Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Amazon AMZN Stock PRIMEDAY SALE! Trend Analysis - 20th Apr 21
Stock Market Sentiment Speaks: You May Not Believe My 2021 Targets - 20th Apr 21
Stock Market Phase Two Projection - 20th Apr 21
Are Precious Metals & Miners Starting A New Longer-Term Bullish Trend? - 20th Apr 21
Inflation: First the Gain, Then the Pain… - 20th Apr 21
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Gold Sleeper Trend You Need to Know About

Commodities / Gold and Silver 2010 Dec 15, 2010 - 02:58 AM GMT

By: Casey_Research

Commodities

Best Financial Markets Analysis ArticleLouis James, Senior Editor, Casey’s International Speculator writes: In the midst of any long-term trend, like the secular bull market for metals we’re in now, there will be trends within the trends. You could think of them as being like eddies, whorls, and side-channels in a great torrent. We see one such developing that could benefit junior gold stock investors in the near- to mid-term.


Here’s the basic idea: metals prices, especially precious metals prices, have been increasing at a faster rate than mining costs. Gold and silver are up 75.9% and 61.7% respectively over the last three years, while the cost of things like power, equipment, and wages have not risen as much (-1.0% for oil, and 5.1% for wages, as examples). Obviously, this is good for producing companies, and we have seen the market’s reaction in their share prices.

What may not be so obvious is that companies with major, low-grade discoveries in hand that are preparing economic studies on their projects may enjoy a particular window of opportunity. Sometimes 300-day trailing averages are used to project prices used in estimating mining project economics, sometimes 3-year averages are used. In either case, the top line is going to look great, especially since many costs have risen little or even gone down as a result of the crash of 2008.

Here at Casey Research, we’re predicting more economic turmoil ahead, as the global economy exits the eye of the storm. As that happens, many costs could drop substantially, with economic activity in general. That would hurt the top line for base metal projects (copper, nickel, etc.), but would probably drive it even higher for gold projects (and silver ones that don’t rely too heavily on base metal credits).

For instance, Osisko Mining (T.OSK), one of the big winners among our recent speculations was able to take advantage of the crash of 2008 to greatly improve its cost projections, and even to order big-ticket items at lower prices and with shorter wait periods. This added wind in the company’s sails and helped them to wow the market and raise the capital needed to build their mine with no hedging and little debt.

Of course, margins will look better for all projects studied during a period when revenues are rising faster than costs, but that improvement will be an added benefit for high-margin operations, whereas it could be the difference between life and death for lower-margin operations.

In other words, known large, low-grade deposits are being discounted because the grades make their economic viability questionable – and that discount will seem overdone while mining margins are unusually high.

For example, a company called Geologix Explorations (T.GIX) has a large but low-grade deposit in Mexico. The project has been around for a while, not getting much love from mine analysts – myself included – because the low grade didn’t seem to promise robust economics. However, the company reported a preliminary economic assessment recently, with a startling 28% internal rate of return (IRR) at $900 gold, and a terrific 49% IRR at $1,200 gold. The net present value (NPV) -5% figure came in at $258 million at $900 gold ($555 million at $1,200 gold), which was about 650% of the company’s market capitalization at the time. The market responded, and the company’s stock chart now looks like a hockey stick.

Now, over the life of a large mine, which can be 15, 20, 30, or more years, I doubt margins like those that can be reported at this time will be maintained. Does that make IRRs and NPVs published over the next year or two lies? Not necessarily; if the economics are good enough, the project might be able to pay back the capital expenditures needed to build the mine while margins are high. After that, even a low-grade operation might be able to continue operating profitably for decades.

And it must be said that whether or not a low-grade projects actually becomes a mine, its owner’s share price may still soar, if the company reports credible, robust, and substantial economics.

In today’s frothy market, in which the obvious winners are all getting huge premiums from the market, it’s hard to find anything worthwhile selling cheap. Large projects trading at discounts because of their low grades – but with chances of delivering exceptionally strong numbers while this window of opportunity is open – are just what the doctor ordered. Be careful, however, to do your due diligence, as not all low-grade projects will have what it takes, even with higher metals prices.

[“Due diligence” is Louis James middle name. For years, has been picking the best small-cap metals juniors as the Metals Strategist at Casey Research… beating the S&P 500 by more than 8 times and physical gold by 3 times for his subscribers. For a very limited time, you can save $300 on the annual subscription fee for Casey’s International Speculator– plus receive Casey’s Energy Report FREE for a year! To learn more, click here now.]

© 2010 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules