Gold Nearing Key Inflection Point

Gold has rallied more than $50 in the past two weeks and is now back to where it was trading when Goldman Sachs issued its bearish call on gold. However, significant resistance lies just overhead in the $1330-$1340 area:

Click to enlarge

Gold_Daily_4.14.2014

There has been a great deal of trading activity in the $1330s since last year’s massive gold crash, and price has continued to gravitate around this area despite trading in a $250 range during the last eight months.

Gold bulls will want to see a decisive move above $1350 this week, whereas, a decline below $1300 would suggest that the current rally is merely a bearish flag and price will likely have to fall below $1277 before a sustainable bottom is put in place.

Lucara Diamond Halfway to Full Year Revenue Guidance after First Exceptional Stone Tender Brings in $50.5M

The two largest stones offered in the first 2014 exceptional stone tender (Source: Lucara Diamond Corp.)

The two largest stones offered in the first 2014 exceptional stone tender (Source: Lucara Diamond Corp.)

Lukas Lundin’s Lucara Diamond (LUC:TSX) announced its first exceptional stone tender of 2014 after the market closed yesterday and it shattered expectations.  The first exceptional stone tender was comprised of 20 diamonds totalling 1,191 carats which were sold for $50.5 million ($42,347/carat).  Last year’s average per carat value of their exceptional stone tenders was roughly half of this 2014 one(~$25,000/carat).

The highest priced stone was a 167.08 carat stone which sold for $12.7 million or $75,821/carat.  The highest priced stone sold last year was $6.4 million.

Lucara also held two regular stone tenders in Q1/2014 which brought in a combined gross revenue of $33.6 million.  This brings their total year-to-date revenues from the Karowe mine in Botswana to $84.06 million.  They are guiding $150-$160 million in annual revenue this year and they still have at least one more exceptional stone tender and six more regular stone tenders.

William Lamb, President and CEO, commented, “Strong regular tenders combined with the outstanding results from the exceptional stone tender continue to demonstrate the quality of the Karowe Mine and firmly establishes Karowe as one of the world’s leading diamond producers by value, further reinforcing the updated resource statement issued in December 2013.

Recall, the board of directors approved the first dividend policy of any Lundin Group company, for the payment of semi-annual and occasional special dividends.  The first semi-annual dividend has been set at $0.02 per share (total cash outlay of ~$7.5 million) in May.  This equates to an annualized dividend yield of 2.4%.

With these large stones coming out of Karowe as well as their future ability to recover them better as the plant is upgrade to accommodate the rare size, special dividends could be awarded.

The shares continue to hit all-time highs:

LUC ChartLUC data by YCharts

Read: Lucara’s Exceptional Stone Tender Generates $50.5 Million; Year-To-Date Revenues Exceed $84 Million

No Guts, No Glory – NGEx Continues to Find High-grades at Filo del Sol

Copper oxides at Filo del Sol (Photo: NGEx Resources Inc.)

Copper oxides at Filo del Sol (Photo: NGEx Resources Inc.)

The Lundin Group’s only mineral exploration vehicle, NGEx Resources (NGQ:TSX) announced fantastic results from their Filo del Sol project in San Juan, Argentina.  They released ten holes today, which continued to help expand the high-grade manto zone.  Filo del Sol is the last of NGEx’s three projects without a resource estimate.  The company expects to put out its maiden resource estimate on the project by yearend.

Highlights of this latest ten holes include:

  • VRC70 which intersected 22m of 5.80% Cu (from 146 m) in the supergene blanket plus a 6m interval of 12.41 g/t gold (from 120 m)
  • VRC66 which intersected the high-grade manto zone with 16m of 222g/t Ag (from 358 m), extending the zone by 290 metres to the northwest of previous drilling (FSDH02) and also intersected 20 m of 2.11% Cu (from 238 m) in the supergene enrichment blanket

All ten of the holes were terminated in porphyry mineralization and the Filo del Sol deposit remains open in all directions.  These ten holes span a north-south distance of 2km.

The goal of NGEx’s 2014 drill campaign at Filo del Sol is to expand and infill the copper-gold porphyry mineralization and the manto high-grade zone.

A lonely drill rig at Los Helados, high in the Atacama desert (Photo: NGEx Resources Inc.)

A lonely drill rig at Los Helados, high in the Atacama desert (Photo: NGEx Resources Inc.)

The company is undergoing a transformation this year.  They are intending to release their first economic study on the Los Helados project in Chile.  It hosts a staggering 15.3 billion pounds of copper and 8.9 million ounces of gold in the Indicated category.  They are also working to bring Josemaria into the economic-stage of study.  Josemaria itself hosts 6.1 billion pounds of copper and 6.1 million ounces of gold in the Indicated category.

At this point, these are large exploration plays.  However, once they receive economic validation and the street can get a baseline value on the projects, the stock is likely to react.  Due to the geographic complexity of the projects, in particular, the fact they straddle the international border with some projects in Chile and some in Argentina, it is unclear if they will be able to utilize any central processing facilities.  Hopefully this will be cleared up in the subsequent economic assessments that are in the works.

These will be large projects and not for the faint of heart (which suits their company phrase well: “No Guts, No Glory”).

They do have large and deep-pocketed project partners in Pan Pacific Copper and JOGMEC (the Japanese government’s natural resource arm).  Pan Pacific is building its first large-scale copper mine, Caserones, a mere 20km from Los Helados.

Shares are up $0.15 (~10%) to $1.80 at the time of writing.

Read: NGEx Drills 5.80% Copper Over 22 Metres at Filo Del Sol Project

Thermal Coal In Mongolia: The Next Boom

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[PCY | KOL | ANK | DSR | GSV]

Coal, thermal coal for our purposes, is fired up. Does not look it, when you scan financial media on this arcane commodity. But it is. Or will be. We’ve been talking thermal coal since TCR’s visit to northern Mongolia — and briefly, Russia — 8 weeks ago.

Market Vectors Coal fund, or index, is making its biggest up-arrow move since June 2013. KOL (ticker in USA) represents 10 coal producers, led by China’s China Shenhua Energy Company Limited H Shares.

Coal prices, which are challenging to quote real time. The metric ton price, in dollars, depends on source location, shipment size and KCAl count — also percentage of sulphur, ash and other nasties. Also: tariffs if going cross border. Plus: user conditions for the mix. Is the carbon going straight into the smelter, so to speak? Or is the user blending the good stuff — 4,000 KCAl/kg and higher – with the mediocre stuff? On the profits side of the sheet: transportation costs for rail, ship and truck are a big deal.

The great recent year for thermal coal, which is No. 1 on the list of the world’s electricity fuels, was 2011. That is when so-called Newcastle coal rose to $140 per ton. It’s down to about $80: Australia, Colombia and South Africa are flooding the market, supposedly, with their thermal coal exports. That average price, assembled by World Bank, in actuality is 20 percent or more higher than what many producers outside of Australia, Colombia and South Africa get for their thermal. Signs of life? India’s 12 state-owned ports report thermal coal imports up 22 percent, to 71.6 million metric tons, for fiscal year 2013-14 that closed March 31.

India will have used in that fiscal year about 125 million or more tons of the high-quality coal, mainly for power plants, cement plants, steel plants, and even individual villages and small towns. Vietnam this year said it will be importing more thermal coal. Southern Russia is a white knight for the black hydrocarbon. Bordering Mongolia and into Russia, thermal coal is so valuable, it ranks almost up there with Olympic bronze and silver (but not yet gold) Olympics Games medals.

Several large coal producers’ shares are rising sharply in recent weeks. Recall that thermal coal is one of the few commodities that has yet to enjoy a resurrected price in the new century. TCR subscribers know that if we were not heading to Cambodia on Thursday for a priority review of Angkor Gold’s gold mine, which is under rapid development with an India partner, I today would be in southern Russia. (Brief addition on Angkor and its non-profit foundation at close of this report***.) I would be touring possible new buyers of thermal coal and dropping into Lake Baikal, the world’s oldest fresh water lake, for a brisk dip. The invitation, at my expense, is from John Lee at Prophecy Coal — the two-mine owner in Mongolia that I reviewed earlier in this year of 2014.

This second visit to Mongolia to see Prophecy (and fifth overall to that nation) defers to Cambodia. Mr. Lee appears to be working through Prophecy’s challenges. The shares (PCY in Canada) this week were removed from the British Columbia Securities Commission’s default list. The financial are out in full. The management discussion is in the filing. Yes, there is a long way to go on improved cash flow from the Ulaan Ovoo Mine, which appears to my eyes, as a writer and researcher, I remind you, to be experiencing gains in production, gains in resource and gains in quality levels for the thermal coal. Also: selective stockpiling of grades, marked by KCAL grade — photos, my own, on request. Prophecy is working with Mongolia’s Ministry of Finance on a customs clearing zone at Ulaan Ovoo to facilitate exports into Russia.

Mr. Lee on previous trips has signed more than one Russia buyer for the company’s high-KCAl coal and fewer than five, by my count. I also have witnessed plans to lay in fresh road from UO across the three dozen or so kilometers required to reach Russia paved roads, and also interior rail head. He has his critics, mostly because of a salary that at times approaches  yearly half-million dollars. Continue reading

Could McPhie Help Turn Revolution Resources Around?

Revolution Resources' new Chairman, Michael McPhie (Photo: AMEBC)

Revolution Resources’ new Chairman, Michael McPhie (Photo: AMEBC)

Recently, we had the pleasure of meeting Michael McPhie at his former post as President and CEO of Curis Resources (CUV:TSX).  We were on a site visit of their Florence in situ copper recovery (ISCR) development project in Florence, Arizona.  Shortly after our meeting, a press release came to my attention which stated that Mr. McPhie had resigned from his post as President and CEO of Curis to pursue a new opportunity.

This new opportunity was to join JDS Energy and Mining group (www.jdsmining.ca).  He will be leading two of their private companies JDS Copper Ltd. and JDS Gold Ltd. the group intends to grow into copper and gold development plays.

Today Rob McLeod’s Revolution Resources (RV:TSX) announced the appointment of Mr. McPhie as Executive Chairman.  He was already a member of the board of directors.

“In partnership with Michael and JDS, Revolution will be actively pursuing advanced-stage, high-grade precious metal opportunities located in low-risk jurisdictions within North America,” said Rob McLeod, President and CEO of Revolution. “The collective strength of both teams in evaluating and developing prospective assets will be a net gain for both parties, bringing together expertise in geology, engineering, capital markets and social licence. We look forward to a successful relationship with JDS, and are very pleased to have someone of Michael’s calibre joining us as executive chairman.”

Mr. McPhie is a well-respected mining professional.  He is the former chair of Association for Mineral Exploration British Columbia (AMEBC), former CEO of the Mining Association of British Columbia (MABC) and a senior policy adviser with Canada’s federal Department of Natural Resources.

He was President and CEO of Curis for 4 years and helped advance the company through most of the permitting and development.

Revolution is in a tough spot along with many of the junior exploration companies.  As of January 31, 2014 they only at $131,000 in the bank.  Mr. McPhie will have his hands full in helping turn this battered junior around, however, we wouldn’t count the company out.

Here’s the 5-year chart:

RV Chart
RV data by YCharts

Read: Revolution Resources Names Michael McPhie as Executive Chairman

Also: Curis Announces Changes to Management Team

The Dollar is on the Verge of a Significant Breakdown

Many macroeconomic observers forecast that the winding down of the Federal Reserve’s quantitative easing programs would lend a strong bid to the US Dollar. In fact, virtually the exact opposite has occurred as the dollar has not performed well during 2014 and is currently on the verge of a major breakdown:

Click to enlarge

USD Weekly

USD_Weekly_4.9.2014

A break of major support near the ~79 level would officially end the cyclical bull market in the USD which began in May 2011 and reassert the secular bear market which began in 2001.

USD Monthly

USD_Monthly_4.9.2014

The six year consolidation since the 2008 low can be interpreted as nothing more than a bear flag in the context of massive secular bear market – a break below 79 would add a great deal of weight to this bearish interpretation. 

Parex Plans Colombian Acquisitions and Petroamerica Could be the Target

PXT Chart
PXT data by YCharts

pxt

According to a Bloomberg article today, Parex Resources (PXT:TSX) is planning on doubling its current production of 17,500bopd.  The company, led by CEO Wayne Foo, has aspirations of growing to 50,000bopd, according to the article.

“To be relevant in the market, you really have to be in the range of 25,000 to 50,000 barrels a day,” Wayne Foo said in the article.

Wayne Foo, President and CEO of Parex (Source: EDGAR)

Wayne Foo  (EDGAR)

Parex is one of only 10 Canadian oil producers operating in Colombia.  In order to grow their production +20% per year, they need to acquire assets and production.  According to the article, Mr. Foo remains committed to growing in Colombia as the government is stable and they are comfortable with the oil resources there.

Given the few companies operating in the oil space in Colombia, Petroamerica Oil (PTA:TSXV), looks like a they could be an ideal target.  Why? It’s simple; they are cheap.  They trade for pennies on the dollar (0.66x current cash flow and $19,000 per flowing barrel).  On a reserve multiple basis, they aren’t as cheap because they have yet to prove up large insitu reserves.  That is likely to change with more drilling.

Petroamerica have consistently grown production, they have blocks in the right areas of the Llanos Basin and they are already partners on two blocks with Parex; Los Ocarros and El Eden (both currently operated by Parex).

Petroamerica's Blocks (Source: Petroamerica Oil Corp.)

Petroamerica’s Blocks (Source: Petroamerica Oil Corp.)

Acquiring Petroamerica would allow Parex to consolidate its ownership and instantly boost net production from those two blocks as well as grow their land holdings in that key basin.

The reason that Petroamerica might be unattractive to some suitors is the fact they don’t have operatorship of any of their blocks, however, this might be more palatable for Parex given they are already operators on two blocks with Petroamerica.

Overall, Parex looking for more growth in Colombia should be viewed as positive across the sector.  Clearly Parex, who have more than doubled their share price over the past year, are committed to Colombia and that bodes well for all who operate there.

Read: Parex Targets Colombian Asset Purchases to Double Output (Bloomberg)

Disclaimer: The author owns shares of Petroamerica Oil Corp.  Therefore, this information is very biased and should not be considered investment advice.  Always do your own due diligence.

5 Reasons Gold Volatility has Dramatically Declined

Volatility in the gold market, both realized and implied, has dramatically declined during the past year as evidenced by the following two charts:

Click to enlarge

Gold (daily)

Gold_Daily_4.8.2014

The average true range (14 days) for gold has fallen by 50% since October 2013 and currently sits at its lowest level since last March (just before gold crashed $300).

GVZ (CBOE Gold Volatility Index)

GVZ

Gold implied volatility (calculated using GLD options) has also sharply declined since last summer and currently rests at historically low levels.

Why the sudden reduced volatility in gold? And what clues does this offer us about what might be next for gold?

  • Retail investors became disenchanted with the yellow metal after last April’s gold crash and haven’t returned
  • Gold futures open interest has fallen by over 50,000 contracts since last April reflecting an overall disinterest in gold
  • After such a large decline as gold experienced last year it is normal for a market to stabilize at a new level for a period of time ($1300 appears to be this level)
  • An increasing number of mid-tier gold miners are back to hedging future production into rallies
  • Central bank monetary policy has begun transitioning from a period of extraordinary accommodation to a period of steady ‘re-normalization’ (the gold price reflects this shift)

What does the current period of stabilization mean for the future of gold? If history is any guide, the current period of low volatility won’t last for very long and the long term gold uptrend will begin reasserting itself shortly.

Peak Copper

Open pit copper

What happens when all the copper ore is gone? Photo: The Globe / Miami mining district in Arizona from helicopter, April 2014 (CEO.CA)

Depending on how you look at it, the copper business will either be a great place – or a scary place to be in the coming years.

This from octogenarian Dave Lowell, arguably the most successful mineral explorationist in history, with the discovery of eighteen ore bodies credited to him, including Escondida, the world’s largest copper mine. Lowell also co-authored the Lowell-Guilbert model for copper porphyry deposits, which has enabled countless more discoveries. The Lowell Institute for Mineral Resources at the University of Arizona is named for him.

While in Tucson, Arizona last week, Bob Moriarty, Travis McPherson and I caught up with Mr. Lowell at his Atascosa Ranch, on the Arizona side of the US / Mexico border, near Nogales. Atascosa has been in Lowell’s family since the 1920′s.

Continue reading

Asanko Gold Commences Early Works and has Catalyst Filled Second Half of Year

The Asanko Gold Project hosts 4.8 million ounces of 2P gold reserves and can grow to over 400,000 ounces of gold per year (Photo: Diego Levy/Bloomberg)

The Asanko Gold Project hosts 4.8 million ounces of 2P gold reserves and can grow to over 400,000 ounces of gold per year (Photo: Diego Levy/Bloomberg)

Asanko Gold (AKG:TSX) continues to advance their West African gold project towards first gold production in Q1/2016 by commencing the construction of its early works program.  The Board of Directors has approved a $16 million budget with a full investment decision on the Asanko Gold project anticipated by Q3/2014.

The early works program includes: advancing detailed engineering, earth works on the 3Mtpa carbon-in-leach (CIL) plant site, re-routing of power lines, upgrading an 11km haul road from the Nkran pit to the Abore pit, building the 225 person camp-site and upgrading the communications systems.

Asanko’s President and CEO Peter Breese stated: “We have decided to advance certain key engineering and early construction items for phase 1, ahead of completing our updated mine plan and restructuring of our project financing, to ensure the project schedule remains on track for first gold production in first quarter 2016.”

The consolidated Asanko Gold Mine hosts numerous pits(Source: Asanko Gold Inc.)

The consolidated Asanko Gold Mine hosts numerous pits(Source: Asanko Gold Inc.)

This announcement comes on the back of last week’s awarding of the EPCM contract to DRA International (recently acted as EPCM contractor to Randgold’s Kibali site in DRC).  This contract was awarded ahead of schedule and ahead of their formal construction decision.

Management is working to redesign PMI Gold’s 2012 feasibility study to incorporate cost savings from the merger with Asanko.  Importantly, management believes that the cost estimate for the 3Mtpa CIL plant of $83.7 million remains valid and are determining the capital required for phase 2 operations which would include the second 200,000 ounces of gold production (a total of 400,000 ounces per year).

Many key catalysts upcoming, including:

  1. Updated mine plan (Q2/2014)
  2. Finalize loan documentation with Red Kite for $150 million facility (Q2/2014)
  3. Resource definition drilling of recently discovered Dynamite Hill Zone (Q2/2014)
  4. Investment decision for Phase 1 (Q3/2014)
  5. Construction (Q4/2014-Q1/2016)
  6. Commissioning and ramp-up (Q1/2016)

Read: Asanko Gold Initiates Phase 1 of AGM and Appoints Key Contractors

Also read: Asanko Gold Commences Early Works Program

Continental Gold loses a trailblazer, founder Bob Allen leaves company in strong hands

CNL

Founder and chairman of Continental Gold (CNL:TSX) Bob Allen will step back from the wheel of the company that he helped turned into Colombia’s most valuable junior gold developer, the company announced Monday.

A pioneer in Colombian mining, Allen started Continental in 2007 as a privately held, Bermuda-based outfit, landing on the TSX in 2010 with a reverse takeover of Cronus Resources, seven 100%-owned gold exploration projects, and a $28.75 million financing.

With strong results at its Buritica project, the company picked up a wide range of experienced executives, smart financing deals, and that most elusive junior asset: results.

As of 2014, the company has drilled over 215,000 meters at Buritica, has purchased 99% of the acres needed for production infrastructure at the project, has $104 million cash in hand and no debt.

Not a bad time to take a step back and enjoy his 16.9 million shares in the company.

Continue reading

TCR Family: Plan Be @ The Calandra Report

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To plagiarize a former USA president, well, that depends on what the meaning of is be.

PLAN BE is now running.

TCR Family: I will be spending all of my networking | writing | researching time here at The Calandra Report. This includes site and company visits for natural resources and for special situations in real estate and some computer and biomedical services. I also will be managing family wealth — and in turn seeking real estate and other opportunities abroad.

The Calandra Report is growing rapidly. This includes strategic investors and their several large orders for subscriptions in March and April. Our new price is $110 yearly.

I believe the time is now for preparing for that Zul moment: when the gatekeeper releases the ghosts and corpses of Failed Resources Markets Past and allows entry to the fresh commodities (and other) gainers of Present & (One Believes) Future.

I no longer am consulting for Torrey Hills Capital of San Diego. I point any and all of our strategics searching for fresh avenues to Torrey Hills and the Torrey Hills team. The investor outreach firm there is in my book still one of only a handful in the USA with both integrity and potent capital market connections.

Continue reading

Sherritt and Clarke: Nickel for your thoughts

by James Kwantes, World of Mining

Value investor George Armoyan

Value investor George Armoyan

Resources and resource allocation are at the centre of a boardroom battle between Sherritt International ($S.TO), which mines nickel in Cuba and Madagascar, and George Armoyan, a Halifax-based activist value investor who runs Clarke Inc ($CKI.TO). It’s shaping up to be an entertaining tilt that also presents some investment opportunities.

Armoyan fired the opening public salvo in December, when Sherritt sold its Canadian thermal coal business – including coal and potash royalties – for $946 million. CEO David Pathe told the Globe and Mail that his company was on the hunt for acquisitions. Armoyan criticized that path, advocated a share buyback and proclaimed his intent to shake up the board as he announced a 5.2% stake in Sherritt. Armoyan and his “Concerned Shareholders” group has since launched a proxy battle.

Sherritt’s stock went on a tear last week – it rose 17% to close at $4.14 Friday – as several analysts upgraded their ratings.

Continue reading

The Market is Sending Ominous Signals

Did the S&P 500 really make another all-time high Friday morning? It certainly doesn’t feel like it! The rapidly deteriorating market breadth and powerful downside reversal since Friday morning makes the all-time high at SPX 1897 seem like ages ago…..

Click to enlarge

SPX_Daily_4.7.2014

While the S&P has fallen more than 50 points, the carnage in small caps has been much more significant with the Russell 2000 falling over 5% in just the past 3 sessions:

RUT_Daily_

And the recent rotation into defensive sectors such as consumer staples and utilities has all the makings of a classic ‘flight to safety’:

Heat_Map

Meanwhile, investor complacency remains quite elevated as evidenced by the VIX Index and put/call ratios:

VIX

The VIX is still very much a ‘teenager’ and no where close to levels which have historically been associated with market panics.

Total_put_callEven after Friday’s big sell-off the total put/call ratio is still below 1.00 which highlights the relatively high degree of investor complacency.

An interesting list of ‘signs of a market top’ courtesy of www.variantperception.com appears to be a nearly comprehensive summary of the current macro-market environment:

Top_Signs

If all these ominous signs are any indication, ‘sell in May and go away’ may have arrived a month early this year……