By Dave Brown – Exclusive to Gold Investing News
The U.S. Federal Reserve said it will circumvent troubled banks in order to lend directly to American corporations for the first time since the Great Depression, in addition to implying further rate cuts; combining for a blend of both traditional and more innovative approach for an economy which appears dangerously poised on the precipice of a steep cliff.
LaSalle Futures Group metals trader Matt Zeman, offered positive comments for gold investors. “The credit-market contagion has spread, people are fearful about putting money into banks, and they are still turning to gold. A global rate cut, certainly a U.S. rate cut, would be imminent.”
The Wall Street Journal has reported that export growth was anticipating a sharp decline in coming months, muting what had been one of the few bright spots for a sputtering U.S. economy. Many U.S. producers are already indicating a slowdown in new orders and escalating concern on behalf of foreign buyers to move ahead on previously negotiated agreements. The outlook has weakened so quickly that economists are having a hard time keeping their projections current and their red pens filled with ink.
As the equity markets continued their unyielding descent on Tuesday accompanied by new apprehension about the vitality of lending facilities, the Dow Jones Industrial declined 508.39 points, or 5.1 per cent, the lowest value in five years. The spot price of gold closed the day at US$883.70 per troy ounce, as it was one of the few commodities to rise despite the stronger dollar and softening of oil prices.
On Tuesday, Jinshan Gold Mines (TSX: JIN) announced that it, has received the proceeds of a roughly US $19 million bridge loan, which is expected to be used to fund the installation of crushers and second phase construction at a Chinese mining project. Maintaining his valuation methodology based on the application of historic multiples to the company’s assets at face value, analyst Haytham Hodaley, has maintained his “buy” recommendation on the stock with a price target of CA$2.60 per share which implies a 400 per cent premium to the current share price.
On Tuesday, the BMO Capital Markets global mining research team initiated coverage of the Toronto-based mining company, Semafo (TSX: SMF). The company has successfully delivered three projects in West Africa: Mana in Burkina Faso, Samira Hill in Niger and Kiniero in Guinea. The investment thesis of the team is based on three factors:
1) That the company appears to trade attractively relative to its regional peers
2) That the company forecast to generate meaningful free cash flow with relatively minor capital expenditures required at its current mines
3) That current economic conditions could offer Semafo opportunities to augment its production profile by obtaining competitive production or development projects.
Of some interest to gold investors will be the observation by the BMO team that West African stocks do not seem to implicate a systemic bias to account for geopolitical risk relative to global peers, unlike Russian gold stocks, which seem discounted due to investors’ perception of risks associated with the political situation and security of tenure. West African companies appear to be rated more closely according to the factors that BMO has previously recognized as “critical” for gold stock performance, namely growth and management execution. Semafo stock closed the day trading at CA$0.92 which implies a discount of 63 per cent to the BMO price target.