HOW REAL IS THE METALS RALLY?
SAN FRANCISCO (CBS.MW) -- The steady rise of the world's gold-mining
shares to new highs is bringing more and more miners to the cash trough.
In some cases, as with Bema Gold's $60 million Canadian "bought deal"
this week, the raising of additional capital on the back of rising
shares is fortunate and deserved. Bema is laying the early groundwork
for what could become one of the world's lowest-cost, productive gold
and silver mines, in eastern Russia. See: Russia site impresses
hard-rock crowd.
cbs.marketwatch.com
"The fact this was a bought deal, and there have been more than a few
this month, shows that the banks are willing to take the risk, that
there's big demand out there," Robert Bishop of Gold Mining Stock Report
told me. Bought deals are ones in which a bank, investment firm or group
of underwriters agrees to take all of the proposed new shares from a
company seeking to raise money, then turns around and sells the shares
to investors at a slight mark-up.
In other cases, such as with small mining companies worth $50 million
or less that trade in Canada, Sydney or London's alternative investment
market, the ability to raise much-needed cash fits the old saying on
Wall Street: You raise money not when you need it, but when you can.
Right now, miners -- and not just of gold, but silver, copper, platinum
and palladium, even diamonds -- are finding an increased appetite for
risk among professional investors. See: Miners rush to finance
ventures.
cbs.marketwatch.com
We examined this increased appetite, and how it can benefit
individuals, in subscription service The Calandra Report
(http://cbs.marketwatch.com/commerce/theCalandraReport.asp?siteid=mktw&dist=hfdtab&pname=tcr)
in early June.
By some estimates, Canadian corporations, which comprise the bulk of
the riskiest bullion-exploration companies, have raised just more than 1
billion Canadian dollars this year, and much of the capital has flowed
into their coffers this summer. Companies such as Kinross Gold (KGC) and
Eldorado Gold (ELD) are issuing new shares at the risk of angering
existing shareholders, who face dilution.
Yet thus far, few if any miners -- those that actually produce metals
and those just exploring for new deposits -- have been shut out of the
financing window. Fueling the cash spigot through the issuance of new
shares is the slow but steady rise of commodity prices, as witnessed by
the Commodity Research Bureau's 2 percent gain since late July. See the
CRB chart.
(http://cbs.marketwatch.com/tools/quotes/intchart.asp?symb=XX:1864498&sid=125172&freq=1&time=3mo&siteid=mktw)
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Platinum, silver, copper and other metals, precious and base, are
holding recent gains, some incremental as is the case with copper and
gold, and others significant, as is the case with platinum, which
crossed $700 an ounce Wednesday.
Investment firms, and asset managers, are excited about exploration
prospects. In the case of gold, which is among the riskiest propositions
for investors looking to back a winning miner, the world's stock-market
investors increasingly are placing their hopeful bets.
Shares of the gold miners in many stock markets are at or near their
highest points in six years. See: FTSE Gold Mines Index chart.
(http://cbs.marketwatch.com/tools/quotes/intchart.asp?symb=XX%3A1808281&siteid=mktw&time=9&freq=1&comp=&compidx=aaaaa%7E0&compind=&uf=0&ma=&maval=&lf=1&lf2=&lf3=&type=2&size=1&txtstyle=&style=&submitted=true&intflavor=basic&origurl=%2Ftools%2Fquot)
Also, base-metal producers are the third-best gainer this summer in the
U.S. stock market.
Even more telling is the monstrous rises in shares of exploration
companies that are off the radar screens of most individual investors,
and even many professional investors who, if they are forced to buy a
gold-mining stock, will choose the biggies, like Newmont Mining (NEM).
Indeed, Newmont is one of the few miners this summer not to have taken
advantage of the financing window to raise cash through the sale of
shares. Newmont, world's largest gold miner and based in Toronto and
Denver, has an approximate $1 billion shelf registration on file with
stock-market regulators.
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Nevsun Resources (NSU), a Canadian company with a vast bullion project
in Eritrea, could prove to be 90 percent owner of the world's most
spectacular gold discovery in the modern age, and the company's shares
are starting to reflect that promise by hitting all-time highs this
week.
Yet even with the 40 percent gain in the past 10 weeks on the Toronto
Stock Exchange, Nevsun's $C260 million market worth reflects but a
fraction of the promise of the Eritrea discovery, and of another one in
Mali, also in Africa.
"I don't imagine there are many gold and natural-resource funds that
want to go into the African mining season (which begins around now)
without owning Nevsun," says Bishop, who was the first bullion analyst
to recommend Nevsun shares several years ago, when the company's
geological work on the Bisha discovery in Eritrea was just getting under
way.
Even further off the radar screen are shares of microscopic companies
with little track record but enough of a "story" that they have enticed
investors, and even longtime mining analysts such as Bishop, who has
been following such companies for more than 20 years.
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One of them, Sunridge Gold (SGC), has seen its shares rise threefold in
a few short weeks, with no news to account for the gain except for the
generally favorable climate for mining stocks. Sunridge is effectively a
"shell company," the term for a company that took over another company's
name and corporate assets with the purpose of either raising money or
trading publicly. The company has a Canadian market worth of $10
million, even with its astounding gains of late, and is exploring for
gold in the lush Red Lake mining district of Ontario.
Bishop says he considers tiny Sunridge "son of Nevsun" because of the
company's executive pedigree. Sunridge's CEO, Craig Angus, is also the
chairman of Nevsun Resources. Sunridge's head of corporate development,
Don Halliday, is also an executive at Nevsun and worked for six years at
Bema Gold.
"I think you have to expect something reasonably important from a
company with executives who are behind what could prove to be one of the
world's biggest gold deposits," says Bishop, who owns the shares.
_______________________________________________________________________
THE CALANDRA REPORT
Out this week: the latest issue of subscription service The Calandra
Report
(http://cbs.marketwatch.com/commerce/theCalandraReport.asp?siteid=mktw&dist=hfdtab&pname=tcr).
See:
The Calandra Report.
(http://cbs.marketwatch.com/commerce/theCalandraReport.asp?siteid=mktw&dist=hfdtab&pname=tcr)
_______________________________________________________________________
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