Lawrence Roulston: In a sea of gold, three juniors stand out |
- Lawrence Roulston: In a sea of gold, three juniors stand out
- No Shockwave Produced, No Blasting Permits Required, Safe and Transportable
- CHARTS: Gold price entering make or break territory
- Ex-SouthGobi workers long stuck in Mongolia get trial date
- Australia’s newest uranium mine will lose money, won’t create any jobs
- Australia slashes iron ore outlook on increased supply
| Lawrence Roulston: In a sea of gold, three juniors stand out Posted: 25 Jun 2014 06:12 PM PDT
According to Lawrence Roulston, the continuing woes of the junior gold sector present a tremendous opportunity to those with the knowledge, savvy and will necessary to take advantage. In this interview with The Gold Report, the publisher of the Resource Opportunities newsletter showcases three companies with managements that never relent in adding value to their projects The Gold Report: Given how troubled the junior gold space has been since 2011, why should investors continue to place their money there rather than the Dow Jones Industrials, which go from strength to strength? Lawrence Roulston: The simple answer is that there are extraordinary bargains to be had in the junior resource space right now. We're seeing a bifurcation in the sector as the quality companies are beginning to move up, while the majority of companies are still on a downtrend. Anyone who can differentiate between the good companies and the others has the potential to make a lot of money. How You Can Profit from Gold During the Biggest Political and Financial Event A shocking revelation about the status of U.S. gold is on the horizon and it has the potential to change America forever. A change that could send global markets into a tail spin…shrink 401Ks and IRAs by 40%…and send gold soaring to $6,300. CLICK HERE to learn how you can be prepared—and profit. The Sovereign Investor TGR: You've argued that it's a fool's errand trying to predict the near-term outlook for metals prices, especially gold, as there are too many variables involved, and the variables change too quickly. Should investors therefore base their decisions on an assumed future gold price of roughly $1,250/ounce ($1,250/oz)? LR: When I look at a company in the gold space I'm using that number as a baseline. When I examine companies, I consider them first and foremost as investments in projects and management. Metal prices are a secondary consideration. If it doesn't make sense at $1,250/oz, then it's not a good investment. If the gold price rises, that's a bonus. TGR: Gold prices and gold equities have spiked in recent weeks due to rising tensions in Ukraine and the chaos in Iraq. How should investors regard these events? LR: I think they are primarily short-term reactions. These events cause prices to rise one day and fall the next. And they are really hard to predict. TGR: A gold price of under $1,300/oz, as compared to over $1,900/oz in 2011, makes the all-in production cost crucial. In today's market, how high can production costs go and still remain acceptable? LR: That's a tough and a complex question. The all-in sustaining cost incorporates a large amount of capital expenditure that is spent to get the mine into production. In the long term, of course, it's very important. If the capital is already committed and the company is generating profits on the basis of its cash cost, it makes sense for the company to continue operating in the short term. It all comes down to margins. Most of my attention is devoted to companies that are in the development stage, not the production stage. Mine developers must be able to demonstrate substantial margins based on the current gold price. TGR: Is an all-in cost of $1,000/oz still doable, or must costs be lower than that? LR: I look at specific companies, and I tend to evaluate them based less on all-in sustaining costs and more from the perspective of discounted net cash flow. TGR: You have declared, "We do not need higher metal prices to make money in the mining business. We just need to own companies with high-quality metal deposits." How do you define high quality? LR: Important determinants are grade, metallurgy and size. Grade is really a function of the specific circumstances of any given deposit. A big open-pit deposit at 1 gram per ton (1 g/t) may make a lot of sense. In an underground situation you probably need a much higher grade, perhaps as high as 8–10 g/t. But grade is only one factor. Metallurgy is important: How is the metal recovered? There is a big range of costs across the different recovery techniques. In some cases, it simply isn't economic to recover the metal. Size is important too, as well as the ability to meet a production level that will result in interest from larger companies. It's really hard for a small company to develop a single mine and make money off it. The real money is made when those deposits are rolled up into larger, multi-mine producing companies. I ask the question, "Will a particular deposit be of interest to a midtier or a larger production company in terms of size, production profile, location and other relevant criteria." TGR: Since 2011, many gold companies have come to grief because they accumulated ounces for their own sake. When larger companies are looking to buy smaller companies and their assets, what are they looking for? LR: Barrick Gold Corp. (ABX:TSX; ABX:NYSE) wrote off $5.1 billion ($5.1B) from the value of Pascua-Lama, and Kinross Gold Corp. (K:TSX; KGC:NYSE) wrote off $3.2B from the value of Red Back. These are both big, low-grade deposits. So these kinds of deposits have gone out of style. And yet a bidding war broke out for Osisko Mining Corp. (OSK:TSX), which was eventually bought for $3.5B byYamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE)and Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). Osisko's primary asset was the Canadian Malartic mine in Quebec, which produces gold at only 1 g/t. So the blanket condemnation of low-grade deposits doesn't really make sense. Potential buyers are most interested in the specific characteristics of any particular deposit. High-grade deposits are back in style, but the challenge is finding deposits that are both large and high grade. TGR: You've noted that 12 of the companies your newsletter follows have raised a total of $184 million ($184M) so far this year. Besides high-quality deposits, what else do these companies have in common? LR: Quality management is the crucial attribute of all companies able to raise money in this market. People committed to success. People with skills and experience but also the drive and determination sufficient to overcome obstacles and move projects forward. We hear a lot of people complaining about how difficult it is to raise money today. That attitude is just not going to cut it. There is money available. Management just has to justify to the potential investors that they will achieve a decent return commensurate with the level of risk. We need managements than can recognize the benefits of a market like this. Many of the companies I follow look at current conditions and see opportunities rather than challenges. Opportunities such as buying high-quality deposits from distressed companies. TGR: When we speak of quality management, does this require individuals who have proven they can bring a mine into production or sell it to a larger company for a healthy profit? LR: The fact that a management team has achieved success in the past is a pretty good indicator of its ability to repeat this success. Many analysts consider track record the determining factor in management. I agree. But it's also important to look for rising stars. One of the great joys I've had in my career has been identifying the young people who will become the success stories of the future. That involves a lot of hard work: meeting them face to face and really understanding where they're coming from and what their plans are. This is a good way to make good profits in mining investment because the companies with established management trade at a premium. Investors who find companies with rising stars benefit from a much lower share-price starting point. TGR: As you mentioned, many people complain how difficult it is to raise money today. Of course it is difficult, and given this fact, how important is it for companies to have financing experts in management or on their boards? LR: It is critically important. A really successful management team needs a range of skills, and that range of skills is typically much broader than one or even several people can have independently. You need a team that boasts engineering and geological skills, financial skills, as well as someone who can coordinate these skills and keep the project on track. In today's market, it's very difficult for small mining companies to acquire all these necessary skills. One solution is collective management: a pool of people managing several different companies. This enables them to collectively have all the required skills and to spread the costs over a number of companies. TGR: Which gold junior operating in Canada is your favorite right now? LR: Balmoral Resources Ltd. (BAR:TSX; BAMLF:OTCQX). The company has had tremendous exploration success in Québec. It made a substantial gold discovery at Martiniere and continues to expand its limits, adding size and scale. TGR: Where in Quebec are Balmoral's properties located? LR: Balmoral has huge holdings that extend for about 80 kilometers into the Sunday/Detour Lake deformation zone of the Abitibi Greenstone Belt. Its properties are south of James Bay, just on the other side of the Ontario border. On the Ontario side, Detour Gold Corp. (DGC:TSX) is producing over 100,000 ounces (100 Koz) of gold quarterly from a resource in the order of 30 million ounces (30 Moz). Balmoral has decided, quite wisely, to focus on Martiniere, much of which remains unexplored. TGR: In addition to gold at Martiniere, Balmoral also has the Grasset nickel-platinum group metal (PGM) project. How does the latter make Balmoral more prospective? LR: Grasset is really a standalone project. I'm just guessing here, but it's the sort of thing it might be able to spin off or sell. Balmoral is likely to remain a gold company because that will result in a higher valuation than base metals. TGR: Balmoral announced June 4 a $4M bought-deal, flow-through private placement. How does that set it up for financing? LR: Balmoral has enough money to get through 2015 and possibly beyond. TGR: When can we expect an initial resource estimate for Martiniere? LR: Probably by the end of the summer drilling season, but keep in mind Balmoral has only begun to define that deposit. TGR: How do you rate Balmoral's management? LR: Very high. CEO Darin Wagner has had considerable success, including the sale of West Timmins Mining to Lake Shore Gold Corp. (LSG:TSX) for $424M in 2009. Other members of the geological and management team have had a considerable degree of exploration success. TGR: What's your favorite gold play in South America? LR: Columbus Gold Corp. (CGT:TSX.V). Its Paul Isnard project in French Guiana has 58.1 million tons at 2.22 g/t gold: 4.15 Moz. Nordgold N.V. (NORD:LSE) is to acquire a majority position in Paul Isnard in exchange for funding it through to feasibility. TGR: The company announced May 5 that the Paul Isnard resource is to be re-evaluated by a different engineering company. Should investors be worried? LR: I think it's just a blip. I've spent time talking to the company, and the re-evaluation should have no material impact on the overall size and quality of Paul Isnard. I expect that the revised resource number should come back very close to what was announced previously. Nordgold made a $4.2M option payment May 23. If Columbus had any concern over the validity of the resource, I'm sure it would have asked for a deferral on that payment until the matter had been resolved, but it didn't. It's very clear that Nordgold is comfortable with the resource. TGR: WheneverThe Gold Report asks experts about the best junior gold projects in the world, their lists invariably include Columbus. And yet the company's shares trade at only $0.45, and its market cap is only around $54M. How do you explain this? LR: One of the challenges that Columbus faces with investors is that they don't really know much about French Guiana. They don't appreciate that it is a department of France ruled by French law and thus a very secure place for investment and very favorable for mine development. Another factor is uncertainty or misunderstanding the joint venture with Nordgold. When a junior the size of Columbus has a deposit of such size, investors expect a takeover by a larger company. But Columbus' joint venture with Nordgold probably lessens the likelihood of Columbus being taken out. As it stands, Columbus is in the strong position of becoming a significant gold producer without much risk on the financial side. TGR: Which junior gold company do you like in the United States? LR: Klondex Mines Ltd. (KDX:TSX; KLNDF:OTCBB) in Nevada. The company just bought the high-grade producing Midas mine from Newmont Mining Corp. (NEM:NYSE). Many of the majors are going through asset rationalizations, and this presents company-making opportunities to juniors like Klondex. TGR: How is the acquisition of Midas company-making? LR: It's an excellent complement to Klondex's Fire Creek gold project 100 miles to the south, which is effectively in production. Fire Creek still needs a full-scale development permit, but Klondex is operating under a bulk-sampling permit with the ore being trucked to Midas. The Fire Creek ore is exceptionally high-grade: 284 Koz at 41.5 g/t Measured and Indicated and 424 Koz at 23.3 g/t Inferred. This means that the trucking cost is essentially inconsequential. The Midas acquisition is a perfect fit. The Midas operating team is quite accomplished at high-grade underground mining situations, such as Fire Creek. TGR: According to Klondex's April preliminary economic assessment (PEA), the all-in cost of Fire Creek gold is $636/oz. Impressive? LR: It's a very attractive number based on the fact that no mill will be needed on site. TGR: At the start of this interview, you mentioned the "extraordinary bargains" available today in the junior gold space. Which qualities distinguish a bargain? LR: Many companies are bargains today, but a year from now they're still going to be bargains. When investors are trying to determine whether a low share price is really an opportunity, they should look for a trigger that will create a higher share price in the foreseeable future. It comes back to management advancing projects and adding value, for instance, Klondex buying Midas, which gave it a short-term path to production for Fire Creek. Or Balmoral, which applied some really smart geological thinking to make a significant discovery and push up share price. Just sitting back waiting for the market to recover is not a viable business plan. TGR: Is it possible that we might fairly soon get to the point where we stop talking about companies that clearly aren't going anywhere and focus entirely on companies with genuine prospects and that this new focus could engender a general recovery in the junior gold space? LR: I would very much like to see investor focus shifting to companies with real merit. There are 2,000 companies in the North American junior resource space. Having so many diffuses investor attention and diffuses the talent pool to the point where most don't have realistic prospects of success. A number of struggling juniors have already gone into the marijuana business or other areas outside of mining. More power to them. We need fewer companies with a greater concentration of talent providing a better focus for investors. It is now more important than ever for mining investors to be selective in their investments because only a few mining companies are going to prosper while most will continue to lose value until we see a general turnaround, which might take another year or two. TGR: Lawrence, thank you for your time and your insights. Lawrence Roulston is an expert in the identification and evaluation of exploration and development companies in the mining industry. He is a geologist, with engineering and business training, and more than 20 years of experience in the resource industry. He has generated an impressive track record for Resource Opportunities, a subscriber-supported investment newsletter. Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page. DISCLOSURE: Streetwise – The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part. Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported. Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734. 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| No Shockwave Produced, No Blasting Permits Required, Safe and Transportable Posted: 25 Jun 2014 06:00 PM PDT
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| CHARTS: Gold price entering make or break territory Posted: 25 Jun 2014 03:37 PM PDT The gold price jumped around on Wednesday only to settle in familiar territory. On the Comex division of the New York Mercantile Exchange, gold futures for August delivery in late afternoon trade exchanged hands for $1,319.50 an ounce, down $1.80 from its settlement level in middling volumes. Earlier in the day gold touched a low of $1,305.40, only recovering after a drop in the dollar following a surprisingly large down adjustment in the first quarter US GDP. Last Thursday's nearly $50 an ounce surge in frenzied trading now appears to have been a blip as gold's momentum turns sideways. Ole Hansen, Head of Commodity Strategy at Denmark's Saxo Bank, says for gold to continue to show strength the metal must first clear $1,331: If successful it should be able to make further progress towards trend-line resistance at 1371 USD/oz ahead of the 2014 peak at 1392 USD/oz. However, a move back below 1300 USD/oz would remove the current momentum and most likely result in a renewed period of range-bound trading around 1295 USD/oz. which has been the average price for the past year.
 Technical research and investment blog InvesTRAC's chart of the gold price versus the blue-chip Dow Jones Index, which on Wednesday was again toying with record territory despite the GDP numbers, indicates that gold is set to outperform stocks: The long term downtrend from the top at 1.746 is still intact…the recent weakness held above the 0.725 low and the ratio has now pushed up through the first downtrend which opens the way for an 11 percent rally to the next visible resistance at 0.860. If the ratio can get through this barrier it would suggest that after an almost 60 percent decline it would have the potential to go substantially higher:
 FLASHBACK: Towards the end of May, InvesTRAC produced a chart showing that the uncharacteristically quiet gold market was primed for break-out price move. That bust out if its trading range started out as a big gap down with the gold price hitting $1,244 at the start of June. That was before Yellen and ISIS changed the picture again and a 90 tonne 15-minute trade lit a fire under the metal.
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| Ex-SouthGobi workers long stuck in Mongolia get trial date Posted: 25 Jun 2014 03:17 PM PDT Three former SouthGobi Resources (TSX: SGQ) employees, long detained in Mongolia, may be a step closer to freedom as a Mongolian court will finally hear their case next week. The Court of Justice will hear the tax investigation case into SouthGobi and the three on June 30, the company said in a statement dated Tuesday. Hilarion Cajucom Jr. and Cristobal David of the Philippines and U.S. citizen Justin Kapla have been barred from leaving the country since 2012, when the probe began. All three deny the charges against them. "My career has been destroyed and I don't know when I will be able to leave," Businessweek quoted Cajucom, previously an accountant at SouthGobi, as saying. A storm in the Philippines last year destroyed David's family home, according to Businessweek. The family had to be evacuated while David, trapped in Mongolia, could do nothing. The case involves allegations that SouthGobi evaded taxes between 2007 and 2011, allegations the company dismisses. The Mongolia-focused coal producer, which is 56% owned by Vancouver-based Turquoise Hill Resources (TSE:TRQ), said it has prepared its financial statements in compliance with International Financial Reporting Standards and lodged all tax returns as required under Mongolian tax law. The case has made Mongolia's legal system, which allows officials to place travel bans on suspects and witnesses, the subject of international scrutiny. More than 50 foreign miners, bankers, accountants and charity workers are unable to leave Mongolia in connection with investigations of their employers. Some such investigations have gone on for years. |
| Australia’s newest uranium mine will lose money, won’t create any jobs Posted: 25 Jun 2014 12:02 PM PDT
After five years of delays, Australia's Four Mile uranium mine has began operations, with owner Quasar admitting it will lose money on every pound of uranium oxide it extracts from it and won't create any jobs. However the company is confident the A$120 million investment, a joint venture project between Melbourne-based Alliance Resources and Quasar, will pay off in time. The operation, Australia's fifth and South Australia's fourth uranium mine, began production in April to feed the processing plant at the site of the neighbouring and now closed Beverley uranium mine, owned by Quasar's parent company, Heathgate Resources. The 140 people who used to work at Beverly have moved into the development of Four Mile. The firm will have to wait to see the first rewards. Uranium prices have crashed since the Fukushima incident in 2011, losing a further 30% in the last year to hit new record lows a few weeks ago. Although there's no spot price for the metal, UX Consulting's most recent indicator, published June 16, came to $28.5 a pound, down 31% over the last 14 months. On the flip side, South Australia's government is touting the Four Mile deposit as "the most significant one found anywhere in the world in the last 25 years," that is coming into operation, reports ABC Net. Authorities also say the ore deposit is of a much higher grade than BHP's Olympic Dam. And only yesterday French nuclear energy operator Areva said this week that it believes uranium prices have bottomed out and will recover quickly soon. |
| Australia slashes iron ore outlook on increased supply Posted: 25 Jun 2014 09:01 AM PDT  For 2015 the bureau expects the raw material to average about $97 a ton from $103 estimated in March. Australia, the world's largest iron ore exporter, has slashed its official price estimates for this year and 2015, predicting export earnings to stall as competition to sell to China increases. According to the latest quarterly report from the Bureau of Resources and Energy Economics (BREE), iron ore spot price is forecast to average US$105 a tonne in 2014 — 16% lower than last year. And it gets worse: For 2015 the bureau expects the raw material to average about $97 a ton from $103 estimated in March. "Although steel production in China remains historically high, high iron ore port stocks and low steel prices have combined with a surge in the availability of supply coming from Australia to push prices down," the report says.
Waning Chinese demand coupled with an ever increasing worldwide glut of the steel-making material saw iron ore tumble to $89 a metric ton on June 16, the lowest since September 2012. The good news are that lower prices are unlikely to affect the production rates of most iron ore mines in the Pilbara, which have some of the lowest production costs in the world, the bureau says. Eyes on China While higher-cost Chinese mines close due to weak prices, iron ore prices will be contained by a sharp rise in production elsewhere, says the report. The commodity may find a so-called floor at $90 a ton, a level that may put more than a quarter of Chinese capacity out of business and spur production cuts at mines outside the country, according to Citigroup Inc. "At current prices a large proportion of China's domestic production is still assessed as loss-making," it adds.
Shipments from Australia will jump 17% to a record 680 million tons this year and climb to 764 million tons next year, the bureau said. Previously, the bureau estimated exports in 2014 at 687 million tons. The agency's price forecasts refer to spot ore with 62% content free-on-board Australia. |
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