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:

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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:

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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.

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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.

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TCR Family: Plan Be @ The Calandra Report

THE CALANDRA REPORT: Subscribe

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.

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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.

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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…..

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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……

Revisiting a Breakup of the Eurozone

7022230-3d-illustration-of-euro-crashed-european-crisis-concept
It’s Not You, It’s Me

With elections looming over the EU next month, recent news over the old continent has centered around the battle against deflation.

  • “The European Central Bank has let it happen. Inflation has been running at an annual rate of minus 1.5% in the eurozone over the past five months, adjusted for austerity taxes…Prices have been falling at a rate of 5.6% in Italy, 4.7% in Spain, 4% in Portugal and 2% in Holland since September. The rise of the euro against the dollar, yen, yuan and real, accounts for some of this. The eurozone’s trade-weighted index has risen 6% in a year. But that is the direct consequence of the ECB’s own monetary policy. Frankfurt could force down the euro at any time by switching gears. It has chosen not to do so, hoping that a few dovish words spoken without conviction will turn the global tide.”

As with most European hiccups since 2008, the difficulty in battling deflation arises from the core weakness of the eurozone  – it is a monetary union without a complementing political union. From inception as the European Coal and Steel Community (ECSC) in 1951 to the Maastrich Treaty of 1992 to the modern 18-nation eurozone (and larger 28 nation European Union), the notion of a “United States of Europe” has always been more about politics than about economics.

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Resolution Is In: Superior Copper

$110 yearly
 
SUPERIOR, Arizona –  A helicopter tour above the Arizona copper belt, where the Resolution Copper Mine is being built, is our call to action. 
 
Grounded now, I find myself searching for more shares of Desert Star Resources Ltd. ( TSXV: DSR). Canadian banker Vince Sorace’s Desert Star optioned properties from two companies I own: Eurasian Minerals (TSXV: EMX), which is doing a princely job of fashioning a royalty portfolio, and Pilot Gold Inc. (TSX: PLG) — a member of our TCR 8.
 

Quebec Supports Mason Graphite by Investing in $10M Bought Deal Financing

LLG Chart
LLG data by YCharts

After being halted for a couple of days, Mason Graphite (LLG:TSXV) got a nice surprise.  The company, which was running low on cash, announced an initial $8 million bought deal (which was subsequently raised to $10 million with an additional $1.5 million green shoe) with Ressources Quebec, a subsidiary of Investissement Quebec coming in for $3 million of it.

The deal was led by Macquarie Capital Markets who sold units at $0.65 (small discount to market) with a 2-year 1/2 warrant at $0.85.

About Ressources Quebec, Investissement Quebec says on their website: This Investissement Québec subsidiary develops strategic partnerships with companies that undertake projects involving resource exploration, development and processing in Québec. It supports foreign investors that present major projects and provides a range of business solutions to aid in their implementation. Ressources Québec also offers financing solutions and manages the Capital Mines Hydrocarbures fund.

Lac Gueret is one of the highest grade graphite projects being developed (Source: Mason Graphite)

Lac Gueret is one of the highest grade graphite projects being developed (Source: Mason Graphite)

With this mandate, I would expect this backing to help the company in their capital raise for the full-scale construction of the Lac Gueret mine which is currently estimated to cost $80 million.

As part of the release, the company also indicated they are working on an additional $4 million strategic investment by one or multiple institutions.  They are working to finalize this.

Overall, the company is now fully financed to proceed through the next phase of development on their high-grade Lac Gueret project; primarily the completion of a feasibility study and environmental baseline studies.

They expect to complete the Environmental Social Impact Assessment by Q2/2014 and to have their Certificate of Authorization by Q1/2015.

With the completion of the feasibility study they will have to pay Cliffs Natural (who they acquired Lac Gueret from) a $2.5 million cash payment.  There is an additional $5 million payment due upon commercial production.  After that they will own 100% of the project with no other legacy costs or royalties.

Read: Mason Graphite Announces Increase to Bought Deal Private Placement Offering

 

Disclaimer: Please read Mason Graphite’s cautionary note regarding forward looking statements carefully, which can be found on slide two of their corporate presentation. I own shares in Mason Graphite and they are a client which makes me biased. This is not investment or professional advice and you are responsible for your own trades. Please see our full disclaimer. Thank you.