By Kishori Krishnan Exclusive To Gold Investing News
Gold prices edged lower in Europe on Friday as a stronger U.S. dollar dented interest in the precious metal as a currency hedge, and oilÂ prices eased. Most commodities priced in dollars have lost value as the U.S. currency firmed, as they become more expensive for holders of other currencies.
Spot gold was bid at US$ 950.20 an ounce against $954.00 an ounce late in New York on Thursday. The culprit? “A stronger dollar, oil coming off the highs,” said Calyon metals analyst Robin Bhar. “We have yet to reclaim the $960 level so I think as gold remains below that, there is always a risk of a move back towards the $930-$940 level, where there is strong support.”
As investors gain confidence in the economy andÂ the stock market, there are several others who are convinced the global economy is heading over a cliff and that gold prices are about to skyrocket. As Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier, a Toronto-based money manager said: “There is still a lot of cash out there and I still think the average fund manager is underweight equities and underweight cyclical equities. So I think the market will continue to do well.”
But with physical demand lacklustre for precious metals, gold is struggling to break out of its established range. “It is getting increasingly tough (for gold) to hold on to its gains beyond $965-966 levels,” said Pradeep Unni, senior analyst at Richcomm Global Services, in a note.
The junior gold sector is, however, back in the running, and nobody knows it better than Richard Warke. Mr. Warke’s company, Ventana Gold Corp. (VEN/ TSX), has had a bad bout: it began trading on the Toronto Stock Exchange in November, when the world appeared to be falling apart. Despite some positive early drill results from the company’s La Bodega property in Colombia, a junior gold company was the last thing any investor wanted to hear about at that point in time.
“We opened at a dollar and promptly dropped to 30Â¢,” Mr. Warke, the chief executive had said in an interview. Within days, Ventana shares plummeted all the way down to 4Â¢. A week ago on Friday, Ventana Gold Corp. stock soared to an all-time high, following the release of promising drill results. The shares traded as high as $4.10 at the Toronto Stock Exchange before falling back to $3.89.
Similarly, many junior golds are also trading around their highest levels in months, including Rubicon Minerals Corp. (RMX/TSX), San Gold Corp. (SGR/VEN), Lake Shore Gold Corp. (LSG/ TSX), Kirkland Lake Gold Inc.Â (KGI/TSX), Detour Gold Corp. (DGC/TSX) and Osisko Mining Corp.Â (OSK/TSX).
While Osisko Mining Corporation recently signed a letter of intent with Bowmore Exploration Ltd. (TSX VENTURE:BOW) pursuant to which Osisko and Bowmore are to become strategic partners, San Gold Corporation has discovered a new high grade gold zone.
Osisko is to acquire $3.0 million of a proposed $4.2 million non-brokered private placement deal. On May 11, 2009, Bowmore announced a $1.0 million non-brokered private placement which has now been restructured as a $4.2 million non-brokered private placement. Dale Ginn, CEO of San Gold CorporationÂ said the new discovery appears to be stratigraphically in the same horizon as the Hinge #1 lens and may be an extension of that zone.
Analysts maintain that people are starting to see beyond the credit crisis, which will pump up the pressure on gold.Â David Adamson, Rubicon’s chief executive said:Â “For those juniors that have good assets and have cash, there is a growing audience.” However,Â appreciation will not come if gold stays in a narrow band, based on fundamental valuation and current production profiles. Appreciation will come when these companies leverage their fairly generous cash flows, which are accumulating in cash accounts, he said.
Citing an example ofÂ Alamos Gold Inc. (TSX: T.AGI), which is currently trading around the $10 mark, Adamson said the firm is generating ample cash flow and have their cash costs under control. “They seem to have their heap leach operations at Mulatos in Mexico in steady state. So by all accounts they’re doing quite well,” he added.
As for Capital Gold Corp. (TSX: T.CGC), its main property in El Chanate in Sonora, Mexico looks good, he added. “They have a small open pit there, currently producing at a run rate of approximately 50,000 ounces per year. They’re producing at fairly low cash costs and they’re cash flow positive. That’s another one of these companies that would make a great acquisition for a company such as Minefinders Corporation (TSX: T.MFL) or Alamos or Gammon Gold Inc. (NYSE: GRS) as a bolt-on operation,” he added.
Yamana Gold Â (YRI) is selling three of its higher-cost gold mines in Honduras and Brazil to Aura Minerals for cash, shares, and royalties. The firm has signed an agreement to sell three of its mines to Vancouver-based junior Aura MineralsÂ (TSE: ORA)Â for a US$200 million cash and stock transaction.
In a statement, Yamana CEO Peter Marrone said, “The sale of these non-core mines is expected to result in lower cash operating costs, higher margins, and increased reserves, production and cash flow per mine.”
The sale will allow Yamana to “derive significantly more value from our share position than had these mines remained directly held by our company, particularly in a higher gold price environment.”
The deal includes US$90 million in cash, $70 million in deferred cash payments, and $40 million in common shares of Aura Minerals, at a price of Cdn 40 cents per share. In addition, Yamana will receive a contingent cash flow-based royalty on the three gold mines “that will provide payments to Yamana of up to US$40 million, based on operations generating net free cash flow above certain milestones,” Yamana said.
Kinbauri Gold Corp. (TSXV:KNB) says it’s in the process of hiring a financial adviser to assist in re-evaluating strategic options now that a $32-million deal with Glen Eagle Resources Inc.Â (TSXV:GER) has been terminated by both companies. The two companies had agreed to delay a friendly arrangement for Glen Eagle to buy up to 50 per cent of Kinbauri’s El Valle project in northern Spain following a court challenge by a significant shareholder of Kinbauri Gold. The delay resulted in Glen Eagle losing access to its original funding and Kinbauri’s decision last week to terminate the deal.
The schism between the two companies was opened after Orvana Minerals Corp.Â (TSX:ORV) made an unsolicited offer to buy all of Kinbauri Gold for about $33 million, so long as the Glen Eagle transaction was called off.