A collapsing oil price and surging US Dollar were unable to bring gold, silver prices lower last month. This firm price action shows the underlying strength of precious metals as we end 2014 with huge physical demand continuing mostly out of Asia, Wall Street however ended 2014 still selling the main GLD-ETF down to 22.7M ounces. This is lower by close to 3M ounces in 2014 and over 20M ounces from GLD’s 2012 peak holdings.
Gold is at a critical technical juncture as 2015 kicks off with a well-defined downtrend around $1,220. If gold can break above this and further at $1,250, the technical picture quickly improves and shows the rally can continue to $1,350 - $1,525. On the other hand, if this resistance holds up, gold will be heading back to supports in the $1,100 range.
2015 should see the completion of the bear market phase in the secular bull markets in precious metals. There are significant geo-political issues, with Russia being the biggest risk as it is squeezed financially, economically and geo-politically. NATO continues to surround its borders as the escalation between Western and Russian objectives rises to a more dangerous level.
Russian foreign reserves have fallen steeply in past months and even with limited capital controls, the tumbling oil and natural gas prices will continue to place pressures on the $388 Billion of remaining foreign exchange and gold reserves.
Russia Foreign Exchange and Gold Reserves – Bloomberg.com
The Ruble is under significant pressures with the rate dropping to 60-70+ rubles vs the dollar over recent weeks. Despite the draining of capital reserves, Russia continues to add gold to its reserves. As they sell their exported energy for strong dollars, they are converting them increasingly into gold.
Now the question becomes: How will they use their gold reserves as foreign currency reserves dwindle? Some sort of gold-Ruble convertibility? Gold backed bonds?
Keep a close eye on Russia in 2015. They are a major piece of the puzzle in the grander scheme for U.S. global supremacy. Russia’s vast energy and commodity resources along with their strategic partnerships with BRICS nations are a key component to counteract U.S. dominance. Yet Russia cannot be discounted in how it will defy these pressures. From proxy wars to financial and monetary wars.
The strong US Dollar combinedwith firm gold and silver prices have been great news for precious metals stocks. Foreign miners who sell their gold and silver for US Dollars are treated to a weaker domestic currency which helps to reduce costs. Add in the falling energy prices and miners will begin to see a healthy drop in costs.
Even if gold prices were to continue consolidating around $1,200, the combination of a strong dollar and weak energy prices should fuel a very strong rally in gold and silver stocks. Especially if this overhanging fear of another large drop in metals prices shifts into confidence that further downside risks are limited.
GDXJ (junior gold stocks) - downtrend since mid-2014 broke, upside targets in blue.
SEABRIDGE GOLD hit a MAJOR milestone in December when Canada’s Ministry of Environment approved its massive KSM project in British Columbia. The positive decision ends an environmental assessment program that started back in early 2008, and opens the way for development of one of the world’s largest undeveloped gold and copper deposits.
The news further de-risks the project and will help Seabridge find a partner to build the mine. The company has already made it clear it does not intend to build the mine alone.
The announcement was, however, also widely anticipated and during the quiet holiday period so has not yet triggered steep gains in the stock. The company ended the month where it started at around $9 with 48.4 million shares out. I expect the news to gain greater recognition as we start off the New Year.
TIMBERLINE RESOURCES also celebrated a positive environmental decision in December, with the Montana Department of Environmental Quality issuing a final environmental impact statement on the Butte Highlands project. The report clears the way for a Final Hard Rock Operating Permit to be issued, and the Department is expected to issue a record of decision on the mine in early 2015.
Paul Dircksen, president and CEO of Timberline, said the completion of the EIS was the biggest milestone yet in permitting the Butte Highlands Mine. Timberland holds a 50% carried-to-production interest in the mine project.
Dircksen, semi-retired at the end of 2014 and Kiran Patankar has taken over the role of president and CEO of the company. Patankar has spent the past seven years in investment banking and holds a B.Sc. in geological engineering from the Colorado School of Mines and an MBA from the Yale School of Management.
The company also started a 12,000-ft drill program at its Eureka project in Nevada.
TIMMINS GOLD bought itself an early Christmas present, announcing on December 18 that it was going to buy the Caballo Blanco gold project from Goldgroup Mining for US$10 million in cash and 16 million Timmins Gold shares. Timmins will also be providing a US$5 million payment when the open-pit heap-leach project in Veracruz State is permitted.
A 2012 PEA on the project outlined a 29 million tonne measured and indicated resource grading 0.62 g/t Au for 575,000 oz. gold, plus 24 million inferred tonnes grading 0.54 g/t Au for 419,000 oz. gold. The pre-tax NPV came to US$128 million and the IRR was 37.5% at US$1,200 oz. gold and a discount rate of 5%.Timmins Gold wasted no time wrapping up the deal, announcing the transaction was closed by Christmas Eve.
FORTUNA SILVER MINES announced two major construction projects at its San Jose mine in Oaxaca Mexico for 2015 that will see a continued ramping up of production.
The company plans to increase mill capacity from 2,000 to 3,000 tonnes per day by mid-2016, allowing it to produce between 12 and 14 million silver eq. oz. a year. The company plans to pay for the US$30 million in capital costs through cash flows and cash-on-hand, with the project paying for itself in 2 years.
Fortuna will also start constructing a dry stack tailings deposit and filter facility at a cost of US$32 million. The news was well received, with the company’s share price climbing close to a dollar to end the month at $5.28 with 127.5 million shares outstanding.
GOLDSOURCE MINES managed to raise $7.1 million in a financing that will help it develop the Eagle Mountain Gold project in Guyana. The company sold 47.1 million units at $0.15 each, with units holding one share and one half-warrant. The capital raise was successfully completed during challenging market conditions and shows confidence in this near-term gold mine.
GoldSource filed a PEA on the Eagle Mountain project in September, which outlined a US$5.9 million initial capex, after-tax NPV of US$45.6 million, and after-tax IRR of 63% with a 5% discount rate. The mine is planned as a four-stage development to produce 168,700 oz. gold at an all-in cost of US$630 per oz. over 8 years. The mine is permitted and the company is targeting full production in 2015.
EXETER RESOURCE continues to be encouraged by its current water drilling program at Peñas Blancas in the Chilean desert. The company found significant water in the two large diameter bore holes and two smaller diameter water monitoring holes drilled so far at the latest site. Exeter is now working on down hole pump tests for more definitive results.
The company believes the new water source could provide enough water for the revised, low cost mine plans it filed for its sizable Caspiche gold-copper project earlier this year.
GOLD RESOURCE CORP added to its land holdings in Nevada by leasing 100 acres of land known as the Goose gold property, which sits next to the Radar property that Gold Resource optioned from Altan Nevada Minerals. Gold Resource is leasing the Goose property from Nevada Eagle, and the agreement give Gold Resources the option to buy the property for $175,000. The deal gives Nevada Eagle a 2% NSR royalty on the property, which Gold Resource can reduce by 1.5% for $1.4 million. True to form, Gold Resource also declared a monthly dividend of $0.01.
INCA ONE GOLD continued to work towards its goal of a 100 tonnes per day of capacity at its gold milling plant in Peru. The company announced that test milling in November returned 156.5 oz. gold and 183.7 oz. silver on the original milling circuit at its Chala One plant, while ramp up of the new circuits was on schedule.
The company continued its hiring of key personnel, with Carlos Santa coming on as chief metallurgist. Sanata has over 7 years as chief of plant operations at the Chaparra Mill of Minera Colibri, where he was intimately involved in the doubling of production to 150 tonnes per day.
Inca One continues to expand its team to not only accommodate 100 tonnes a day, but build the resources to manage a significantly larger operation(s).The share price reflected their transition from exploration to focus on cash-flow. Among gold stocks, Inca One was one of the top performers in the sector in 2014.Continued progress in Peru should continue to reward investors in 2015.
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Peter Spina's experience with the precious metal markets started back in the mid-1990s, which led to the creation of GoldSeek.com back in 1995. Today GoldSeek.com ranks in the top three most popular global gold websites and its sister site, SilverSeek.com ranks as the most visited silver website in the world. Back at the start of the new secular precious metals bull market, Peter established the technically-focused subscription newsletter, Gold Seeker Report, which at the start of 2005 was merged into the more comprehensive Gold Forecaster (goldforecaster.com) service. In addition to the newsletter and websites, Peter frequently appears in the media including MarketWatch, Reuters, and theStreet.com
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