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Gold & Precious Metals

Opportunities abound: Gold & Silver Stocks Set to Rebound in 2012

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Posted by The Gold Report

on Tuesday, 28 February 2012 01:57

"Every segment of the gold stock market is very cheap today." Opportunities abound across the spectrum of precious metal equities, which remain undervalued as bullion prices continue their upward trends. That's the word according to Charles Oliver and Jamie Horvat, both senior portfolio managers at Sprott Asset Management. In this exclusive interview with The Gold Report, Oliver and Horvat express cautious optimism about the prospects for gold stocks in 2012.

COMPANIES MENTIONED: BARRICK GOLD CORP. - BELO SUN MINING CORP. - CANACO RESOURCES - COEUR D'ALENE MINES CORP. - COLOSSUS MINERALS INC. - CONTINENTAL GOLD LTD. - GOLDCORP INC.- HECLA MINING CO. - LAKE SHORE GOLD CORP. - PAN AMERICAN SILVER CORP. - PERSEUS MINING LTD. -PREMIER GOLD MINES LTD. - SCORPIO GOLD CORP. - TAHOE RESOURCES INC.

Gold and Silver Stocks Poised to Recover in 2012: Charles Oliver and Jamie Horvat

The Gold Report: When we talked in the wake of the debt ceiling crisis last fall, Charles, you expected volatility to be good for gold and forecast a continuing long-term bull market for precious metals. These days, the scary stories pertain to the European Union (EU). Will negative headlines continue to play a role in the price of gold and silver?

Charles Oliver: Absolutely. The headlines about the European Central Bank (ECB) infusion of billions of euros into the banking system has been very good for the price of gold. Since the ECB announced it would be issuing €489 billion in December, gold has had a nice little rally off its lows. I expect in the next couple of weeks a further issuance of money will be quite supportive for gold.

Europe is still a mess. Greece seems to be heading to bankruptcy in slow motion. That problem has been going on for two years and we could find these issues still persisting a year from now. Ultimately, central banks around the world will continue to print and debase their currencies, which will be very good for the gold price.

TGR: Jamie, do you agree with that? Or might Greece strike a deal to pay off its debt, turning the price of gold down?

Jamie Horvat: I think the deal is based on the fact that the only tool governments have at their disposal is the continued monetization of debt and the continual printing of money, which is always good for gold. On the other hand, if Greece does not get the sought-after debt relief and restructuring or, if it is kicked out of the EU, it could result in the unwinding of the European banking system and could have larger implications globally. If that happens, we'll see a short-term hiccup in the gold price as it is used as a source of liquidity and investors sell their future in an attempt to live and fight today. That may be the tail-risk event as we continue to see additional quantitative easing (QE) programs all over the world. From Japan to the UK, more than $1 trillion could be spent in the next few months to provide ongoing liquidity in Europe. That is why the longer term outlook for gold is still positive.

TGR: In a November television interview, Charles, you expressed concern about China's growth. Has that changed? And what are the implications for precious metals?

CO: The China story affects the industrial metals more than the precious metals, but I'm still concerned that we see weakness in China. The volume of loans being done now and the contraction we're seeing there both signal that weakness. A number of other economic statistics indicate that China is clearly slowing down; the only question is how big a slowdown it is. Ultimately I think it will impact the base and bulk metals more than gold and silver—copper, iron ore, steel, those types of things.

TGR: Your $644.5 million Sprott Gold and Precious Minerals Fund ended 2011 with a tough quarter, off 10.6% compared to an 8.7% loss on the benchmark S&P. Your quarterly report cited tax-loss selling as one of the reasons for thinly trading stocks performing poorly. Have you adjusted your portfolio since then?

CO: The portfolio is continuously being upgraded. We made a number of changes during the last quarter. We did some of our own tax-loss selling in the portfolio. When I sold some of those stocks, I tried to redeploy the proceeds into some of the other names that I wanted to own that were also experiencing tax-loss selling. A lot of companies in the junior space were down 70%. It wasn't through any fault of their own; it was just because the market had no interest in small companies because it was risk averse last year.

TGR: Were the other names you were buying into mainly juniors?

CO: Yes, there were a fair number of juniors, but every segment of the gold stock market is very cheap today. I can find great valuations in small-, mid- and large-cap stocks. All of them are extremely cheap. That's not always the case. You might think all segments would move together, but in reality one segment often does much better than the others during a particular year. 

TGR: It appears as if about 30% of the fund is dedicated to the small-cap issuers, which have a little bit higher risk profile then the large caps. Do you see those small caps as the way to drive growth in the portfolio?

CO: If you look over the last decade, a lot of the alpha that's being generated in the gold fund has been through small- and mid-cap names. That's across the board. Whether in the gold space, the oil space or any other type of stock, generally speaking, small-cap stocks have better growth and long-term growth returns. 

TGR: What are some of the juniors you picked up as you were redeploying at the end of the year?

CO: I can mention a few names from my most recent year-end report for investors. Canaco Resources Inc. (CAN:TSX.V) is a small cap with a project in Tanzania. It did a financing at around $5.40/share back in March 2011. It's a good stock, but through tax-loss selling and an aversion to small-cap stocks, it has traded down to below $1.50/share. What a great opportunity. 

I looked at Canaco several years ago. It was really interesting, but it was a little on the early-stage side and it got away from me. I'm not one who likes to chase stocks; I don't run after them. And then last year, Canaco had a lot of cash on its balance sheet and suddenly came under severe selling pressure. I thought, "Great, I'm getting a second opportunity to buy something at a much better price." Additionally, I expect its property in Tanzania will one day be a mine.

TGR: How many years away is that?

CO: Probably 5 to 10 years. The lifecycle in the mining industry is usually at least that long from a grassroots discovery through permitting, construction and ultimately getting into production. In the small-cap space, I'm always on the lookout for companies that I believe will have a mine at some point in the future. Canaco is a good example of that.

TGR: Any other examples of companies that could be big movers in 2012?

CO: Another company, Lake Shore Gold Corp. (LSG:TSX; LSG: NYSE) was down 70% in the last year. I actually owned it a couple of years ago, and thought it got expensive. It was trading north of $4.50/share not too long ago, and went down to almost $1/share. The company had a few hiccups in terms of its mine plan, but the stock has been overdone. I sold it up much higher and took this as an opportunity to get involved with it again.

TGR: How high could it go?

CO: There is no reason Lake Shore Gold can't get back to the highs it made last year if it executes on its strategy. These things usually just take a bit of time.

TGR: Eric Sprott is probably one of the leading silver bulls in the world. In your view, what's the ideal balance between gold and silver equities and bullion in an investors' portfolio?

CO: I believe it makes a lot of sense to have a combination of both stocks and bullion. It really depends on the individuals in consultation with their financial advisors to get the appropriate allocation. Bullion is an asset that helps preserve capital. You're not there to make a killing. You're there to protect capital, especially in the context of the currency debasement that is going on. Gold stocks are more of an asset used to capture capital gains during the bull market we are in. Many studies have suggested that 5–10% on a long-term basis is a good allocation to precious metals. I've heard some numbers much higher at the Sprott organization, but again, I think it ultimately depends on an individual's goals, propensity for risk and capital preservation requirements due to age and circumstances. 

TGR: What are some of your favorite names among silver equities?

CO: I like the large caps. Pan American Silver Corp. (PAA:TSX; PAAS:NASDAQ), which is trading at about 9–10 times its price/earnings (PE) ratio, has potential to double production over the next five years as it builds its Navidad mine in Argentina. Pan American is fully funded to get that growth.

Coeur d'Alene Mines Corp. (CDM:TSX; CDE:NYSE) is another one trading at about 9–10 times its PE ratio. It has doubled production over the last four to five years. This company actually has done a great job; it's one of the few over the last couple of years that have managed to do a pretty darn good job of keeping cash costs very low. If you look at almost all of the large-cap silver names, you'll find most of them trading either at high single-digits to low double-digit PE ratios. They are extremely cheap. 

TGR: What are some catalysts that could take Coeur d'Alene to the next level?

CO: I think it's just a matter of time and execution. Ultimately these companies will make good earnings and cash flows at the current price. One of the things we've seen in the gold sector, and are certain to see a bit in the silver sector, is that a lot of these companies are starting to initiate dividends. Last yearHecla Mining Co. (HL:NYSE) announced a plan to pay a dividend linked to the silver price. In a recent presentation I attended, Coeur d'Alene suggested that it might start looking at paying a dividend sometime next year. 

TGR: Could that have a big impact on the share price? 

CO: We will have to wait and see, but I think investors look for good companies that pay nice yields.

TGR: What are some other promising silver names?

JH: On the development and exploration side, Tahoe Resources Inc. (THO:TSX) has great potential as it moves toward production on its flagship Escobal project in Guatemala. We like what we see in Tahoe's exploration there—the whole development story. It may have a world-class asset with the resource and reserves it currently has on hand—plus significant exploration upside as well.

Scorpio Gold Corp. (SGN:TSX.V) is a junior that has come off the bottom. Scorpio has been viewed in the past primarily as a base metals company and a zinc producer, but most of its upside in terms of both exploration and production now comes from silver exposure. I continue to like Scorpio. 

TGR: With so many companies in the small- and large-cap area beaten down, how do you determine which ones will deliver?

JH: As Charles mentioned, valuations are pretty depressed. Looking at the large caps broadly, you have to distinguish between those that are executing projects and those that aren't. Among the companies reporting recently, Agnico-Eagle Mines Ltd. (AEM:TSX/NYSE) and Kinross Gold Corp. (K:TSX; KGC:NYSE) are two examples of companies that unfortunately lost some ground. Agnico enjoyed a premium thanks to its growth profile, but lost that premium because it didn't execute on that growth profile. Kinross, too, has declined due to the lack of execution. 

On the other hand, Barrick Gold Corp. (ABX:TSX; ABX:NYSE) was in line and Goldcorp Inc. (G:TSX; GG:NYSE) was above estimates. Both Barrick and Goldcorp have growth projected into 2016, but they're trading at depressed multiples to the group. Goldcorp has 60% growth ahead of it.

Investors who have been going to the price participation of exchange-traded funds or gold bullion will slowly start coming back to the market if some of these companies continue to capture that cash-flow margin and continue to increase dividend payments. They will be attractive to investors if they show a willingness to return capital to shareholders. In terms of the market in general, investors seem to want to be paid to participate in the market, so they are looking for companies with yield.

TGR: What names fit the criteria you mentioned for companies that have upside ahead of them?

JH: Based on projects in development and assuming they continue to execute and move the projects forward, some of the names I like are Belo Sun Mining Corp. (BSX:TSX.V)Colossus Minerals Inc. (CSI:TSX)Continental Gold Ltd. (CNL:TSX)Premier Gold Mines Ltd. (PG:TSX) and Perseus Mining Ltd. (PRU:TSX; PRU:ASX). These are all things I continue to monitor and continue to like.

TGR: Belo Sun is sitting at about $1/share now. What do you like about it?

JH: Belo Sun's 100% owned Volta Grande project in Brazil is located in an area with good infrastructure and the government is building the world's third-largest hydro-damming facility just to the north. It's a really good project with recent—and continuing—exploration success, in a good jurisdiction with good economics around the project. I believe that has the potential to be a mine one day. 

Belo Sun also has added significantly to the resource and continues to move the project forward. I'll continue to like those types of projects as long as they continue to execute. So far, though Belo Sun hasn't been rewarded for its success. Small caps were down 38% on average in 2011.

TGR: Do you have favorite jurisdictions? 

CO: When you look at the jurisdictions in our portfolio, about 80% of the companies are domiciled in Canada while 80% of the operations are international. We do have some big concerns about politics and country risk. A couple of years ago, when a lot was going on in Africa, we decided to cut back on some of our African names. Not eliminate them, but reduce the weighting and redeploy those funds into operations in North and South America. Now we are unfortunately experiencing some issues in South America, such as what is going on with the governments and some of the mining projects in Peru today. As with Africa earlier, last year we made an active decision to reduce exposure in Peru because of those concerns. 

You can't pick where the mines are—that's geologically where the gold deposits are and it takes you to some challenging places. That is why we like to be in a lot of different countries, to diversify that risk. I have concerns about Peru but I've got a little bit of Peru. I don't like Russia particularly, but I've got a little bit of Russia. Having a basket of these cases can minimize the risk. Having said that, I should be able to buy these companies in higher risk regions at cheaper valuations. Otherwise I certainly wouldn't invest there.

TGR: Do you agree with that Jamie?

JH: Definitely. Taking a basket approach and diversifying the risk within the portfolio has been our practice for a long time. There have been a lot of discussions around people seeking more politically secure jurisdictions. But even in Canada, even in British Columbia, we have seen mines not get permitted based on native land rights issues, water usage issues and other local issues. So risk isn't confined to places such as Africa or Peru. Using that basket approach definitely helps mitigate the jurisdictional risk. 

TGR: You mentioned investors might start moving from bullion back into the stocks after a year when equities weren't performing in line with the metals prices. The cliché is that investors are always wavering between greed and fear. What will give investors confidence to take a chance on some of these undervalued juniors?

JH: I think it all comes down to execution. Are you executing on that project? Are you moving it forward? Are you building per-share value by growing the resources and converting them into reserves? Are you advancing the project and doing the feasibility studies? Are you wrapping the economics around the feasibility of the project and the value and the leverage that you can obtain from putting that into production in the market? Companies that continue to execute and build their resources and reserves will get rewarded. Unfortunately, a lot of companies have made some missteps in the market.

TGR: Any other thoughts you would like to leave our readers with before we say goodbye?

CO: Gold equities didn't do very well in 2011. It was a tough year. The last time we had equities perform so poorly was 2008. Then 2009 and 2010 were exceptionally good years for gold stocks. That pattern makes me cautiously optimistic that 2012 will be a very good year for gold stocks. 

JH: I totally agree—2011 was a "lite" version of 2008. Small caps were down 78.5–79% in 2008, and last year they were down 38% on average. The U.S. banks and the mortgage-backed securities issue were at the heart of the 2008 liquidity crisis, and in 2011 the issues have rolled into a European bank and sovereign debt crisis—with the U.S. opening up the swap lines again, with unlimited U.S. dollar amounts to help with liquidity to European banks through to February 2013, I believe. Taking all of that into account, I'm cautiously optimistic. I'm hoping that as in the second half of 2009 into 2010, when we had a significant recovery in the precious metal space, we will see a similar type of recovery in 2012.

TGR: Thank you, gentlemen.

Bringing more than 21 years of experience in the investment industry, Charles Oliver joined Sprott Asset Management (SAM) in January 2008 as an investment strategist with focus on the Sprott Gold and Precious Minerals Fund (TSX:SPR300). Prior to joining SAM, he was at AGF Management Ltd., where he led the team that was awarded the Canadian Investment Awards Best Precious Metals Fund in 2004, 2006, 2007, and was a finalist for the best Canadian Small Cap Fund in 2007. At the 2007 Canadian Lipper Fund awards, the AGF Precious Metals Fund was awarded the best five-year return in the Precious Metals category, and the AGF Canadian Resources Fund was awarded the best 10-year return in the Natural Resources category. Oliver obtained his Honors Bachelor of Science degree in geology from the University of Western Ontario in 1987 and his Chartered Financial Analyst (CFA) designation in 1998.

Jamie Horvat joined SAM in January 2008. He is co-manager of the Sprott All Cap Fund, the Sprott Gold and Precious Minerals Fund, the Sprott Opportunities Hedge Fund LP and the Sprott Opportunities RSP Fund. He has more than 10 years of investment experience. Prior to joining SAM, Horvat was co-manager of the Canadian Small Cap, Global Resources, Canadian Resources and Precious Metals funds at AGF Management Ltd. He was also the associate portfolio manager of the AGF Canadian Growth Equity Fund, as well as an instrumental contributor to a number of structured products and institutional mandates while at AGF. He joined AGF in 2004 as a Canadian equity analyst with a special focus on Canadian and global resources, as well as Canadian small-cap companies. Horvat spent five years at another large Canadian mutual fund company as an investment analyst before joining AGF. He holds a diploma in mechanical engineering technology from Mohawk College and earned an Honors Bachelor’s of Commerce degree from McMaster University. He is a member of the International Research Association and a licensed international financial analyst. He is also a member of the Ontario Association of Certified Engineering Technicians & Technologists.

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Gold & Precious Metals

Updated: Rock Solid Gold - Timing and Targets from 3 of the Best

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Posted by Mark Leibovit - Richard Russell - Charts by Don Vialoux

on Monday, 27 February 2012 16:16

Update February 29, 2012: A key phrase from Mark Leibovit’s VRGold Letter "Action Alert" dispatched today:

"Gold prices were selling off Wednesday after Federal Reserve Chairman Ben Bernanke indicated that an additional round of quantitative easing was becoming increasingly unlikely. We’re experiencing a ‘flash-crash’ type scenario today which in my view presents a bigger picture buying opportunity." - VRGold Letter

Update 3:18pm Feb 27: Gold (below) has formed a broad head-and-shoulders bottom with the upside breakout coming in at 1800. April gold has been hammering on the 1700 support level for days, and so far 1700 has held. If 1700 won't give way, then gold should be able to take out 1800. What won't go down -- should go up. At least that's the theory - written 2/27/2012 in Dow Theory Letters

6.2C34

Meanwhile, gold pops 20 bucks. Pick a hammer and hammer down on a wood board 20 times. The board doesn't break, which means that's a mighty tough board. Now hammer down on 1700 dollar gold 20 times. And the 1700 base refuses to give. So you know that 1700 is a tough base for gold. Today April gold closed up over 32 dollars to 1758.50. This puts gold over the halfway point of 1750 and looking at 1800. If gold won't break below 1700, will it go over 1800? There's at least a good chance. - written 2/21/2012 in Dow Theory Letters

GOLD – ACTION ALERT – BUY

(written Feb 27/2012)

Spot gold touched 1789.10 Thursday and retraced to 1769.20 on Friday. We should have seen 1764.00. Downside risk is back to the 1730s should we see another ‘smackdown’. Next upside objective 1840. Spot silver continued high Friday trading at 35.84. I would like to see a pullback to 34.60. Still targeting to 37 and then the low 40s. Copper pushed higher touching 3.8823. It’s coming off 3.702. That was the recent low following the February 8 high at 3.9850. I’m looking for 4.48+. Both Palladium and Platinum corrected Friday following new recovery highs Thursday at 729 and 1740, respectively. - Sign up for a 30 Day Trial offer with Mark Leibovit's  VRTrader. More information at the end of this article.

Gold, Silver, Platinum & TSE Gold Index Charts & Technical Analysis below by Don Vialoux:

Gold gained $49.50 per ounce (2.87%) last week. Support is at 1,523.90. Resistance at $1,804.40 is being tested. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains slightly positive.

gold

Silver gained $2.14 per ounce (6.43%) last week. Intermediate trend changed from down to up on Friday after resistance at $35.70 was broken. Silver also broke above its 200 day moving average on Friday. Short term momentum indicators are overbought, but continue to trend higher. Strength relative to gold remains slightly positive. ‘Tis the season for silver to move higher!

silver

Platinum gained another $87.50 per ounce (5.37%) last week. Intermediate trend changed from down to neutral on a break above resistance at $1,676.40 per ounce. Platinum also broke above its 200 day moving averages last week. Short term momentum indicators are overbought, but continue to trend higher. Strength relative to gold remains positive. ‘Tis the season for platinum to move higher!

plat

The TSX Gold Index gained 16.47 points (4.46%) last week. Support is at 346.24 and resistance is at 395.64. Short term momentum indicators are trending down. Strength relative to gold remains negative.

metalsindex

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Gold & Precious Metals

Take Advantage ofl Metals and Mining Paradigm Shift - Exiting Easy And Economica

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Posted by Richard Mills: Ahead of the Herd

on Monday, 27 February 2012 06:11

"Markets are reasonably efficient, most of the time, at setting prices. Where they are most likely to fail, though, is in correctly anticipating and pricing big, revolutionary, ‘paradigm’ shifts — whether a rise of disruptive technologies or revolutionary changes in geopolitics. We are living through one now." - Crispin Odey

Ed Note: Be sure to read through to the conclusion at the bottom of this article:

Metals and Mining Paradigm Shift, Exiting Easy And Cheap

 

The massive growth of global prosperity over the last five centuries has been driven by easy and cheap access to critical materials:

  • Food
  • Fibre
  • Energy
  • Minerals

However since October 2001 the CRB BLS Spot Index has reached record levels.

commodities-25-1

The Spot Market Price Index is a measure of price movements of 22 basic commodities. The spot price is the price at which a commodity is selling for immediate delivery.

Commodity price rises could be caused by:

  • Raw materials shortages
  • Resource nationalism
  • Emerging market demand
  • Speculation
  • Intense weather pattern changes
  • War
  • Inflation
  • Hoarding
  • Low interest rates

Many people might assume that out of all the reasons given these three would be the main drivers:

  • War
  • Inflation
  • Emerging market demand

Inflation & War

Because central banks can increase the supply of money virtually at will, and do so, the value of all existing money decreases. The amount of goods and services remains the same, but now the amount of money chasing them has increased, this increased competition - more money (inflation) for the same amount of goods and services - causes prices to rise.

commodities-25-2

Governments and Central Banks want slowly rising prices. They pour money into the market to encourage growth so prices increase rather than decrease. Price decreases, or deflation (less money growth), slows economic activity - if people think prices are going to be lower next week they will not buy today, they will wait, this leads to a contraction in economic activity, something all governments fear.

Low interest rates play their part as well. When governments lower interest rates to stimulate borrowing businesses expand and consumers borrow to buy homes, cars and other goods. Demand for goods and services increase and so to do prices of commodities used in manufacturing.

Nations in Europe, and the U.S. will inflate (print more of) their currencies rather than cutting back spending or raising taxes. In a global race to worthless Asian economies will also have to print massive amounts of their currencies so they stay weaker then the US dollar. Asian exports have to be cheap for American consumers and American exports have to be more expensive then locally produced goods.

The buildup to war, and the actual running of a war is expensive. Governments will typically devalue their currencies by printing the money needed - very few people would ever consent to go to war if they were made to pay for it out of their pockets. How many Americans would consent to the trillions of dollars necessary for America's endless wars and vast military complex if the money required came directly off their paycheques? Government control over the money supply makes the business of war easy to finance because the financial support of its citizens is not needed.

Actual war does not seem to be one of the main causes of the decade long commodities price increase, rather it's the creation of the money necessary to go to war - government created inflation. In regards to recent wars, we haven't had a global conflict, and the resultant massive global destruction and rebuilding, since World War II. Wars today are localized affairs and do not bring about the massive use of commodities for rebuilding as a global conflict would.

Throughout history periods of rising money supply growth has coincided with rising commodity prices, and falling money supply growth coincided with periods of falling commodity prices.

A key driver of higher commodity prices, global government sponsored inflation (and quite likely continuing war inflation) are locked in place for years to come.

Developing Country Demand

China's plus nine percent annual growth, and other developing nations growth (averaging much less), are usually named as the biggest cause of price rises in the commodities markets. China has been growing at plus nine percent annually for well over two decades. Compounded that's a lot of growth, add in other developing countries growth then realize a considerable period of this growth was spent in the commodity bear market. The growth story is suddenly an overnight sensation, inflations effects start to percolate, wars are started and speculators play.

A mismatch between demand and supply is not a new problem in commodity markets. It can and does take years to find and develop new resources and bring the commodities to market. If war and emerging country demand cause prices to rise - shortage caused price spikes - an increase in production (after a war or ramping up for developing country demand) would satisfy increased demand. But it hasn't happened yet and it's been over a decade since commodity prices have gone on their spectacular run.

So far inflation would seem to be the driver for commodity price increases, everything else seems temporary or if permanent, such as developing country demand, fixed with an increase in production.

But

There is a major paradigm shift taking place in the mining industry and it concerns the supply, not the demand side we hear so much about.

Supply

Supply shortages always lead to high enough metal prices for further increases in production, thus supply will eventually exceed demand and prices will drop...right? Well maybe, maybe not. Margins (not price) motivates investment and if the cost of metal production is increasing margins might not be sustainable.

Lets state the obvious:

  • For over the last ten years supply has struggled to keep pace with demand
  • Metal supply is finite and subject to compounding demand from developing nations
  • Metal production is highly cyclical, with intermittent peaks and troughs which are closely linked to economic cycles - declining production has historically been driven by falling demand and prices, not by scarcity
  • Rates of production and amounts of reserves continually change in response to movements in markets and technological advances
  • Most mineral resources will not be exhausted in the near future
  • If energy was cheap and unlimited then recoverable resources would be unlimited

But

  • Discovery and development is increasingly becoming more challenging and expensive
  • Average ore grades are in decline for most minerals, yet production has increased dramatically
  • Our most important metals are suffering from declining ore quality and rising extraction (ore is a different and inferior chemical or structural composition) costs
  • Our prosperity has always been based on the fact that producing resources yielded more resources than it cost. However the cost of *energy is climbing, the amount used is climbing but the returns from energy expended is declining. Eventually the quantity of resources used in the extraction process will be 100% of what is produced
  • Most older existing mines, the foundation of our supply, have increasing costs with production rates stagnating or even declining
  • The rate of discovery is not keeping pace with the rate of depletion, let alone being higher

*Energy can be thought of as a proxy for labor, materials, energy and externalities - environmental, community impact etc.

Copper and Gold as Proxies

The metal content of copper ore has been falling since the mid 1990s. A miner now has to dig up an extra 50 percent of ore to get the same amount of copper. As grade drops the amount of rock that must be moved and processed per tonne of produced copper rises dramatically - all the while using more energy that costs several times more than it use to. With the lower grades of ores now being mined energy becomes more and more of a factor when considering economics.

commodities-25-3

commodities-25-4

Conclusion
Complicated more expensive extraction of metals from increasingly harder to find, lower grade ore bodies in almost inaccessible and hostile parts of the world is going to affect our lifestyles.

What changes are we going to have to make as nature - the finite supply of materials and energy constraints - dictates lifestyles and aspirations?

"We took the nice, simple, easy stuff first from Australia, we took it from the U.S., we went to South America. Now we have to go to the more remote places." Glencore CEO, Ivan Glasenberg in the Financial Times describing why his firm operates in the Congo and Zambia

We are experiencing a paradigm shift. If nothing else, right now at this point in history, we all have to realize that the mining industry is exiting "easy & cheap" and is starting the upward slope of chronic lower supply, permanently higher prices and higher risk.

We all have to agree that the planet's booming population and rising standards of living are going to put unprecedented demands on supply.

This should be on everyone's radar screen. Is it on yours?

If not, maybe it should be.

By Richard (Rick) Mills

www.aheadoftheherd.com

rick@aheadoftheherd.com

If you're interested in learning more about specific lithium juniors and the junior resource market in general please come and visit us at www.aheadoftheherd.com. Membership is free, no credit card or personal information is asked for.

Copyright © 2012 Richard (Rick) Mills - All Rights Reserved

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


© 2005-2012 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.



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Gold & Precious Metals

Gold Stocks Nearing the End of the Wall of Worry Stage

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Posted by Jordan Roy-Byrne - TheDailyGold.com

on Friday, 24 February 2012 07:00

"Gold stocks are following a typical bull market which evolves in three stages: the stealth phase, the wall of worry phase, then the bubble or public phase." "Momentum has subdued for almost two years while the gold stocks have not had a rip roaring breakout to new highs since early 2006!" "We are essentially looking at a potential breakout from a multi-year base."

feb24edgdx

....read more HERE



 



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Gold & Precious Metals

Precious Metals Monitor: Both Gold & Platinum to Break $1900, But One Has More Upside

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Posted by Hard Assets Investor

on Thursday, 23 February 2012 06:02

We offer our latest analysis on the precious metals market.

After two weeks of consolidation, precious metals finally awoke from their slumber over the past few days. Gold, silver and palladium spiked to the top of their recent ranges, while platinum broke out to fresh multi-month highs.

A strike at the world’s largest platinum mine, Rustenburg in South Africa, has led to the loss of more than 80,000 troy ounces of the metal over the past month. The mine’s operator, Impala Platinum, said resumption of full production will take weeks, at least. 

Analysts warn that the situation could get uglier if labor unrest spreads to other companies.

South Africa’s total output was 4,775,000 troy ounces in 2011, which represented 75 percent of global output. 

Prices for platinum have surged in recent sessions, now trading at a five-month high. The metal is quickly closing in on parity with gold prices. 

platinumtechnicalchart20120222

After the recent breakout, prices have a clear path toward the multi-year high above $1900, leaving substantial upside from here.

While gold also has been performing well, the gold/platinum ratio has been quickly falling amid platinum’s outperformance. It was last trading near 1.02 after peaking above 1.15 late last year.

Over the past three decades, the ratio has been significantly below 1. Thus, continued platinum outperformance over gold would not be surprising as the ratio declines further.

goldplatinumratio20120222

Even so, the outlook for gold is bullish as well. The yellow metal moved up to the top of its recent range this past week and looks poised to move toward the next level of resistance at $1800


GOLD


.....read more on Gold, Silver, Palladium, US Dollar and view 25 charts HERE



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