Mar 31

Klondex Mines Reports Fiscal Year 2013 Annual Results

Gold Price Comments Off on Klondex Mines Reports Fiscal Year 2013 Annual Results

Klondex Mines Ltd. (TSX:KDX,OTCQX:KLNDF) has filed its audited annual consolidated financial statements for the financial year ended December 31, 2013. Highlights include: proceeds of $8.4 mm from the sale of 6,208 ounces of Gold from Fire Creek.

Continue reading…

Tagged with:
Mar 31

Gold Above Six-week Low at $1,294.65 an Ounce

Gold Price Comments Off on Gold Above Six-week Low at $1,294.65 an Ounce

This morning, gold rose 0.1 percent, or $1.29, to $1,294.65 an ounce. Meanwhile US gold futures for April delivery rose $1.40, to $1,295.20 an ounce.

Continue reading…

Tagged with:
Mar 31

Gold Falling? It’s the Money Supply, Stupid

Gold Price Comments Off on Gold Falling? It’s the Money Supply, Stupid
Liquidity moves markets. And liquidity is working against gold prices right now…
 

WE SPENT all of yesterday bumping along dirt roads on our way from the ranch to a small seminar organized by our old friend Doug Casey, writes Bill Bonner in his Diary of a Rogue Economist.
 
One of the major topics: What’s ahead for the gold price?
 
Here, in advance, we give our view.
 
Gold took off like a rocket at the start of the year. But despite rising global political tensions, and the Fed’s continuing economic pretensions, this month gold started to look more like a discarded booster engine falling back to Earth.
 
We don’t know why gold rose so rapidly, but we have a good idea of why it fell…
 
First, investors discounted the political tensions. Who really cares if Crimea is a part of Russia? Nobody.
 
Second, what has changed at the Fed? It continued to taper QE at its recent policy meeting. But by moving away from a fixed unemployment target to more “qualitative” measures, it reserves the right to take the taper off the table any time it wants.
 
As author of A New Depression: Breakdown of the Paper Money Economy, Richard Duncan, puts it, “Forward guidance is very nice, but it is liquidity that moves the markets.”
 
The Fed is providing plenty of liquidity. But this liquidity is going into risk assets, not into “anti-risk” assets. Stocks are a risk asset. Gold is not.
 
Most investors are confident the Yellen Fed has matters under control. They see US stocks going up and ask themselves: What’s to worry?
 
With nothing to worry about, and the memory of a 180% gain in S&P 500 fresh in their minds, why would they want to buy gold?
 
Third, the worry that usually moves gold most is inflation. It was that worry that sent it up 20 times in the 1970s…when consumer price inflation rose over 10%.
 
Consumer price inflation is not something that people are worried about now. And for good reason.
 
As any economics professor will tell you, the CPI goes up when the quantity and velocity of money increases faster than the output of goods and services.
 
QE increases the monetary base (the sum of hard currency in circulation and banks’ reserve balances with the Fed). But it’s money supply (which also includes bank deposits and retail money market mutual fund shares) that matters when it comes to inflation.
 
But increases in the money supply depend on the creation of new bank deposits through new bank lending. And although money supply is growing, banks aren’t lending enough to make for a worrying increase in the quantity of money.
 
Meanwhile, the average household income is lower than it was when the recession ended in 2009. So, the average American has less money to spend. And under pressure, he is more careful about spending it, too. This decreases the speed with which cash changes hands in the economy – the velocity of money – putting more downward pressure on consumer price inflation.
 
Gold investors see all this. They know consumer price inflation is not a problem right now (at least as it’s officially measured). They must wake up in the morning…check the CPI reading (just over 1% right now)…and go back to sleep.
 
The time will come, of course, when the CPI gets up and does the boogaloo. But not now. Here is what we see ahead for gold prices:
  1. The economy stays sluggish, but doesn’t go into reverse, and the Fed continues to taper.
  2. US stocks fall, as the Fed removes its support, causing the Fed to end the taper.
  3. US stocks recover, as the Fed wades in with more intervention, then fall more.
  4. The Fed panics and introduces more aggressive (money from helicopters?) moves.
  5. Gold soars.
 
  • Reddit
  • Facebook
  • Twitter
  • Google
  • Yahoo
  • LinkedIn
  • Digg
  • StumbleUpon
  • Technorati
  • del.icio.us
Tagged with:
Mar 31

Silver Bear Market Near Last Low?

Gold Price Comments Off on Silver Bear Market Near Last Low?
This 3-year drop is on track for the worst silver bear market in history…
 

The SILVER PRICE has been in a bear market for almost three years, writes Jordan Roy-Byrne at TheDailyGold, and the recent lack of strength suggests the metal could be headed for new lows.
 
New lows are always bearish until the last one. Our technical work suggests that we should watch for a final low and end to the silver bear market in the coming months.
 
This chart plots every major bear market in silver prices dating back 45 years (excluding the 1980-1982 bubble bust). It plots them on the same time scale as the current bear market.
 
 
Excluding the 1980-1982 bear market, we find that the current bear market is inline for being silver’s worst bear market. It is already the fourth longest in time and close to the second worst in price. The current bear is very close to the 1983-1986 bear. This chart and the 1983-1986 bear suggest that if the current bear breaks to a new low then its final bottom could occur about one month later.
 
The silver price has very strong trendline support on the daily chart around $17. If this silver bear market breaks to a new low, then it will run into what I think is trendline support, which dates back 11 years.
 
 
In the lower chart we plot a 12-month rate of change for silver prices, in per cent. Note how, before the bear market, it often reaches or comes close to 100% gains. After lows in each of 2003, 2005, 2008 and 2010 the price of silver doubled in a 12-month period.
 
Moreover, following the 1983-1986 bear market – which closely resembles the current silver bear – the price of silver rebounded 89% in 10 months. Following the 2008 low, silver rebounded 84% in 11 months.
 
Let’s say the silver price bottoms at $17.50 and rebounds 70% in 12 months. That would take it to $30. That would create huge upside in most silver mining stocks.
 
Below is a chart of our proprietary silver producers index which contains 14 stocks and is partially weighted by market cap. It contains all of the large, important silver companies as well as junior producers. We didn’t just pick the 14 best. This index recently peaked at neckline resistance and just below the 80-week moving average.
 
 
Note how the 80-week moving average marked resistance in early 2012 and late 2012. A new bull market will only be confirmed when this index is able to surpass that confluence of resistance.
 
From a bird’s eye view, we believe the bear market in silver is just about over, while the bear market in silver stocks has probably ended, and we don’t expect them to make a new low.
 
However, the silver stocks won’t break resistance and confirm a new bull market until the silver price has bottomed. Our analysis suggests this silver bear market has a bit more to go in terms of price and time. We’ve laid out what we are looking for in silver which is a new low and a bounce from 11-year trendline support. If that occurs at a time of extreme bearish sentiment, then we’ll take it as a buy signal. And this prognosis, if correct means we have some time to research and patiently accumulate the best silver stocks, positioned to benefit from a resumption of silver’s secular bull market.
  • Reddit
  • Facebook
  • Twitter
  • Google
  • Yahoo
  • LinkedIn
  • Digg
  • StumbleUpon
  • Technorati
  • del.icio.us
Tagged with:
Mar 28

Mega Precious Metals Files NI 43-101 Report for North Madsen

Gold Price Comments Off on Mega Precious Metals Files NI 43-101 Report for North Madsen

Mega Precious Metals Inc. (TSXV:MGP) announced that it has filed a NI 43-101 technical report for the gold resources at its Ontario-based North Madsen project.

Continue reading…

Tagged with:
Mar 28

Gold as a Currency in Your Portfolio

Gold Price Comments Off on Gold as a Currency in Your Portfolio
Director of Investment Research for World Gold Council speaks on gold as currency…
 

JUAN-CARLOS ARTIGAS manages the Global Investment Research team at the World Gold Council, the global authority on gold-related research.
 
Providing oversight of research initiatives related to investor portfolios, he is a regular presenter at industry conferences and is a sought-after speaker for institutional and private investors who seek his expertise on the strategic case for gold.
 
Speaking with me this week in my regular podcast interview, Juan-Carlos and I discussed: 
  • Where does gold fit in the investment portfolio – its purpose and allocation?
  • Should gold be considered as a currency or commodity?
  • How big is the gold market – what is the importance of liquidity?
Looking at the size and liquidity of the gold market, “Understanding gold as a currency is easier,” said Juan Carlos Artigas.

Discover Business Internet Radio with New York Markets Live on BlogTalkRadio
 
“It makes more sense in portfolios when you consider it a currency. We do think that gold stands completely apart from commodities. The gold market is extremely liquid. According to the London Bullion Market Association, gold trades $240 billion a day. To put it in perspective, all of the Dow Jones combined trades at $20 billion a day. Gold trades more than 10 x the Dow in a day. It is not officially a currency but it is treated as such in many cases.” 
 
Going on, Juan Carlos Artigas of the World Gold Council said that “We don’t look at gold in isolation, rather we look at the benefits that gold brings to all investments, stocks, bonds, real estate or other alternatives.  We have found through our research that holding 2-10% of gold in a portfolio reduces volatility and losses in times of systemic failure of equity and fixed income markets.
 
“We found that investors holding gold in times of systemic losses alone reduced losses 7.5%…”
  • Reddit
  • Facebook
  • Twitter
  • Google
  • Yahoo
  • LinkedIn
  • Digg
  • StumbleUpon
  • Technorati
  • del.icio.us
Mar 28

Silver, Buffett & the Hunt Brothers

Gold Price Comments Off on Silver, Buffett & the Hunt Brothers
Warren Buffett took a shine to silver. So did the Hunt brother oil barons…
 

WHY have there been two major corners of the silver market in recent history? asks Miguel Perez-Santalla at BullionVault.
 
In 1980, the year I started working in the marketplace, the price of silver had reached $50 per ounce, only to collapse a few days later. The Hunt brothers, two oil baron brothers with powerful financial means, were behind much of the rise in the market at that time. In a book by Stephen Fay, entitled Beyond Greed, the author writes the story of this incident. 
 
According to the evidence, Nelson Bunker led his brother Herbert Hunt – along with friends from the Middle East – in conspiring to make the price of silver rise by purchasing over 280 million ounces, estimated by Fay as 80% of 1979’s entire global mine output, worth some $14 billion at that peak price. The Hunts made business arrangements to hide their activity under other names. They believed in the value of silver, and they desired to accumulate as much as possible and by any means. In my eyes they did so without regard of others.
 
Yet this was at a significant risk to them, because they were buying both the futures and physicals. So was their attempted corner unjust? After all, they were trading within the market rules of the time. But they got greedy and used any resources to extend their reach.
 
Once the gig was up, and it was known that the Hunts were heavily leveraged through their structured business alliances, the bankers joined forces with the commodities exchange, the Comex, and the Federal Reserve to change the rules. Once the rules were changed the calamitous collapse of the silver price and the destruction of the Hunt brother’s’ corner ensued. 
 
Since every loser on a futures contract must be matched by a winner, Bunker Hunt was convinced that the bankers and regulators involved with ending the corner profited greatly. But whatever the truth there, the Hunts would have been much more successful had they taken their profit sooner, before the price they demanded reached levels that affected industry and the average consumer. At that point authorities get involved to correct the distortion.
 
Because the silver market is much smaller than the gold market, the corner is a temptation that is almost irresistible to a big player. Even if cornering the silver market is not the intent.
 
In the late 1990s renewed buying of physical silver ensued. It began through a large trading firm by a major investor, Warren Buffett’s Berkshire Hathaway (ticker: BRK), which accumulated nearly 130 million ounces from 1997 to early 1998. The market price rose sharply as this news broke, however it did not make the kind of price moves that would shock the public as the Hunts corner had. 
 
Though the quantity purchased was large, silver production had increased since 1980 and the price had not reacted to the same extent.  Additionally, the economic reality at that time was of a booming US economy, where people felt less need of silver as a safe haven investment.
 
In general, market participants were surprised by the price moves in silver. It did not break any records; it just broke other investor’s trades. Silver moved from slightly above the $4 level to nearly a $7 price tag. Bad for industries that use silver, and because it did have an adverse effect on other investment manager’s financial positions, this price rise was brought to the attention of the authorities.
 
One of these investment managers was Martin Armstrong of Princeton Economics International, who apparently had been selling short the silver market. His business became unraveled by the constant buying and rising price that he did not foresee. At the request of investigators the large participants were asked to reveal their intentions. It became clear that no crime was committed unless buying silver was made illegal. But unfortunately for Mr. Armstrong he had opened a can of worms. 
 
In the process of the investigation it was discovered that the money he used to sell short leveraged silver futures was from an alleged Ponzi scheme, perpetrated through his company’s business. Armstrong was convicted for fraud and imprisoned for many years. He is currently a free man, and claims his innocence and that bigger fish who should have been prosecuted were left unscathed.
 
Did Berkshire Hathaway manipulate the silver market, or were they just investors looking for a long term stake in this hard asset? A common point given to prove the benign intent of their position was its small size compared to the rest of BRK’s portfolio – only 2% of the company’s entire holdings. It was said that if the price of Coca Cola shares had dropped $5 at the time, it would have been a more significant loss to them than if silver went to zero dollar value.
 
The point is that silver is more at risk of volatility, and attempted corners or squeezes, than its big brother gold. The principal reason is the volume of money ordinarily in the market place. Latest data from the London bullion market, where Warren Buffett took delivery of physical silver bars for Berkshire Hathaway’s late 1990s’ investment, says gold trading outdoes silver trading more than 9-fold by Dollar value on average. In the US Comex futures market, where the Hunt brothers got burnt having leveraged their position with borrowed money, the value of open interest – the amount of outstanding contracts – ended February 3 times greater in gold than in silver.
 
Liquidity is a reference to this actual market size. The more people or businesses putting more money through a market, the easier and faster it is to buy and sell larger volumes without affecting the market price. Because the silver market is so small there are participants that will take the risk that they can make a big win in this game by taking a rather large stake whether by selling it short or buying the metal.
 
Some win and some lose and some are big enough to cause the move. But in the end the real reason we see someone take a big shot in the silver market every so often is because they think they can make money doing it.
  • Reddit
  • Facebook
  • Twitter
  • Google
  • Yahoo
  • LinkedIn
  • Digg
  • StumbleUpon
  • Technorati
  • del.icio.us
Tagged with:
Mar 28

Falling Off the Turnip Truck

Gold Price Comments Off on Falling Off the Turnip Truck
Janet Yellen wouldn’t know a dead cow if it bit her…
 

“THREE more cows died,” Jorge, our Argentine ranch manager, reported yesterday, writes Bill Bonner in his Diary of a Rogue Economist, reporting from his cattle ranch in Salta, Argentina.
 
We had reacted as fast as we could. Still, the disease – whatever it is – moved faster.
 
Jorge and his crew of five gauchos worked for three days – including a Sunday and a national holiday – almost without rest. From first light ’til after dark they rounded up the cattle and ran them through the stocks.
 
It was hard work. But there were no complaints. They all knew it had to be done. All the animals have now been given an injection. Whether that stops the epidemic, or not, we wait to find out. We are, meanwhile, beginning to ruminate on the strange, wide and unappreciated gulf between Nicaragua and Tunbridge Wells…
“Praying for Nicaragua when you live in Tunbridge Wells is the first sign of madness.”
– Evelyn Waugh
A stock character of show-business (less so now than 50 years ago) was the “hick”. Recently fallen from the turnip truck, he knew his bucolic world. He knew his cows and his bottom 40…but the larger, outside world was a mystery.
 
Confronted with a public policy issue (for these men were often elected to the House or the Senate), he resorted to folk wisdom and practical experience.
 
“Well, if you give money to lazy people, it won’t make them any less lazy,” he might have opined on a welfare program.
 
Or: “I don’t know why we need to put fancy theatras and basketball courts in public high schools. I went to a one-room school house. And I can guarantee you it didn’t have air-conditioning.”
 
This down-home outlook made the hick a laughingstock to urbane policymakers. And he was often a fool. But it endeared him to the bumpkins who elected him.
 
President Johnson was one of the last major politicians who used this rube charm to good effect. When the occasion called for it he wore his cowboy hat. And he had many colorful expressions to substitute for real thinking. One of his favorites was: “The time to kill a snake is when you have a hoe in your hand.”
 
The expression brought back the reality of country life. When you saw a snake with your own eyes you knew what to do…especially if you had a hoe in your hands. But a hoe is one thing; a Huey helicopter is another.
 
Here on the ranch, we find a dead cow. We make decisions that put the whole farm into motion, costing us a few thousand Dollars that we can ill afford. Either we are right. Or we are wrong. But at least we operate on facts, as best we can. And we suffer the consequences as we must.
 
We are six hours from the nearest city. Things happen here that we see, feel…and within the limits of our own senses and sensibilities…understand.
 
But the markets are a different animal. At our Bonner & Partners Family Office research department, a question has been preoccupying us: Does QE transmit inflation to consumer prices?
 
Much time was spent researching how the banking system works in a fiat money world. More time was spent wondering how and when the velocity of money might increase.
 
Experts disagree on major points. Can banks use their excess reserves to increase lending? Even this simple question throws up so many different viewpoints…and so many footnotes and nuances…that we regard it as beyond meaningful understanding.
 
On what facts does Janet Yellen operate? How connected is she to the real world? Does she understand the connections between QE and consumer price inflation better than we do? Or does she mistake the US Army for a hoe and the Vietcong for a snake, as Lyndon Johnson did?
 
You can judge for yourself. Our old friend John Mauldin is quoted in a film about how the Bank of Yellen operates. As you will see, Yellen has no real facts. She has no hoe. And she wouldn’t know a dead cow if it bit her on the derriere.
 
Since the beginning of time until today, there is no evidence that activist central bankers – like activist politicians – have ever done anything but cause mischief. Yet the entire market is depending on them, as though they knew what they were doing. We repeat our warning: A distorted market is a dangerous one.
  • Reddit
  • Facebook
  • Twitter
  • Google
  • Yahoo
  • LinkedIn
  • Digg
  • StumbleUpon
  • Technorati
  • del.icio.us
Tagged with:
Mar 28

Market Needs a Hero

Gold Price Comments Off on Market Needs a Hero
And gold needs more time yet to reload for a bull market…
 

SCOTTY GEORGE is chief investment strategist at Alexander Capital. Here he speaks to Mike Norman at Hard Assets Investor about how the 5-year old US bull market in stocks needs a new “big idea” to keep running…
 
Hard Assets Investor: The Ukraine situation, sanctions imposed by the US and Europe, the possibility of another cold war – it’s creating a lot of volatility and cross-currents in the markets. What’s your big picture of what’s going on?
 
Scotty George: If we could solve that issue in five minutes, we’d be heroes. The way these political events are affecting the markets is creating more uncertainty. The less certainty there is, domestically and overseas, the more the markets will roil at the top. That’s exactly what we have.
 
We have foaming. We have upside/downside days. We have no consistency in market patterns. As a quantitative strategist, I’m used to seeing cycles, parabolas that move in an orderly fashion across the page. This reminds me, in terms of valuation, of how the market looked before the dot-com crash in 1999, 2000.
 
HAI: Really? That extended, that extreme?
 
Scotty George: Yes. Let’s talk methodology. If markets move in cycles, and you can quantify those cycles, both for duration and magnitude, we reached the pinnacle of the magnitude of the market’s five-year cycle about a year and a half ago. What we have now is a combination of froth, and a kind of linear expansion of the parabola. At the top, instead of turning over and nominally creating a recalibration that would enable us to go up, we’re continuing to go straight up, or to the side.
 
Typically, definitionally, what would happen in that type of a configuration is that a linear upswing would be met by a linear downswing. And that’s where I think there’s danger in the market. There are stocks to be owned in here. But there are really no asset classes, nor categories that you can find, that are going to maintain an upswing at these valuations.
 
HAI: But if you look at the S&P’s rally over a five-year period, from 2009, where it effectively, what, doubled on an annualized basis…in 2000 we had a huge move up. I think this is why a lot of people have not been involved in this move, because it’s been kind of slow and gradual. And it’s been the proverbial wall of worry where people thought it can’t last. And it’s overdone. And the economy is not that strong. And unemployment’s still high. And then it seems like every phase, there’s a new worry. Now it’s about the Fed and taper.
 
Scotty George: That’s not exactly how I see it. I think, from a configurative standpoint, what you’ve described is exactly what you would see if you looked at the market on paper. When this new rally began after the credit crunch in ’07-08, we were at valuation levels where the only way to go would be up. There were no downsides left to the market, either in fixed income or in equities. So I don’t think we’ve climbed a wall of worry. We’ve climbed a wall of uncertainty.
 
The issue now is that, after having climbed that wall, you only know you’ve climbed it when you look backward and you see where you’ve come from – at these levels here, the issue is, how long can corporations sustain pricing against their earnings dissipation? How long can we sustain momentum and consumer confidence in the wake of the kind of crises you’re talking about, that affects not only the US but Europe and our trading partners?
 
I don’t want to be negative, what I’d like to be is methodological. And from that standpoint, I had a lot more money invested at the crash of ’08 than I do now. We’re raising cash, we’re not committing cash.
 
HAI: So what would change your view? Do you just stay in cash until, at some point, the market corrects?
 
Scotty George: That’s the question our clients keep asking us. Last year, the S&P went up 30%- plus. Our balanced accounts were increasing at about 14%. That represented a market exposure of about 30-40% in equities and about 30-40% in cash. So the calls I got at the end of last year were, “Why did the market do so well and we did nominally well?”
 
I said, “Look back over the five years that we’ve been invested. We didn’t experience a crash when the crash occurred, because we were smart enough not to be at the top. We were fully invested when the market was rising off of the bottom.” What we perceive now is that, as we approach valuation expansion, it’s good to take some money off the table.
 
So what do you do? What do we think is going to happen? I think a hero has to come in. I think we’re going to have to see a kind of demographic theme that catches the imagination of the investment marketplace, whether it’s in alternative energy, bio care and health and life sciences, even infrastructure redevelopment…
 
HAI: Isn’t life sciences and health care that theme? You have Obamacare, the whole demographic aging population, the need for more healthcare services…
 
Scotty George: It is, but you’ve got opponents on every side of that issue. The kind of hero I’m looking for…we remember the space program. If you can galvanize capital toward a mission statement, what you do is you begin to bring leaders into the equation, and coincidentals begin to follow and the laggards begin to pick up. At this point in the market, everything is a leader, everything is expensive. There really are no hero focuses, no hero sectors that can pull this market up.
 
HAI: Moving into the commodity area, which is what we like to talk about, why wouldn’t you be looking at that now, as a countercyclical play, as a contrarian play?
 
Scotty George: The question then would be, Where would you be invested? What are those countercyclical sectors in which to invest? Tangible assets, and the potential for price pressure and inflation in those assets – which already exists in agriculture, milk, beef, corn, grain – is where the pricing pressure is. So, tangible assets is one sector we favor right now.
 
HAI: And they’re not the hot sectors anymore.
 
Scotty George: Well, it’s a good thing for investors. It’s a bad thing from a methodology standpoint. Because everyone is focusing at the apex and wondering, What do we do here at the peak? Where do we go? Well, you’ve got to revert back to those countercyclical sectors that have not yet pushed up in the market. And that would be an example of some of those heroics that we’re looking for.
 
HAI: Let me ask you about gold prices. Because I went back and watched one of your appearances in 2011, when you said it was overvalued. That was an amazingly correct call. What’s your view now on gold?
 
Scotty George: I think gold is not yet ready to take off. There’s nibbling in precious metals in the silvers, the coppers, and the golds. I don’t think it’s quite ready to go. But that gives us an accumulation period in which we could probably put some money to work for future use.
 
Your question, and the fact that you brought up one of those previous interviews, really highlights the nature of what it is I do for my clients. There’s the analysis part, which is pure empirical data. But there’s the application of that. There’s having the guts to be able to go out and put that money to work.
 
And that highlights the notion, Mike, that money is always traversing cycles – you’re either in an upcycle, on the left side of the parabola, you’re in a down-cycle on the right. Therefore, you’ve got to know how to rebalance risk. So, if gold was expensive at its apex two or three or four years ago, and now having come down, that makes it an opportunity now. So you’ve always got to be aware of the fluidity and the nature of cycles, and to know where you are.
 
HAI: I agree. A little bit like surfing. Always great to have you, Scotty.
  • Reddit
  • Facebook
  • Twitter
  • Google
  • Yahoo
  • LinkedIn
  • Digg
  • StumbleUpon
  • Technorati
  • del.icio.us
Tagged with:
Mar 28

China’s New Electricity Grid

Gold Price Comments Off on China’s New Electricity Grid
Lots of copper needed as China, South Korea, India & Brazil build infrastructure…
 

MARK LACKEY, executive vice president of CHF Investor Relations (Cavalcanti Hume Funfer Inc.), has 30 years of experience in energy, mining, banking and investment research.
 
Here he tells The Gold Report‘s sister title, The Mining Report, about mineral investors shouldn’t over-react to the apparent “slowdown” in China’s economic data, and the bullishness for prices in massive new electricity grid and infrastructure builds in fast-emerging economies…
 
The Mining Report: Mark, the price of copper recently dipped to its lowest level since 2010. Are we going to end the year below $3 per pound?
 
Mark Lackey: We don’t think so. We believe that the price of copper will actually recover as we progress through the year. In fact, we actually are still calling for the price of copper to trade in the $3.60-3.70 per pound range by year-end. We really haven’t changed our view because if we look at supply and demand conditions, we think there’s definitely been an overreaction to some of the recent Chinese economic data. Investors are losing sight of the fact that there are reasons for demand to pick up later in the year, and that the postponed production projects will impact the supply side.
 
TMR: Are weaker Chinese economic data the only reason behind this shortsightedness?
 
Mark Lackey: It’s certainly a major factor. It’s seems that the export data in particular got the market concerned, because if you look at retail sales and industrial production, they’ve been only a little bit weaker than analysts had expected. We’re really talking about just two months of trade data here, so this is not necessarily a long-term trend. We would also point out that the Russian situation with Crimea has caused some concerns about European growth.
 
TMR: In other words, prices will remain weak in the short term, but investors should be long copper.
 
Mark Lackey: That’s right. If you look at the new infrastructure programs planned in China, South Korea, India and Brazil, they all are scheduled to kick off this year, so we should start to see more spending later this year. That’s one positive for copper.
 
Don’t forget that China is by far the biggest consumer of copper in the world, and half the copper goes into the wire and cable business, which is growing at about 15-20% per year. We see China ending up with one of the biggest and best electrical grids in the world, but this growth should go on for the next five or six years. So there is a fairly significant built-in amount of copper consumption that’s already in place. Whether the country grows at 8%, 7.5% or maybe 7% isn’t nearly as relevant as some people think.
 
TMR: Most of the copper heavy miners have been sold off. What’s happening with the juniors?
 
Mark Lackey: Across the board, I’d say most junior companies have lower share prices than they had three or four months ago, although some have gone sideways. You’d be hard pressed to find a copper company that’s actually up.
 
TMR: Moving on to iron ore, some market experts believe the steep drop in the price for iron ore in early March was based on poor economic data from China, while others believe it was largely caused by a speculative play gone wrong, likely at a Chinese brokerage. What’s your perspective?
 
Mark Lackey: First of all, some of the economic data in China in the past two months clearly affected the iron ore price. But there was also a slight buildup in inventories before the trade numbers came out, so there had already been a little bit of weakness in the market.
 
China also announced that it wants to shut down some small marginal steel plants that are not particularly positive for the environment, and that announcement got some analysts concerned about potentially less demand for iron ore. I think that concern is overblown. I expect bigger steel producers in China to make up for this modest drop in steel production. So we don’t see a loss in demand for iron ore as a result of the consolidation that is taking place.
 
As far as a speculative play gone wrong, there have been a few rumors of that out there. It’s hard to know if that’s true. We would suggest that if it is true, it’s one of those factors that is not going to have any significant impact on the medium or long-term iron ore market.
 
TMR: What’s your forecast range for iron prices over the course of 2014? Is it above $120 per ton?
 
Mark Lackey: We expect prices to get back above $120 per ton, closer to the $125-130 per ton range by the end of this year. Again, like copper, we do see this increase in infrastructure spending in China, South Korea, India and Brazil as a bullish signal for steel demand. We also expect China to produce over 20 million (20M) vehicles this year, so we see steel demand rising out of the consumer sector. Meanwhile, China is also trying to increase the quality of its steel. This generally means that there will be increased demand for iron ore. Finally, supply, which increased significantly last year, should level off this year since Australia is producing at close to full capacity given the infrastructure constraints currently being experienced in the country.
 
TMR: Big iron miners produce iron at $30 per ton or even $20 per ton at some operations, but smaller miners generally have much higher production costs. Midtier producers are already experiencing a shareholder revolt over poor share price performance. What does all this mean for investors in this space?
 
Mark Lackey: If you looked around the world, the cost production for the majority of iron ore mines is considerably higher. Some Chinese production has costs of around $100 per ton. So the question becomes, will companies produce at a small profit, or will they take some of that iron ore out of the market? Our expectation is that the Chinese will take some of those smaller inefficient mines out of operation.
 
On a more general note, there are a number of factors that look good for the Labrador Trough, including the fact that the deepening of the Panama Canal will be finished by the end of the year. This will allow larger ships to leave Quebec and then go through the Panama Canal, thus cutting time and costs. The other recent development is the South Korean-Canada free trade agreement, which is actually very positive for Canadian iron ore producers because it eliminates the iron ore tariff. Canadian iron ore companies have a competitive disadvantage vis-à-vis some other producers who already had these trade agreements with the South Koreans.
 
TMR: Let’s move from metals to minerals and potash. Like most mined commodities, potash had a turbulent 2013. What do investors need to know about what’s happening in the potash space in 2014?
 
Mark Lackey: The basic underlying supply-demand scenario has not changed. In fact, we continue to see less arable land in the world per capita every year. As a consequence, there is a need for higher crop yields, and thus a continually growing market and demand for potash, particularly the muriate of potash (MOP), which is 90% of the potash market. We believe that potash prices actually will start to recover this year. There is also some other positive news on the demand side. It looks like this will be the best soybean-planting season in Brazil in history, and it looks like a strong year in the Midwestern US Plus there’s been less potash used in the last few years in India, and you cannot go more than a couple of years if you want to continue to have enough nutrients in your fields. So we see this as a bounce-back year for potash and the MOP market as we go through the year.
 
TMR: What are your parting thoughts for us?
 
Mark Lackey: Don’t overreact to every data point that comes out of China such that your medium- or long-term view of the world changes. Clearly, one has to recognize that there are going to be ups and downs in the commodity markets. I would suggest we’re still in a long-run bull market for commodities because at least 4 billion people in the world are trying to become middle class, whereas in the 1970s, it only took about 400 million people to create enough demand to give us a very strong commodity cycle. Finally, in many commodities like copper and iron ore, we’re seeing more and more deferred projects. So over the next five years, there is not going to be the supply that some people may anticipate. If you have no exposure to equities in the commodity markets, then you could very well miss an excellent opportunity over the next couple of years to enhance your portfolio return.
 
TMR: Thanks for joining us today.
 
Mark Lackey: Happy to be here.
  • Reddit
  • Facebook
  • Twitter
  • Google
  • Yahoo
  • LinkedIn
  • Digg
  • StumbleUpon
  • Technorati
  • del.icio.us
Tagged with:
preload preload preload
Get Adobe Flash player