John,
Thanks. Going to do so. Have worked all day to get my Midas out. Hope you like it. Have to catch up after my trip to Mexico.
Midas du Metropole
"The Gold Market and Precious Metals Commentary"
Q. Little Bear is in the 'doghouse'. Which table do you think he'd be under ?
A. Gold, of course. But he is hopeful.
February 25, 1999 - Spot Gold $287.50 unchanged - Spot Silver $5.57 up 17 cents
Technicals -
The bears are huffing and puffing but cannot blow the house down. Gold continues to trade with relative calm compared to the white metals and compared to the financial markets. Midas followers know our opinion on that one for the time being. Not much has changed technically as the specs are still mega short as the Comex open interest shows the open interest is climbing and now stands at 193,370 contracts.
The bullish consensus remains a bullish 36%, while the gold lease rates are steady and soft. The long term moving averages are right above the market and The Guns of Navarone resistance remains rock solid at $290 spot gold. We continue to look for a big pop up in the gold market.
The silver market is all over the place and very volatile. Unlike the old days, silver sell offs are short lived. Mr. Strong Hand is giving the shorts all they can handle. The one month silver lease rate has dropped from a little over 14% to 8%, but 8% is still very high and shows a very tight silver supply situation. Of significant importance is the Indian silver premiums rose on the recent price setback and are back to a very high 11.5% which shows very strong silver demand in that country. Midas is looking for new highs in silver in the near future and we still believe a course has been set for $9.78 silver by year end.
Fundamentals -
This is the email that Peter Fava, Chairman of the London Bullion Market Association, sent to the Café. Susan Capanno of the LBMA took out a trial membership about 10 days earlier. I know they were checking in because she misplaced her user name and requested that I send it to her.
Subj: Le Metropole Café
Date: 2/20/99 5:45:44 PM !!!First Boot!!!
From: P.Fava@btinternet.com (Peter Fava)
To: webmaster@lemetropolecafe.com
I am Chairman of the London Bullion Market Association and I have never read such ill-informed comment on any subject in my life as the John Hathaway diatribe.
Please stop E-mailing me this rubbish and read a few of my past speeches made to International audiences, such as the Financial Times Conference and the First Russian Gold Conference in Moscow last year.
This is after Republic Bank refused to let GATA open an account because our name was GATA, which stands for gold anti-trust action.
Does it strike you a bit odd that the bullion community would be so upset about an action committee that only wants more transparency in the gold market, that only asks that the price of gold be traded freely, that only wants to investigate those that we believe have violated US anti-trust law?
John Hathway's piece entitled, "Bullion Dealers: Spin Meisters Of The Gold Market" was one of the best written and right on commentaries I have ever read. It was brilliant. To receive a reaction such as this suggests that John has really struck a nerve. Bravo John, Bravo. John Hathaway is a Senior Portfolio Manager at Tocqueville Asset Management L.P and portfolio manager of The Toqueville Gold Fund. His commentary can be read at the Dos Passos Table at lemetropolecafe.com.
Potpourri and the Gold Shares
The performance in the XAU has been dismal as the powerful Wall Street houses put out bearish gold forecasts to "Spin Meister" their short borrowed gold positions. The response by portfolio managers is to stay away from the gold shares. The XAU closed today at 61.39 up .36
This is what Midas means when he refers to a Hathaway "Spin Meister" and as far as I am concerned, the following comment by J.P. Morgan precious metals analyst, Kevin Crisp, is one of the biggest crocks I have heard in a long time.
There is a very large natural supply/demand deficit of some 1600 tonnes ( 4130 tonnes of demand over 2529 tonnes of mine supply ). That deficit has to be met by gold supply. The "Spin Meisters" must be coming desperate to explain that it is not coming from a growing borrowed gold position. As you know Midas and GATA believe J.P. Morgan is one of those that has a huge gold short position on. Here is what Kevin Crisp, had to say about why the price of gold is not surging.
"The answer is that sales from a huge private stockpile held by disenchanted former gold bugs around the world are keeping a lid on the price…..the stockpile, which was built up during the decades when gold was fashionable, is a depressing influence on price just as important as central bank inventories".
Ludicrous, we say and this is a clear indication that they are truly running out of bearish ammunition to throw at the gold market. We contrast that statement to the well informed Ashanti Gold Fields Company Limited, the African gold producer, that is now telling our sources they expect the gold lease rates to rise later in the year due to surging Y2K demand.
I received a note today from Café member, Linda North, who is very knowledgeable about the gold market and handles investor relations in Scottsdale, Arizona for a very fine gold company, Ecuadorian Minerals Corporation. Midas thanks her for taking the time to send this to me in the event I had missed it while being away in Mexico. If in the chance, Alan Greenspan is aware of GATA, let us hope it will be a growing one.
Dear Bill,
In case you haven't already seen this excerpt from Greenspan's Q & A after his testimony before the House Banking Committee on Wednesday, I have attached it.
It looks like he may be aware of GATA and the questions being posed.
Wednesday February 24, 6:56 pm Eastern Time
GREENSPAN Q&A: PART X - Gold,
NEW YORK, Feb 24 (Reuters) - Following are excerpts from the question-and-answer session after the second leg of Federal Reserve Chairman Alan Greenspan's semiannual Humphrey-Hawkins testimony before the House Banking Committee on Wednesday:
REP PAUL:''Is the price of gold still valuable as an indicator and a monetary tool as in the 1960s and does the government still buy and sell gold?''
GREENSPAN: "The price of gold has over the decades been a generally usable indicator of what the level of inflation has been. Obviously, during the period of the active gold standard, which was really prior to World War I, the price level locked itself into the gold price and by definition it did.
The issue of buying and selling gold as the price changes is indeed exactly what we used to do. There used to be a thing called the gold points, which was the price of gold plus transportation cost differentials. We, the U.S. Treasury, stood ready to buy and sell gold at a spread ... Needless to say, since we've gone off the gold standard and especially since 1973, there's been a general float of the dollar vis a vis gold, which means the gold price is like another commodity's price. Nonetheless, like a lot of commodities prices, and perhaps better than most, it has been useful in my judgment in trying to get some sense of what inflationary pressures have evolved in this country."
REP PAUL: ''Even if central banks are willing to sell gold, what is their motivation?''
GREENSPAN: ''They are not doing it to fix the gold price. They are looking to sell stock of gold when they've sold on the grounds that 1) it costs to store the gold and 2) it didn't obtain any interest. So, they perceived it to be a poor asset to hold. The purpose was not to manipulate the price of gold.''
Copyright © 1999 Reuters Limited. All rights reserved
Regards,
Linda North
Platt's gold comment: Traders, however, were at a loss as to what could have cushioned a possible fall after the New York options expiry, " I don't know what's held gold up, we certainly have not seen any support here", said one UK trader. Midas du Metropole sources say Goldman Sachs has been the big buyer the past few days, taking back some of the shorts they put out on the rally.
Mr. Platinum, John Brimelow, has a hot hand. He has correctly called the move in platinum and palladium for some time now. Today, Bloomberg, reported that "China, the world's third-biggest user of platinum jewelry, could buy 20% more of the white metal this year, as higher income earners develop a taste for the product". That is what John has been telling you and one of the reasons he was so bullish.
John also noted today that platinum has been acting very rationally. When it rallies the lease rates go up, demand slows a bit, some metal shows up and the price sets back. According to John, the South African share performance of late ( they are making new highs ), is an indication that there is more platinum fireworks to come. He also says it is only a matter of time before the palladium party begins in earnest again as Russian supply is in serious doubt.
Indiana Jones and the Mine of Boom
The trip to Torreon, Mexico to the silver mines of ECU Gold Mining was a long one, absorbing the good part of a day. Mexico City was hopping and was my first stop in Mexico, but when I arrived in Torreon ( two hours north of Mexico City and hometown of giant silver producer, Penolas ) there was only one other plane ( a small one ) that could be seen on the runway. That was when I first felt like this was some sort of Indiana Jones sort of thing to do.
There was decent activity in Torreon, but it surely had the feel of a bygone day, just as mining represents an activity that has not changed all that much in hundreds of years. My first visual on taking a look see around outside the hotel was to see a burro driven cart sauntering by and a fun looking pack of dogs following each other in a single line while looking to go play.
On the first day of my stay we went to see one of ECU's secondary mines ( San Diego ) which is not in production yet. It is now a resource of about a million tonnes of ore and will come on stream in the future. We will never forget that little excursion. It was not like the way to San Jose. Bumpiest ride any of us ever took. We had already ridden for some time to reach the area and now had been on this bumpy path for 1 1/2 hours. Had not seen an animal, much less a person during that time. As we went through a small tunnel in a mountain to reach the mine, low and behold, there was a parked cab driver. Just sitting there as if waiting for a fare. We could not believe our eyes. Had he taken a wrong turn in Mexico City? Had he been there for years waiting for a fare? A big belly laugh for all.
The next day our cast of characters was assembled to visit ECU's Valardena underground silver mine. This cast included:
Jim Culver- The Executive Director of IIG ( The International Investment Group ). Jim was formerly in charge of Merrill Lynch's gold operations for 18 years. IIG loaned ECU $2 million in December to go into commercial production.
Patrick Paird- President of Global Equities in Paris, France. His firm is the biggest independent brokerage firm in France and they are a major investor in ECU. Patrick is well versed about the gold and silver mining business having been a Director of Burns Frye ( the forerunner to Nesbitt Burns ).
Merlin Bingham- President of Medalline Mining Company. Hailing out of Coeur D' Alene, Idaho, Merlin has a significant silver project in Mexico himself. Merlin's claim to fame is that he discovered the biggest massive sulfide in the world called Greens Creek in the Yukon. Merlin is a Café member
David Morgan- For 10 years, David was the highly regarded gold mining analyst for Lehman Brothers in London. Prior to that he did project and investment evaluations for Consolidated Gold Fields. David is also a Café member and will be writing an institutional type of analysis of ECU which we hope to have up at the Dos Passos Table.
Peter Pojtos- The former President of Greenstone Resources and now an Independent Director of Mining Companies. Peter hails from Lakewood, Colorado and knows the mining business cold.
Then there was my friend, Blake Joyner, a gold and silver broker for First Albany Securities in Chicago, Andre St-Michel, President of ECU, and myself.
To properly go into an underground mine, it is important to have the right gear. Thus, we were outfitted. We looked like a bunch of astronauts as we were issued bright blue, shiny body suits. Then came the white miner's cap with miner's lamp, a heavy belt that supported a heavy battery for the lamp, heavy thick gloves, boots with a steel toe, and surgical masks to keep dust inhalation to a minimum.
Looking like we were ready for another planet, we started our trek to deep into the mountain. Just after we entered the tunnel, we passed a lit candle which highlighted a statue of the miner's patron Saint, Santa Barbara. The tunnel followed a set of rail car tracks that were laid to transport the ore tonnage out of the mountain by grandby cars. We were to go horizontally one mile into the mountain. At this stage of the game, compressed air minimized air problems, but I kept hitting my head on rock outcrops protruding from the ceiling of the tunnel ( thank God for the miner's cap ). Along this route I saw and learned about-access areas ( vertical shafts ), drifts ( horizontal access areas ), and stopes ( the area to be mined ).
We finally reached a huge hoist that operated the skip that was to take us down in the bowels of the mine. This skip ( an open platform of sorts ) was to take us down 100 meters so that we could see the various mining levels. It was a bit intimidating to say the least. All I could see was a black hole and to get on the skip you had to swing around the platform ( above the black hole ) and hold on. Yikes!! There are probably still indentations on the rail of the platform which I clung onto for dear life. Down we went.
The hoist operator sent us down in good order. The need for great intensity as to every step taken did not let up, however. Arriving just meant that we could climb down rickety wooden ladders that surrounded more crevices. This mine is a high grade narrow vein one and the veins twist and turn all over the place. Andre wanted us to see all of them. The miners were working in various stopes and access was difficult. The passage ways were only 12" wide at some points and you had to turn sideways to pass on. Some of the party stopped right there as then the rest of us had to pass through spots on all fours and very close to the ground. When I tried to go up a slope, I would fall back and rocks and dirt would follow. My face was now brown, not white.
Was I beginning to develop a healthy respect for the miners! This was truly tough work and obviously, very dangerous. One careless mistake could end it all. There, they were drilling away and loading the ore to be taken out of the mountain. In some respects, just like the conquistadors did hundreds of years ago and in this same area, maybe the same mine. The miners were preparing the dynamite to blast away after we left and the air in this section had deteriorated big time. As water was being used in the mining process here, we were now wading through mud puddles.
There were more precarious moments. I could go on for hours, but suffice to say, I hope to have conveyed to you the exhilaration and trepidation of this experience. Those of us that had never been in an underground mine before were in awe of the miners and the potential danger that they faced every day. It is incredibly hard work and a throwback to the days of another era. Funny enough, they have been mining silver in the Durango area for 500 years and have just scratched the surface. That is why well known Mexican silver producers, IMMSA and Penolas, have done so well in Mexico.
Upon finally surfacing from the silver mine, we saintered down from our 6,000 feet altitude for a hearty lunch at ECU's ore processing mill. This impressive structure is processing about 450 tonnes a day at the moment and should hit a stride of 600 tonnes per day by mid summer. As it does, the equivalent cash silver cost which is about $3.57 per oz. will plummet to about $1.97 by midsummer. It does not get much better than that number.
David Morgan will write up an institutional type of report on ECU and we hope to present that to you at www.lemetropolecafe.com upon completion, but Midas will throw out some of the more salient points about this operation that appealed to me. The ECU business plan calls for a cash flow of about $500,000 to $600,000 per month by mid summer. With a market cap of about $10 million and a cash flow of $6 to $7 million, you get a pretty decent P/E ratio. And that is at $5 silver. Midas is no analyst, but I see this stock trading at $1 by early summer and then it should go on from there. Do not have to be Einstein to see this is one undervalued stock.
All of the pros on this excursion were impressed with Andre St-Michel and the management team Andre put together. All of my colleagues on the trip know mining companies that are promoted by great salesman that are CEO's. But you would not catch them in an underground mine. When Andre is in Mexico, he goes into the mine every day to direct his team. He loves it. This is very important in a narrow vein mining operation as the veins weave and bob all over the place. The more experience that can be put to use in this type of operation, the better. The professional group that I was with loved this aspect of his management style and felt that was a good part of the investment appeal of ECU.
This company will be built on cash flow. It will build positive momentum, even in this dreadful mining environment. It will build one step at a time adding silver reserves along the way. As Merlin Bingham said, " This is one fine operation and I can already see a 16 year mine life." Patrick Paird, " I am not sure if I want the price of silver to go up right now. With an operation like this, we can become very profitable in the months to come and then go out and acquire more silver resources very cheaply." And as Jim Culver put it, "I have very high confidence in Merrill Lynch's former top notch gold mining analyst, Warren Myers. He came down here and said this was a winner. That is why we have put our money behind it. Looks like Warren was right again."
Many things can go wrong with a mining operation. Last March, there was a fire in a shaft that killed an ECU miner. ECU has plenty of cash in the bank in such an eventuality, but there is always a risk of the unexpected. Knowing that, Midas is thrilled that he has bet the Mexican ranch on this silver operation in the Sierra Madres.
Midas
Bill Murphy ( Midas )
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