"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Friday, March 3, 2017

Gold Bar Project on Track, McEwen Rocks; Gold Bounce Next Week?

Gold Bar Mine
Eureka, Nevada (McEwen Mining photo, April 2011)

Weekly Summary updated for 3/03/17 AM (something new!)

(click on table for larger size)

McEwen Mining (MUX) $3.29 per share (Friday close)

General Moly (GMO) $0.536 per share (Friday close); Moly oxide (LME) $6.92 per pound

Friday, March 3, 2017 AM 

Morning Miners!

Gold got clobbered this week but don't despair...

My input to the Weekly Kitco Gold Survey:

My vote is up. Target gold price $1,240 per ounce . Target Silver price $18.0 per ounce.

A horrible week's end for gold with a 2.5% drop in price from last Friday and a loss of value across a broad set of assets and currencies. A bullish Monday intraday high of $1,264.9 per ounce has fallen to today's $1,225.7 low. Gold is presently trading at $1,228.0.

Bearish factors include the return of a "risk-on" attitude after the President Trump speech to Congress evidenced by new stock market highs, the U.S. dollar scoring a 6-week peak and market positioning for an expected rate hike announcement by the Federal Reserve next week.

However, all the negativity surrounding the yellow metal is reminiscent of the early stages of the presidential transition period. I will take a contrarian view that today's softness in the U.S. dollar and pause in domestic stocks presages another turn of fortune for gold. I wager the Fed will not raise rates because the details and timing of the new administration infrastructure plan remain unclear, and the drumbeat of upcoming elections in Europe is growing louder; fears of a French FN victory and the potential impact to European stability provide a solid floor for gold price above $1,200.

My vote is therefore up with a target price of $1,240 per ounce.

Gold did regain some ground relative to silver this week after the gold-to-silver ratio broke a trend line of higher lows stretching back to April 2011 [see Chart to Watch below]. It is likely that the yellow metal will also regain this week's losses to copper, oil and the broader commodity index as well as currencies euro and yen. To the later, I offer this poem:

The shadow cast by Marine Le Pen 
Will bring shine to gold in euro, yen

Additional things to watch:

The fate of the Chinese yuan remains a key tell for gold and copper - a material drop in valuation could boost gold and depress copper prices. Aggressive liquidity tightening by the People's Bank of China (PBOC) has eased, stabilizing the yuan below 7 USD/CNY. However, defending their currency has brought China foreign reserves to a 6-year low. Now that the Lunar New Year holiday is over, we'll see if this vigorous defense is sustainable. This morning, the yuan is steady (1-month volatility* is a low paint-drying 0.15%) at 6.8953 USD/CNY. With some better-than-expected economic data coming from the dragon, so far so good.

Have a good weekend!

* by comparison the euro & yen 1-month volatilites are roughly 0.8%

Gold Bar Project on Track, McEwen Rocks

McEwen Mining released their quarterly and year end report yesterday. The ole Colonel listened to the teleconference at 8:00 a.m. Eureka time:

McEwen Mining Reports 2016 Full Year and Q4 Results (Press Release, 03/02/2017)

McEwen had an excellent 2016 producing 145,539 gold equivalent ounces and closed the year with a solid debt-free balance sheet. As described in the press release by Chairman and Chief Owner Rob McEwen:

On many important fronts, 2016 was a good year for McEwen Mining. We generated significantly higher cash flow and earnings per share despite producing 6% fewer ounces. We grew our treasury by 84% without resorting to equity financing, or sale of metal streams, or royalties, or taking on debt. Looking forward into 2017, our next chapter of growth begins. Pending government approval we are ready to start construction in Nevada at our Gold Bar deposit late this year. In Mexico, we are reconfiguring our El Gallo Silver project to improve its economics. In addition, we are testing new exploration targets. In Argentina, our Los Azules project is getting more attention as a result of the improving copper price. Finally, when completed our proposed friendly acquisition of Lexam VG Gold will enhance our development and production pipeline with several high grade gold projects in Timmins, Canada, one of the world’s largest gold districts.

For Eureka folks, the re-opening of the Gold Bar Mine north of town promises to be an exciting event for later this year. Old timers remember the days when the mine was last operated by Atlas Mining in the late-1980s to early-1990s. According to McEwen, there is still a lot of gold in them thar hills with an expected 7-year mine life.

Here's the latest schedule:

  1. The Draft Environmental Impact Statement (DEIS) will be published by BLM March 3, 2017* 
  2. A 45-day public comment period ends April 17, 2017
  3. The BLM & McEwen Mining will address public comments prior to the approval of the Final EIS and awarding of the Record of Decision (ROD)
  4. Assuming a favorable decision, initial stage mine construction will commence during the fourth quarter of this year
*Draft EIS (Mt.Lewis Field Office), also the Elko Daily Free Press column: BLM asks public to comment on proposed gold mine in Eureka County (EDFP, 3/6/2017)

McEwen has budgeted expenditures of $38.7 million for 2017 ($1.5 million for permitting and 37.2 million for construction).

Rob McEwen concluded the teleconference with an upbeat, "Gold is money. Gold is going higher and so is silver!"

Amen. The best of luck to the McEwen team.

Gold Bar Mine
Eureka, Nevada (McEwen Mining photo, April 2011)

Gold Price Outlook 2017

Gold started the year nicely and should remain in my newly revised range of $1,180 to $1,320 per ounce*. Average gold price for 2017 should print above $1,200 per ounce.

An important gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of 2015 and reversed to a bullish trend, peaking February 11, 2016. It bottomed again December 20, 2016 but has been trending higher since. Confirming a double-bottom in the coming months would be a significant positive for the lustrous metal.

Gold has gained ground on the embattled euro and yen. Post-election, gold in euro and yen terms are converging and safely above 2013 lows [chart below] and are both above pre-election levels. Additionally, gold ratios relative to copper and oil are stabilizing near historically less extreme levels which is a healthy sign. Geo-political events and/or a bump in inflation expectations could restore glitter to gold in 2017.

Gold near my low-range of $1,180 per ounce-level is a tempting "buy."

(please do your own research, markets can turn on you faster than a feral cat!)

*My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper

Click on the image for a larger size:

Gold in euro & yen terms regaining value post-election

Chart to Watch

Here's a new chart to watch. Click on the image for a larger size:

Gold-to-Silver Ratio (updated 3/03/2017) 

March 1 the closely watched gold-to-silver ratio (GSR) broke a key higher-low trend line that stretches all the way back to April, 2011. The GSR fell below 68 (ounces of silver per ounce of gold) to 67.4 - a lower ratio favors silver. Although the GSR has inched back above 68 this morning, broken long term trend lines should not be ignored. If gold rallies in the coming weeks, silver could move much higher. The 3-month silver beta is 1.3 and bullishly rising (this implies a 1% change in gold price yields, on average, a 1.3% gain in silver). Restoring a more typical beta of 2.0 would be a very bullish indicator.


Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted

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