]e are looking at doing an acquisition. At least 100,000 ounces a year would be nice. Something’s that’s already producing would be ideal.” The company produced 139,000 ounces in its first year, making it the only London-listed gold producer to meet both its production and cost guidance in 2012, according to analysts contacted by Reuters.

Detour Gold (TSX:DGCreceived a cash injection on Tuesday from a collection of banks that will help the Canadian mid-tier gold producer ramp up production at its $1.5 billion Detour Lake mine located in northern Ontario, Canada. The $135 million in credit facilities was arranged through BMO Capital Markets, CIBC, RBC, TD Bank and the Commonwealth Bank of Australia. Detour is sitting on a large gold deposit with an open pit mineral reserve of 15.6 million ounces. Production started earlier this year and the mine is expected to produce an average 657,000 ounces annually.

Also jumping on the money train this week was Goldcorp, (TSX:G,NYSE:GG) which on Wednesday priced a $1.5 billion offering of senior unsecured notes. Reuters reported Canada’s second largest gold company saying it will use the proceeds from the offering to repay $852.5 million in convertible notes, set to mature a year from August, with the rest going towards capex and working capital. The company is planning to build three new mines and to nearly double gold output to 4.2 million ounces by 2017, Reuters said.

All is not well for Kinross Gold (TSX:K,NYSE:KGC) in Chile. Mining.com reported a local newspaper saying that Kinross plans “a partial suspension to its workforce” at the La Coipa gold and silver mine in Northern Chile. It is not clear from the article why Compañía Minera Mantos de Oro, Kinross’s subsidiary in Chile, is shutting the mine down, only that it “continues to assess the remaining mineral reserves and resources and exploration potential at the open-pit mine.” The suspension would affect about 1,000 workers.

Junior company news

Avino Silver and Gold Mines (TSXV:ASM,NYSE:ASM) reported February 2013 production results from its San Gonzalo mine in Mexico. Avino said the grade of concentrate produced in February was higher than January and the gold recovery was 4 percent lower, which could be the result of producing a higher grade concentrate, since higher concentrate grades typically result in lower recoveries.

Silver-gold miner Hochschild Mining (LSE:HOC) will pay up to $10 million to explore a property in Mexico owned by Solitario Exploration & Royalty (TSX:SLR) Under an earn-in agreement announced March 7th, Hochschild can earn a 51-percent interest in the project by spending the $10 million over five years. A further 19 percent can be earned by completing a positive feasibility study.

Deer Horn Metals (TSXV:DHMannounced a PEA from its Deer Horn gold-silver-tellurium project in British Columbia. The PEA notes that Deer Horn’s mine life will be 14 years, with average mine costs coming to $61 per metric ton (MT). Over that 14-year period, open-pit mining and a conventional flotation mill will produce 74,000 MT of gold-silver-tellurium concentrate per year. That will yield an estimated 67,000 ounces of gold, 2.11 million ounces of silver and 63,000 kilograms of tellurium over the mine’s total lifespan.

 

Securities Disclosure: I, Andrew Topf, own shares in Goldcorp. 

Related reading: 

Hecla Trumps Alamos with $796-million Offer for Aurizon