Gold Market Radar (September 30, 2013)
For the week, spot gold closed at $1,336.65, up $10.6 per ounce, or 0.80 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 2.29 percent. The U.S. Trade-Weighted Dollar Index lost 0.20 percent for the week.
Strengths
- The recently concluded Denver Gold Forum may have seen a small drop in attendance, but the number of one-on-one meetings grew sharply this year. This growth suggests numerous buyers might be on the prowl. According to Minewebâs Lawrence Williams, the 61 percent rise in one-on-one meetings this year bodes well for a considerable increase in mergers and acquisitions activity in the sector over the next few months.
- Gold bullion recovered some of its recent loses in the latter part of the week as investors closed bearish bets amid risk of a possible U.S. government shutdown. Congress is yet to approve a new budget as lawmakers tussle over the funding of Obamacare.
- Toronto-based Barrick Gold is aiming to eliminate its regional managers in favor of a central management system as it seeks to cut overhead costs. Barrick CEO Jamie Sokalsky announced the restructuring would help bring Barrickâs four-continent operations closer to home in Toronto. The reorganization is set to cut complexity and emphasize long-term efficiency.
Weaknesses
- On Wednesday, the U.S. Commodities Futures Trading Commission (CFTC) announced it closed its five-year long investigation into manipulation of U.S. silver prices and decided not to file any charges. According to the CFTC, there is no basis to bring enforcement actions against suspected participants in the alleged silver market manipulation. The disappointment among participants in commodity markets was made evident by CFTC Commissioner Bart Chilton himself who stated there has not been a more frustrating or disappointing resolution made by the CTFC.
- Despite the optimism seen at the Denver Gold Forum this year, there is no denying the junior gold exploration cash crisis continues to mount, with no quick turnaround in sight. According to Kaiser Research, back in November 2012 the number of juniors with less than CAD$200,000 available to them was 632 out of around 1,800 public gold companies. In June this year, the number grew to 751, and more recently it grew to 816, nearly half the equities measured.
- Evy Hambro, manager of one of the worldâs largest gold funds, stated he is expecting more chief executives of gold producers to exit as companies continue to book writedowns. According to Hambro, the end-of-year reporting will bring further writedowns to exploration assets and booked resources for global mining corporations, especially gold where bullion is more than 30 percent off its 2011 peak. Optimistic assumptions on gold prices used to calculate the value of assets on their books have led to major producers, from Barrick to Kinross, announcing multi-billion dollar writedowns in recent months. In Hambroâs view, the tendency is set to continue and it would be surprising if we didnât see more changes in CEOs across the gold industry.
Opportunities
- Goldcorpâs CEO Chuck Jeannes outlined during the Denver Gold Forum that his company is not ruling out participation in new takeovers and hinted the company is not against looking at large multi-billion dollar capital-intensive gold projects that have alarmed investors in recent months. In his view, Goldcorpâs strong balance sheet is a result of outstanding capital discipline in recent times, and even though the companyâs focus is on building three existing projects to boost production, the company will continue to look at new opportunities.
- Newmont Mining, the largest U.S.-based gold company is on the lookout for potential gold and copper acquisitions. Newmontâs CEO Gary Goldberg stated the company will consider assets with long mine life, which are value accretive, and operationally cost efficient. Goldbergâs comments appeared to be directed towards copper producers as he argued copper is a logical step in Newmontâs business given the disappearance of gold companiesâ valuation premiums over base metal producers. NGEx Resources, a Canadian-based exploration company with assets in Argentina, Canada and Chile, could certainly be among the targets pursued by Newmont.
- The Mining Recruitment Group, a Canadian mining-executive recruitment firm, published a survey revealing mining executives continue to believe gold will be favored among great commodities over the next three-year period. The survey found that 74 percent of mining executives hold a bullish outlook on gold, compared to only 64 percent during the previous quarter. Gold claimed the first spot in executivesâ three-year outlook, followed by copper and silver with 64 and 53 percent, respectively.
Threats
- The Denver Gold Forum brought a certain dose of optimism to the sector, but as Dorothy Kosich of Mineweb reports, times are changing in the gold sector and more clear, visionary leadership is needed. As chief executive ranks dwindle, it becomes evident there are few up-and-coming leaders that exhibit the creative innovation of the legendary CEOs who made everyone listen. The Denver Gold Forum left us with numerous homogeneous presentations and cookie-cutter formulas for success. But, according to Kosich, there is hope the optimism engendered by this yearâs forum translates into the emergence of young, visionary, caring leaders from within the sector who can replace the status-quo rhetoric with refreshing transparency.
- Despite having sold its South African assets more than a decade ago, Anglo American had to settle a compensation claim by 23 gold miners with the lung disease silicosis. The settlement could potentially bring an industry-wide lawsuit worth hundreds of millions of dollars, according to a source close to the matter. In a recently filed lawsuit, an application for a class action lawsuit representing 17,000 former gold miners from South Africa, Botswana, and Lesotho against more than 30 gold firms could result in Africaâs largest class action lawsuit and threaten the sustainability of the mining sector in South Africa.
- Randgoldâs CEO Mark Bristow, one of the most respected executives in the sector, gave a very compelling presentation during this yearâs Denver Gold Forum. Bristow, who has a track record of creating shareholder value, explained the disconnect between gold prices and stock prices is a result of an over-emphasis on production growth over profitability. Bristow argues the industryâs mining and reserve grades have halved, forcing gold producers to increase their production by 50 percent to keep their production rates stable. This is an unsustainable venture, leading Bristow to conclude the gold sector must move its cut-off grades higher in order to return to profitability.
