By Kishori Krishnan Exclusive To Gold Investing News
Weakness in the U.S. dollar and rising oil prices gave gold another boost on Monday. Gold futures rose 1.2 per cent to end at their highest level in more than five weeks as a private-sector rescue of U.S. lender Cit Group raised economic optimism, pressuring the dollar lower against most of its major rivals.
Analysts also cited some buying in anticipation that prices will move higher later in the year on inflationary concerns. August gold rose $11.30 to $948.80 an ounce on the Comex division of the New York Mercantile Exchange. September silver climbed 22.2 cents to $13.625.
August gold hit a $955.40 high that is the strongest level since June 12. September silver peaked at $13.75, its strongest level since July 2. The markets built on upward momentum developed last week, said Carlos Sanchez, associate director of research with CPM Group.
Technically, gold has been helped by its ability to hold above $900 earlier this month despite being in the period of historically softer summer demand. Gold has been on the upswing after bottoming at $904.80 on July 8.
In anticipation of the good news, Paramount Gold and Silver Corp. (TSX:PZG) and Klondex Mines Ltd. (TSX:KDX) have agreed to a merger valued at $80 million. The agreement has been unanimously approved by the board of directors at both companies, and a special committee of the board at Klondex, the companies said in a statement on Monday.
The deal will swap one Klondex share for each 1.45 Paramount share, which suggests a purchase price of about $2.32 per Klondex share, and a 33.3 per cent premium based on Friday’s closing prices on the TSX. The offer is also a 30.3 per cent premium on the hostile $70 million offer that was submitted by Silvercorp Metals Inc. (TSX:SVM) on June 8, and rejected by the Klondex board.
Vancouver-based Klondex operates four properties in northern Nevada while Paramount, which is headquartered in Ottawa, is exploring and developing projects in Chihuahua, Mexico. Klondex shares moved ahead 21 cents to close at $1.95 on the Toronto Stock Exchange while Paramount Gold and Silver lost six cents to $1.54.
Yellow-metal stocks are readying for a big advance, according to some traders and analyst. Technical analysts Ron Meisels and Olaf Sztaba of the NA Marketletter have written that the bland behaviour of the stocks should not draw attention away from the larger, more bullish picture, especially since golds take extra time to build bases for future advances.
“The current consolidation [the longer the better] is part of a base-building process which usually results in a major move at a later date,” they wrote in a note. They figure that the build-up of pessimism should reach its zenith “just in time” for a year-end rally in the stocks.
The first indication of such a move would be a stabilisation in the majors like Barrick Gold Corp. and Newmont Mining Corp. In fact, a significant number of gold stocks have been developing bullish, multi-month base-formations which, if realised, could result in noticeable up-moves, they wrote, citing Gammon Gold Inc., Alamos Gold Inc. and Royal Gold Inc. as examples.
Lihir Gold Ltd., the second-largest gold mining company on the Australian Stock Exchange, is seeking to sell its Ballarat mine in Australia after a review of the project indicated it couldn’t support bulk production.
The company “has received expressions of interests from a number of potential acquirers, which will be further pursued in coming weeks,” Port Moresby-based Lihir said in a statement to the Australian stock exchange. The sale is expected to be completed early next year and underground mine development will be reduced from today, it said.
Lihir has struggled to meet production targets at Ballarat, in Victoria state, since acquiring the mine in 2006 through the A$350 million ($284 million) takeover of Ballarat Goldfields NL. The company cut production and 200 workers at the mine in April as lower-than-expected volumes cut sales.
Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, reported second-quarter earnings that beat analysts’ estimates because of lower operating costs. Profit excluding an unrealised gain was $1.35 a share, Phoenix-based Freeport said. Net income dropped 38 per cent to $588 million, or $1.38 a share, from $947 million, or $2.25, a year earlier.
Chief executive officer Richard Adkerson said the firm benefitted from output and cost reductions implemented after a drop in manufacturing began to pull down copper prices in the second half of 2008. The average price of copper, used to make wires and pipes, fell 43 per cent in the second quarter from a year earlier.
Freeport rose $1.38, or 2.4 per cent, to $58.38 in New York Stock Exchange composite trading. The shares more than doubled this year through Monday.
Freeport’s Grasberg mine in Indonesia contains the world’s largest recoverable reserves of copper and the biggest single gold reserve. Freeport forecast gold sales will rise to 2.4 million ounces in 2009, revising an earlier projection of 2.3 million ounces. The company sold 1.31 million ounces of gold last year.