Sorry the transfer won't work but here is the complete report.
It is an exciting time being at the forefront of a new trend when most investors
don't know what the trend is related to.
Of course we refer to the uptrend in Precious Metals and mainly the Gold Market.
The XAU or the Philadelphia Gold Index shows the bottoms reached over the past
five months, with the March low of 57 not being touched by the July low, even
though the price of gold ( POG ) reached a lower low of $253.
The POG goes to a high of $290 reached just prior to the announcement of the
BOE sale of 415 tonnes and the XAU's next high of 65 just prior to the
subsequent first auction of 25 tonnes, and now a new trend, taking in the
latest high of 69 has been established. This has coincided with the increase in
the lease rate from under 2% to the latest highs that we now see of up to 4%.
This is an amazing increase of 200% and it cannot be borne lightly by those
leasing. We see in fact the near term leasing rates of one to three months very
high while the six month rate has jumped over 300% to 4.2% and the one year rate
going to just under 4%.
This means that, along with the TED spread and the Long Bond increases ( LB to
6.2% ) the lenders are seeing a lot more risk out there. We may even see
backwardation in the gold market. This would be unprecedented. Unless something
extraordinary happens, it also means the POG is going up, most likely to at
least $285.
We have commented earlier this year that the Gold Stocks have been leading the
POG. This is evident in looking at Barrick, which has advanced to US$20 from $16
this past three months. Barrick and Newmont are also mimicking almost exactly,
the XAU. We also see Homestake and Placer have reached a bottom and have started
to move up, and while not following the XAU as closely as Barrick and Newmont,
they are certainly leading POG also.
One surprise is DROOY, Durban Deep that trades as an ADR on NY. It is only at
US$1.35 and looks as if it has made a good base with a low of US$1.20., this
from a 5 month high of $2.25.
So there is a lot of room in some of the senior golds to advance, and advance
they will. the lower price seniors such as Kinross, at CDN$3.25 with an upside
of CDN$2.00 to CDN$5.25 and TVX at CDN$1.25 with an upside of CDN$2.50 to
CDN$3.75 give better leverage.
All in all we expect some big movements before the end of the year and many will
be in these companies too late and will miss the big moves.
Aug 17 1999
Today Gold moved solidly over the $260 barrier and closed at $261. ( Currently
$261.55 in Europe trading ) The XAU is also ready to break the all important 70
barrier. This bodes well for the gold market and gold stocks especially.
There are reports out of Sydney that over the last few months there have
been gold sales of up to 40 million troy ounces, including a sale by a non
ecu cb of 10 million troy ounces. The report confirms a sale of 8 - million
troy ounces from a non ecu cb.
These sales, if true, represent 50% of last years annual mined gold production
and
would go a long way to explaining the dramatic collapse in the gold price
since March. This means that 1,284 tonnes of physical gold has been sold
into the market.
Two weeks ago we stated the gold price slump was over and it was time to
accumulate the gold stocks. The reason for this, of course, is the leverage
gold stocks have over the precious metal itself. During this past two years
we have seen an enormous effort by mining companies to reduce costs. These
efforts include closing unprofitable mines and mergers.
As an example of the type of advances some of these companies can make, we
can consider a company that has reduced costs from an average US$240 troy
ounce, to US220 a troy ounce. These costs are total costs, ( mining and
overhead ) Now the gross profit at US$260oz is US$40 or 15%. Now as the
price moves up towards out projected US$285 this next two months or so, let
us look at the change to gross profit. Assuming the costs stay at US$220,
and there is no reason to believe it will go higher, the gross changes from
$40 to $65 or 33%. This represents over 100% increase in the gross profit.
This is the kind of leverage that makes gold stocks go up swiftly. We have
commented that some of the stocks have advanced by up to 20% already, even in
this short period of time and we expect them to make at least another 20%
before the end of the year. Now while this is not the same 1000% gains that
many of the internet stocks have made, we believe these gains will be not be
a flash in the pan.
Next we see what is happening in the Seniors. While they have come a little off
their recent highs they are still looking to go higher. These companies have
lots of gain left in them and any move of gold over US$285 will push them at
least 50% higher than they are currently.
What about Wayside? wayside-gold.com They are still sitting in the
doldrums at CDN$0.09 today, half of our profile. We expect this to change within
the next two to three weeks as more results come out from the current round of
drilling.
They have been consistently intercepting ore in every hole and we expect some
sort of news to be released on this within this time. There is one thing that
is common among all the juniors. They have stopped spending and stopped
drilling. Well almost all of them Wayside has not stopped spending and not
stopped drilling. They are very active in pursuing their mine application permit
and proving up the property. As we have suggested before, when the Seniors start
looking for new reserves, they will be looking at those juniors with drill
inferred or drill proven resources. Because they have decreased their own
exploration spending to a pittance it will be these juniors that are still
proving up that will be the beneficiaries.
Wayside has indictaed a resource of over 1 million ounces on the Cariboo open
pit prospect and they are drilling the BC vein to prove up another 600,00
possible ounces. This makes for a tempting takeover target. Kinross hold
approximately 5% of Wayside and we know Homestake has been sniffing around. We
also hear there is another major taking a look. Now Wayside has consolidated all
the surrounding property, we expect this company to become a big winner. We
realize it has been a year since we profiled it, but sometimes good things take
time to develop and at CDN$0.09, represents a bargain.
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