Commodities

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Gold Price News

Gold has been an incredibly interesting commodity to watch throughout the year 2016, and for good reason. Early in the year, the Chinese stock market crashed, leading to a wave of downward movement throughout the global market. This sent gold skyrocketing. Since then, there have been several factors that have caused the price of gold to climb. However, yesterday, we started to see declines on the precious metal as the dollar gained value. Nonetheless, I don’t think that we are anywhere near the end of the bullish run. Today, we’ll talk about why we saw declines yesterday and why I believe we’re going to see strong upward movement in the value of gold moving forward. So, let’s get right to it…

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Why Gold Fell In Value Yesterday

As mentioned above, yesterday was a rough day for gold investors. Nonetheless, I really wasn’t concerned about the declines, and you shouldn’t be either. The reality is that gold, like any other financial asset, tends to move in value through a series of overreactions. Investors will get excited, pushing the value of the precious metal higher than it should be, then we see a correction, bringing the value down to a more reasonable rate before gains continue.

Late last week, the US jobs report was released. This led to the heavy upward movement we saw toward the end of the week. Unfortunately, in the month of April, the United States economy only added about 160,000 jobs. This was well below economist expectations as well as the crucial line that is drawn at the figure of 200,000 jobs. You see, anything under this mark shows danger for the US economy. As a result, the value of the USD fell, making gold less expensive in nations outside of the United States and increasing the demand for the commodity. On top of that, safe haven investors started purchasing more gold as a way to keep their money safe if something does go wrong with the US economy.

Following the incredible upward movement that we saw in the value of gold last week, it only made sense that we would see declines early on this week. After all, as mentioned above, the value of gold tends to move through a series of overreactions. So, the declines in the price of gold yesterday brought it down to a more reasonable rate before growth could continue.

What We Can Expect To See From The Price Of Gold Moving Forward

Moving forward, I have an overwhelmingly bullish opinion with regard to what we can expect to see from the price of gold. There are two big reasons for my opinion on the commodity:

  1. Safe Haven Demand – Gold is considered to be a safe haven investment. As a result, when market and economic conditions around the world prove to be concerning, investors look toward the precious metal as a way to bring their money into a safe area. Currently, global economic and market conditions are concerning to say the least. So, we have seen incredible gains in the demand for gold throughout the year, and I believe that demand will continue to climb.
  2. Supplies Are Shrinking – On the supply side of the equation, it seems as though we’re seeing even more support for price growth. Early in the year, it was announced that gold had reached peak supply. In fact, in the year 2016, experts are expecting for production to fall by 3% or more. As supplies fall, commodity prices climb.

At the end of the day, all signs seem to be pointing toward growth in the value of gold. So, I expect to see nothing less!

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What Do You Think?

Where do you think the price of gold is headed and why? Let us know your opinion in the comments below!

[Image Courtesy of Pixabay]

Gold Price News

Saving money for delayed gratification is better than spending money for an instantaneous thrill, but nothing beats making smart investments with your savings to see a multiplier effect. Many people these days have smartened up and they are no longer keeping their money in savings accounts.  Rather, they are heavily invested in the stock market with 401k plans. However, it is important to have multiple streams of income and it is much more important to diversify your investments.

Diversifying your investments literarily saves you from putting all of your eggs in the proverbial single basket. If you ask most people with a 401K plan if their investment is diversified, they’ll give you a convincing affirmative answer. If you ask them to tell you about the diversification of their investments, they’ll tell you that they have some money in mutual funds, they have bought some dividend-paying stocks, their momentum stocks, and their EFT holdings.

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The aforementioned scenario sounds diversified – it has mutual funds, income-paying stocks, price-gain stocks, and ETF baskets that spread exposure across different sectors. However, the major problem with the aforementioned diversification scenario is that the investor still has massive risk exposure to the equity markets. This piece seeks to explore why investors should start considering gold as a great way to diversify the holdings in their portfolios.

Don’t mind the gold bears, gold is a glittering gem

One would find it very hard to understand why many investors don’t have gold in their portfolios despite the fact that gold is a safe-haven asset that provides a measure of stability in troubled times. It is no longer news that we live in the most-troubled of the troubled times and dark shadows are gathering over the global economic landscape.

The global equities markets are suffering from the aftereffects of irresponsible fiscal policy on the part of central banks. Geopolitical tension is rising from the Middle East, across Europe, all the way to the Americas. Terrorists are becoming bolder and the Internet gives them a voice. Britain is threatening to leave the EU and the EU is not as strong as it used to be. There’s the issue of poverty in Africa, global warming, and climate change. Whichever way you look at the situation, we are nearing a global apocalypse with each passing day.

One of the reasons many investors have shied away from gold is the loud voice of gold bears in the last couple of years. Legendary investor, Warren Buffet is especially vocal about his bearish stand on gold. A popular battle cry among gold bears are the words of Warren Buffet saying, “(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

Rising Gold Prices

The chart above shows the rising gold prices in the year-to-date period in sharp contrast to the pessimistic outlook of the bears. Many of the bears have conveniently ignored the million tons of gold that central banks are hoarding as backbone to keep the economy alive and that gold tends to shine in periods of economic turbulence. Now, gold has stupefied the bears as it starts 2016 on an impressively bullish note.

Gold is the best performing asset in 2016

Gold bears can talk about how gold lost 10% in 2015, they can talk about how miners are losing money, and they can exaggerate how the demand for gold is falling in China and India. However, the hard facts from the market show that gold is the best performing asset class in 2016 and the yellow metal is on track to continue its bullish ascent going forward.

The chart below shows how gold has fared in relation to equities in the year-to-date period.

Gold Performance

From the chart above, it is obvious that gold has gained more than 20% since the markets opened for trading this year. Investors in the gold-backed ETFs such as the Direxion Shares Exchange Traded Fund Trust (NYSEARCA: NUGT) and SPDR Gold Trust (ETF) (NYSEARCA: GLD) can also boast of similar gains. In contrast, the S&P 500 is down 2.06%, the Dow Jones Industrial Average is down 2.01%, NASDAQ Composite is down a massive 5.97%, and small caps are not faring better as Russell 2000 spots at 3.67% decline in the YTD period.

Analysts are convinced that the rally in gold will extend through the rest of 2016 because the fundamentals support the bullish outlook for gold. Juan Carlos, director of investment research at the World Gold Council notes “as we have seen stock markets around the world tumble dramatically, the need to protect capital has increased — and gold has benefited from that.”

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Axel Merk, founder of Merk Investments, with 20% of its portfolio allocated to gold notes that the market volatility is providing gold with tailwinds. In his words, “Gold is the winner of that game because it has the least industrial use so it’s least affected by the global slowdown.”

[Image Courtesy of Pixabay]

On March 4th, 2016, when the employment reports come out expect huge price swings. This might be the most important employment report of the year in terms of stocks and commodity market trends.

I cannot underestimate the importance of this Friday’s, February 4th, 2016, U.S. Labor Department report being released.  At the time of the report’s release, the number of new jobs may fall a little short of estimates again, or if they meet them, investors might focus on the FED staying the course to raise its short-term rates in mid-March 2016. These consequences could last well into the end of the month of March 2016.

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Falling oil prices, careening equity markets, and the economic contractions in China continue to spook investors in recent weeks, leading to fears that the global economy is only steps away from a 2008-style “systemic crisis”. This is a perfect storm for investors to jump into safe havens including U.S.Treasuries, gold, silver and crude oil and to make extremely handsome profits over the next 1 to 3 years.

I still believe that there is virtually no chance the FED will raise interest rates going into March 2016.  I even doubt that the central bank will do so by year end of 2016.

Today’s bottom line is that the FDIC has stated in black and white that they are not equipped to deal with another banking crisis. This is where the U.S. Government should be stepping in, with an explicit guarantee to bail out the banks.  The real irony, of course, is that the government does not have any of its own money.  They only have your money.  Taxpayer money.  So, in essence, the government is guaranteeing your bank deposit with your own money.  It’s mind boggling.

The larger problem is that the government has not done a good job hanging on to any of your money. The Treasury Department’s financial statements are showing the U.S.  Government’s net worth at negative $60 trillion.  Uncle Sam is in no position to bail anyone out including themselves.

ZIRP, making the stock market a casino to borrow low on margin and speculate high on “risk”, or, in the case of corporations to issue tons of new debt and buy back their own stock. Now to NIRP, negative interest rate policy so that all companies would be enticed to borrow “cheap” money to hire workers and grow their businesses with QE, the central bank creating new money for use in an economy.

Only a central bank can do this because its money is accepted as payment by everybody.  Sometimes dubbed incorrectly “printing money” a central bank simply creates new money at the stroke of a computer key, in effect increasing the credit in its own bank account. This has destroyed honest price discovery and the key ingredients of financial market self-discipline and stability. They have created financial bubbles, which sooner or later must deflate leading to a huge collapse.  They have not helped “Main Street” in any way shape or form.  The FED Chairwoman. Janet Yellen, spends her time studying her on “data dependent” charts as if they are really related to FED policy. They are irrelevant!  ZIRP and QE just distorts and degrades” free financial markets”.  The FED has now turned them into casinos of crony capitalist corruption.

The latest crime of negative interest rates (NIRP) exist in the Eurozone, Switzerland, Sweden and Japan.  These central banks are imposing negative rates on the excess cash reserves of commercial banks. This maneuver is only squeezing bank’s interest margins and causing a run on banking sector stocks.

This dangerous experiment is doing nothing for the real economies of a world staggering under huge amount of unplayable and massive excesses of debt. It is just feeding the mother of all asset bubbles.

Ultimately, the FED will go for the next thing with NIRP. For real people, who are trying to save a nest egg, NIRP, will be the “flashing neon light” announcing that the government is confiscating the people’s savings and wealth. When the FED actually tries to impose NIRP on their own people and not just the commercial banks, the central banks will be signing their political death warrants.  That day is coming soon.

Gold is holding near the February 2016 highs, while gold shares continue to rise further.  HUI closed at a nine-month high. The world economy crises is still underway, but it seems to be on borrowed time. A huge decline in global equities is upcoming and it will be important to see how low it goes. Crude Oil is bottoming and looks poised for a rebound.  It’s boosting the stock market for right now. 

For today, keep your cash in U.S. Dollars, but we are moving very soon to take advantage of new investment opportunities.

Until 1933, people carried gold coins in their pockets, and paper bills were exchangeable for gold and silver coins at any bank. Prices were remarkably stable and had been for a hundred years or more. In 1933, US citizen’s gold was confiscated by the government, the dollar was devalued by 41%, and we entered a period in which the treasury attempted to hold the value of the dollar at 1/35 of an ounce of gold.

The Economist” stated that gold has gotten off to its best start to a year in 35 years.  The safety play is up 16% in the year to date as of Friday February 26th, 2016, which are drivers as stocks, crude oil and other assets have been under extreme pressure.

chart 1

Chart 2

Precious metal funds have seen their biggest three-week inflow of investor money since June 2009.

The inflows have coincided with the FED ‘talking down’ the U.S. Dollar and with rising fears that a recession is near and quantitative easing is failing.  A strong dollar often acts as a drag on dollar-denominated commodities by making them more expensive for holders of other currencies.

These actions are signaling signs to me suggesting to stockpiling gold, silver and cash.  The size and scope of the political, economic and financial problems that now challenge the relative stability and tranquility of developed societies are unprecedented.

If the war on cash should prove unsuccessful in its early stages, banks could be closed for long periods.  Investors should be aware of such possibilities and hold on to cash and precious metals prudently outside the banking system.

Chart 3

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So far in 2016, the gold has rallied some 16%, making it one of the year’s best-performing assets. In the late 1960s, when so much gold was required to buy up all the dollar’s, foreign countries were saying that the US government simply gave up, and “closed the gold window” in 1971. The value of the dollar collapsed over the next 10 years, hitting bottom in 1980. By paying of interest and reducing taxes, the dollar slowly recovered some of its value over the next 20 years, but expansive money policy in the 1990s eventually caught up with the dollar in 1999.

Since 1999, the dollar has experienced a drop of more than 80%. Penny candy now costs 50 cents. The “Five and Dime” is now the Dollar Store.

The future for you is very bright as we are awaiting a strong retracement in gold to enter a solid long term entry location. And if you are a long term investor looking for financial stability through precious metals, then you should be accumulating physical metals now for the long run. Figure out how much money you want to convert to gold, silver and other metals then divided that by say 5 and ever couple weeks buy that portion of metals until you have your financial hedge on corruption/financial crash.

If you want to know exactly what I am buying and selling and receive my alerts join me at www.TheGoldAndOilGuy.com

Chris Vermeulen

[Image Courtesy of Flickr]

Gold

2016 won’t be the greatest year at the financial markets. Many experts see a global recession coming up, dark clouds on the horizon. Therefore, investors wonder how to keep their assets safe. Cash only? Buying real values?

It seems that many investors have decided to go for the latter. Prices for gold and silver have been soaring lately. Gold has just reached its 12-month high of $1,260 an ounce. However, some argue that gold is not the best insurance in times of financial turmoil anymore. Instead, they say, Bitcoin is the better choice if you want to hedge against a global crisis.

That, however, seems to be far-fetched. Although cryptocurrencies have gained in popularity, they are still too young to use them as a crisis hedge. Prices are unstable and there are serious security concerns.

Gold has been a reliable crisis hedge for the past 5000 years while Bitcoin prices are relatively unstable

Gold has been a proven crisis hedge for 5000 years. Fiat currencies come and go, bonds and real estate lose in value. Gold prices fluctuate as well, but so far, investors have never lost trust in the precious metal and prices have remained stable in the long run.

Bitcoin, on the other hand, is a relatively unstable currency. So far, the market is small and Bitcoin is not widely accepted. As liquidity is tight, even moderate orders can cause large price movements.

In 2011, one Bitcoin was equivalent to less than one U.S. dollar. One year later, it was five dollars, in 2013 already 13 dollars. In 2014, Bitcoin soared and reached a value of 1200 dollars. Finally, last year, it came down to 550 dollars. That’s not what a stable investment looks like.

Gold can easily be protected from governmental expropriation; Bitcoin, too, but is far less anonymous than many people think

Physical gold can be stored in safe locations all around the world. Obviously, the safety of your bullion depends on the company you are dealing with. In fact, many people have been scammed when buying physical gold. However, if you do your due diligence, you can find reliable gold dealers.

Global InterGold, for example, enjoys an excellent reputation. It is a regulated EU company, that buys gold bars from Swiss regulated suppliers. Moreover, they allow clients to buy even small amounts of gold. These can easily be protected from governmental expropriation, which might happen during an intense economic crisis.

Bitcoin is relatively safe from governmental expropriation as well. However, it is far less anonymous than many people think. The entire transaction history is stored online. Moreover, while it is possible to hide your identity when dealing with Bitcoins, even a small mistake can reveal your entire internet wealth.

Therefore, it happens frequently that hackers bypass security mechanisms and steal large amounts of Bitcoins. That has harmed its reputation. Since the Bitcoin economy was created about about five years ago, there have already been various cases of scam and fraud.

Gold can be traded worldwide using global dealers like Global InterGold; Bitcoin is not widely accepted

Gold is a globally accepted currency. Every bank or gold dealer will accept it, even if you only have small amounts. Moreover, global gold dealers can make it very easy to buy and store gold worldwide. Global InterGold, for example, serves more than 1,000,000 clients all around the world.

Bitcoin is a digital currency, hence, it can be traded online. However, the use of cryptocurrencies is not very widespread. Comparing the amount of gold and Bitcoin dealers is like comparing the amount of charger stations for electric cars and traditional gas stations.

It’s true that it is easier to use Bitcoin to make global payments and transactions. However, that doesn’t make it the better crisis hedge. During times of financial turmoil, the primary objective is to store value safely in a way that it’s protected from governmental preying and high inflation.

At this point, Bitcoin is simply too young to serve as an efficient crisis hedge. Gold, on the other hand, has proven its reliability. The simple fact that gold prices have been rising around 15 percent since the beginning of the year shows that investors are still relying on gold in order to store their wealth.

Chart1: https://www.tradingview.com/chart/XAUUSD/

Chart 2: http://bitcoincharts.com/charts/bitstampUSD#tgMzm1g10zm2g25

[Image Courtesy of Wikipedia]

Barrick Gold ABX Stock News

Barrick Gold Corp. (NYSE: ABX)

Barrick Gold is having an incredible day in the market. The rally is being driven by the higher prices of gold. Today, we’ll talk about why gold is climbing in value, whether or not the rally is likely to continue, and what we can expect from ABX moving forward.

Why Gold Is Climbing In Value

Like any other commodity, the value of gold is determined by supply and demand. Naturally, as a company focused on gold, ABX is dependent on this supply and demand as well. However, unlike most other commodities, gold is considered to be a safe haven investment, which is exactly why we’re seeing the gains in the value of the commodity that we’re seeing at the moment. Just take a look at any stock market around the world. Chances are that what you’re seeing is a sea of red. These declines were started by a recent market crash in China, leading to lower demand for stocks. As a result, investors are looking for ways to hold the value of their investing funds. To do so, many investors look to gold, increasing the demand for the precious metal and leading to an increased value. Because Barrick Gold has such a strong correlation with gold, the value of ABX is climbing as well.

Will ABX Gains Continue?

This is a bit of a tough call. With heavy volatility in the market worldwide, and so many factors leading to that volatility, making a prediction with regard to gold, and therefore ABX, becomes a bit difficult. Nonetheless, I believe that I have the answer. In my opinion, we can expect to continue to see gains in gold as well as ABX. Here’s why:

  • Conditions In China Are Not Getting Better – China’s market crash fueled the rally we’re seeing in gold as is. Unfortunately for China, as well as the rest of markets around the world, conditions in China simply aren’t getting better. As a result, we can expect to see more volatility in the market, leading to more gains in gold and therefore, more gains in ABX.
  • Conditions Outside Of China Aren’t Much Better – While China did fuel the market crash, it’s not the only region that is struggling at the moment. In fact, we’re seeing negative activity out of Japan, Europe, and several other countries around the world. As a result, the markets in these countries aren’t likely to do well any time soon either, leading to even further demand for gold and higher prices coming for ABX.
  • The Federal Reserve – Finally, the Federal Reserve has added fuel to the already brightly burning fire. The Federal Reserve recently increased its interest rate and plans on doing so between 2 and 4 more times throughout the year 2016. When the Fed increases its interest rate, consumers are forced to pay higher interest. This leads to less spending money elsewhere and pain in corporate profits. As a result, we see a negative effect in the market. This negative activity is likely to lead to further declines in the market and strong gains in gold, leading to more upward movement in ABX.

The Bottom Line

The bottom line here is that due to economic blues around the world and moves made by the Federal Reserve, market activity is likely to continue on a bearish path for some time. As the market continues to follow the bearish path, gold is likely to continue in the upward direction. As a result, we can expect to see further gains in ABX.

What Do You Think?

Where do you think ABX is headed moving forward? Let us know your opinion in the comments below!

[Image Courtesy of Wikipedia]

OPEC

Saudi Arabia and OPEC Manipulate Oil Prices

About eighteen months ago the international price of WTI Crude Oil, at the close of June 2014, was $105.93 per barrel. Flash-forward to today; the price of WTI Crude Oil was just holding above $38.00 per barrel, a drastic fall of more than 65% since June 2014. I will point out several reasons behind this sharp, sudden, and what now seems to be prolonged slump.

Chart 1

The Big Push

Despite a combination of factors triggering the fall in prices, the biggest push came from the U.S. Shale producers. From 2010 to 2014, oil production in the U.S. increased from 5,482,000 bpd to 8,663,000 (a 58% increase), making the U.S. the third largest oil-producing country in the world.

The next big push came from Iraq whose production increased from 2,358,000 bpd in 2010 to 3,111,000 bpd in 2014 (a 32% increase), mostly resulting from the revival of its post-war oil industry.

The country-wide financial crunch, and the need for the government to increasingly export more to pay foreign companies for their production contracts and continue the fight against militants in the country took production levels to the full of its current capacity.

In addition; global demand remained flat, growing at just 1.1% and even declining for some regions during 2014. Demand for oil in the U.S. grew just 0.6% against production growth of 16% during 2014.

Europe registered extremely slow growth in demand, and Asia was plagued by a slowdown in China which registered the lowest growth in its demand for oil in the last five years. Consequently, a global surplus was created courtesy of excess supply and lack of demand, with the U.S. and Iraq contributing to it the most.

The Response

In response to the falling prices, OPEC members met in the November of 2014, in Vienna, to discuss the strategy forward. Advocated by Saudi Arabia, the most influential member of the cartel, along with support from other GCC countries in the OPEC, the cartel reluctantly agreed to maintain its current production levels.

This sent WTI Crude Oil and Brent Oil prices below $70, much to the annoyance of Russia (non-OPEC), Nigeria and Venezuela, who desperately needed oil close to $90 to meet their then economic goals.

For Saudi Arabia, the strategy was to leverage their low-cost of production advantage in the market and send prices falling beyond such levels so that high-cost competitors (U.S. Shale producers are the highest cost producers in the market) are driven out and the market defines a higher equilibrium price from the resulting correction. The GCC region, with a combined $2.5 trillion in exchange reserves, braced itself for lower prices, even to the levels of $20 per barrel.

The Knockout Punch

By the end of September 2014, according to data from Baker Hughes, U.S. Shale rigs registered their highest number in as many years at 1,931. However, they also registered their very first decline to 1,917 at the end of November 2014, following OPEC’s first meeting after price falls and its decision to maintain production levels. By June 2015, in time for the next OPEC meeting, U.S. Shale rigs had already declined to just 875 by the end of May; a 54% decline.

Source: Baker Hughes

The Saudi Arabia strategy was spot on; a classic real-life example of predatory price tactics being used by a market leader, showing its dominant power in the form of deep foreign-exchange pockets and the low costs of production. Furthermore, on the week ending on the date of the most recent OPEC meeting held on December 4th, 2015, the U.S. rig count was down even more to only 737; a 62% decline. Despite increased pressure from the likes of Venezuela, the GCC lobby was able to ensure that production levels were maintained for the foreseeable future.

Now What?

Moving forward; the U.S. production will decline by 600,000 bpd, according to a forecast by the International Energy Agency. Furthermore, news from Iraq is that its production will also decline in 2016 as the battle with militants gets more expensive and foreign companies like British Petroleum have already cut operational budgets for next year, hinting production slowdowns. A few companies in the Kurdish region have even shut down all production, owing to outstanding dues on their contracts with the government.

Hence, for the coming year, global oil supply is very much likely to be curtailed. However, Iran’s recent disclosure of ambitions to double its output once sanctions are lifted next year, and call for $30 billion in investment in its oil and gas industry, is very much likely to spoil any case for a significant price rebound.

The same also led Saudi Arabia and its GCC partners to turn down any requests from other less-economically strong members of OPEC to cut production, in their December 2015, meeting. Under the current scenarios members like Venezuela, Algeria and Nigeria, given their dependence on oil revenues to run their economies, cannot afford to cut their own production but, as members of the cartel, can plea to cut its production share to make room for price improvements, which they can benefit from i.e. forego its market share.

It’s Not Over Until I’ve Won

With news coming from Iran, and the successful delivery of a knockout punch to a six-year shale boom in the U.S., Saudi Arabia feared it would lose share to Iran if it cut its own production. Oil prices will be influenced increasingly by the political scuffles between Saudi Arabia and its allies and Iran. The deadlock and increased uncertainty over Saudi Arabia and Iran’s ties have sent prices plunging further. The Global Hedge Fund industry is increasing its short position for the short-term, which stood at 154 million barrels on November 17th, 2015, when prices hit $40 per barrel; all of this indicating a prolonged bear market for oil.

One important factor that needs to be discussed is the $1+ trillions of junk bonds holding up the shale and other marginal producers. As you know, that has been teetering and looked like a crash not long ago. The pressure is still there. As the shale becomes more impaired, the probability of a high-yield market crash looks very high. If that market crashes, what happens to oil?  Wouldn’t there be feedback effects between the oil and the crashing junk market, with a final sudden shutdown of marginal production? Could this be the catalyst for a quick reversal of oil price?

The strategic interests, primarily of the U.S. and Saudi Arabia; the Saudis have strategically decided to go all in to maintain their market share by maximizing oil production, even though the effect on prices is to drive them down even further. In the near term, they have substantial reserves to cover any budget shortfalls due to low prices. More importantly, in the intermediate term, they want to force marginal producers out of business and damage Iran’s hopes of reaping a windfall due to the lifting of sanctions. This is something they have in common with the strategic interests of the U.S. which also include damaging the capabilities of Russia and ISIS. It’s certainly complicated sorting out the projected knock-on effects, but no doubt they are there and very important.    

I’ll Show You How Great I Am

Moreover, despite a more than 50% decline in its oil revenues, the International Monetary Fund has maintained Saudi Arabia’s economy to grow at 3.5% for 2015, buoyed by increasing government spending and oil production. According to data by Deutsche Bank and IMF; in order to balance its fiscal books, Saudi Arabia needs an oil price of $105. But the petroleum sector only accounts for 45% of its GDP, and as of June 2015, according to the Saudi Arabian Monetary Agency, the country had combined foreign reserves of $650 billion. The only challenge for Saudi Arabia is to introduce slight taxes to balance its fiscal books. As for the balance of payments deficit; the country has asserted its will to depend on its reserves for the foreseeable future.

Conclusion

The above are some of the advantages which only Saudi Arabia and a couple of other GCC members in the OPEC enjoy, which will help them sustain their strategy even beyond 2016 if required. But I believe it won’t take that long. International pressure from other OPEC members, and even the global oil corporations’ lobby will push leaders on both sides to negotiate a deal to streamline prices.

With the U.S. players more or less out by the end of 2016, the OPEC will be in more control of price fluctuations and, therefore, in light of any deal between Iran and Saudi Arabia (both OPEC members) and even Russia (non-OPEC), will alter global supply for prices to rebound, thus controlling prices again.

What we see now in oil price manipulation is just the mid-way point. Lots of opportunity in oil and oil related companies will slowly start to present themselves over the next year which I will share my trades and long term investment pays with subscribers of my newsletter at TheGoldAndOilGuy.com

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Chris Vermeulen

[Image Courtesy of Wikipedia]

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Last week was the most significant week in regards to the currency markets, the stock market, the bond market and the energy markets. All of these markets were directly impacted by the events which were relayed via the news. Additionally, another significant week will be when the FED meets on December 15th and 16th, 2015, in order to make a decision on their lift off of a new short-term interest rate hike (before the holiday season commences). It appears, as though, we will finish the year off with a bang and with plenty of volatility. So, why was this last week so significant, and why did it lead to such large volatile movements within the respective markets? This article will shed light on the reasons why.

The ECB Meeting on Thursday, December 3rd, 2015

The first significant event of the week was the ECB meeting, which occured on Thursday, December 3rd, 2015. The three charts displayed below, indicate the kind of volatility and the impact that the ECB Presidents announcement had on the markets.

Chart 1

Chart 2

Reasons for such large moves:

With dovish comments made by the ECB President, within the last few weeks, the markets were expecting something BIG from the ECB! However, the ECB President brought a “smaller bazooka”, which spooked the markets. “Super Mario”, a nickname assigned to him, due to his history of meeting and exceeding expectations of earlier occasions, surprisingly, could not meet market expectations, this time around. The dissidence during the meeting, also spooked the observers, which indicates the limited freedom that Mr. Draghi has for the future.

The ECB President announced the following measures:
Extended monthly bond purchases:

Chart 3

The ECB did not increase the amount of its bond purchases per month from the existing €60 billion, but instead extended its duration of the QE program, by an additional six months. This announcement was considered below expectations of the marketplace. The market was anticipating an additional amount of its current monthly QE as well as a further extension of the QE.

Reduction of official discount rate by 0.1%

The markets expected the discount rate to be pushed further into the negative territory so as to discourage the banks from “parking” their money with the ECB. The expectations were to the tune of a 0.2% reduction, which would have brought down the effective rate to -0.4%. However, the ECB announced only a 0.1% reduction. The Street was disappointed.
Other measures of diversifying its purchases include bond purchases of local and regional government debt, reinvesting proceeds received from matured bonds and no plans to ration liquidity until the end of 2017. These announcements were not received well and caused a global market sell off. The US Dollar- Euro parity will have to wait for a future date.

The US jobs report on Friday, December 4th, 2015:

After the disappointment of the markets, due to the ECB measures, the next significant event was the US jobs report released on Friday, December 4th, 2015. This is critical data as it forms a part of the dual mandate of the FED. With the FED due to meet on December 15th and 16th, 2015, and the Chairwoman having raised expectations of the first rate hike in almost a decade, this is going to be a keenly watched jobs report. Though Chairwoman Janet Yellen reiterated not to read too much into this report, the market participants thought otherwise.

The non-farm payrolls came in at 211,000 against an expected 200,000. The figures of the last two months were also revised upwards by a combined total of 35,000. The unemployment number remained at a low of 5%. The hourly wage increase was 0.2% in November 2015, and over the year, the wages increased by only 2.3%.

The data showed the strength in the US economy, which remained unaffected by lower energy prices and the economic slowdown in China. The hope of a stronger economy buoyed the stock markets higher, by more than 2%, on Friday December 4th, 2015.

Looking Forward:

The interest rates have remained at record lows for a very long time. The effects of the interest rate hike on the economy will be known in a few months, which will decide the trajectory of further rate hikes and the movement of the stock markets.

The OPEC meeting on Friday, December 4th, 2015:

Chart 4

With energy prices reeling near their lows, it was expected that OPEC would support the prices with a production cap. Many OPEC nations are reeling under pressure due to subdued crude oil prices. OPEC has not reduced their production as they want to maintain their market share and expected the other non-OPEC major producers like the US and Russia to cut their production.

With no reduction in output by either the OPEC, the US or Russia, an excess supply compared to the consumption, may lead to a shortage of space to store crude oil, in the future. There was an unconfirmed divide in the OPEC member nations with Saudi Arabia and Iran at opposing ends. Iran, which will restart supplying oil after the lift off of the Western sanctions, is keen to ramp up its production in the next few months. With non-OPEC nations supplying almost two-thirds of the worlds demand of crude oil, a small reduction by the OPEC nations is unlikely to have any lasting effect. The members could not arrive at any conclusions, and no formal announcement was made after the meeting on Friday, December 4th, 2015.

Looking Forward:

With US shale oil pumping at record levels, the power of the OPEC nations, which are led by Saudi Arabia, seem to be reducing. Additionally, pumping by Iran, in the near future, may keep the upside capped. I expect crude oil prices to fall further to $30/barrel.

Conclusion:

The world is going through a major shift, which will create historic opportunities for unprecedented profits to be made in our lifetime, beginning in 2016 and beyond. Energy prices will continue to carve out a bottom in 2016. Meanwhile, the FED is about to raise rates, Europe is increasing its QE, China’s growth is under the scanner and Japan is not able to generate growth, even with Abenomics. These are extraordinary circumstances, which require extraordinary actions from both the investors and the traders in 2016.

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Chris Vermeulen

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Following Friday’s ‘blockbuster’ jobs report on November 6th, 2015, the markets are finally coming around to taking the FED seriously once again. The Dollar Index had enjoyed a steady and a strong rally for the past 18 months, since July of 2014 as the Federal Reserve started to communicate to the markets its intention to wind down the massive Quantitative Easing or QE3 involving purchasing Mortgage Backed Securities and US treasuries to the tune of $85 billion.

The FED’s intention to take away the ‘Punch Bowl’ in the aftermath of the 2008 Global Financial Crisis was met with a lot of doubt, with most of the markets expecting the FED to only come back with more QE. However, as the FED started to slowly wind down its purchases by $10 billion since December 2013, the US Dollar started to rise steadily.

By early 2015, the FED signaled that the era of accommodative monetary policy, which saw interest rates at historical lows, was coming to an end. For most of 2015, the main driving theme was that the FED was going to hike rates this year. The initial deadline was set for mid-2015 or around June/July this year. However, the plans were thwarted as inflation remained consistently low (below the FED’s target rate of 2.0%), while the unemployment rate was slowly but steadily declining towards the FED’s 5.0% full employment mandate.

Friday’s October jobs report on November 6th, 2015 finally saw the FED reaching one of its two goals – full employment – as the US unemployment rate fell to 5.0%. It was a ‘blockbuster’ jobs report due to the mere fact that after a string of two weak months, the average jobs increased by 271k, beating the median estimates.  Also, the average hourly earnings saw a strong increase, rising to an annualized 2.5%.

It was only a few days ago when Dr. Janet Yellen testified last week to the US Senate banking committee that the FED intends to decide on whether to hike rates at the December 2015 meeting if the data supported the view; indeed there was a strong validation from the jobs market last week. It’s a real “live possibility.”

Precious metals and commodities, on the other hand, continued to suffer at the cost of a stronger US dollar as the global economy stepped into a prolonged era of deflation exacerbated by the oil crash in 2014, which saw production outstripping demand and bringing oil prices from above $100 a barrel to near $40 a barrel.

So where do I believe we go from here?  And, more importantly, what is the outlook for the US Dollar now that December 2015 rate hikes has increased in probability?

Points to bear in mind:

  • The FED held off hiking rates in June, and later in September, as inflation remained subdued. Back then the unemployment rate was around 5.4%.
  • There is still one more jobs report to go in November 2015; however the chances that this jobs report will upset the FED’s plans are very low. As long as unemployment rate remains within 5.1% – 5.0% and the average monthly jobs fall below 180k it would still be an ‘OK’ jobs report. In other words, only a worse jobs report (similar to the one seen in March this year) would throw a wrench into the works.
  • Inflation still remains a concern, but the FED is betting on the ‘Phillips Curve’, a theory which shows an inverse correlation between unemployment rate and inflation, and with the unemployment rate at 5.0%, the FED hopes that inflation will start to move.

Technical Analysis – US Dollar Index

The monthly chart for the US Dollar Index (99.15) shows the potential bias staying to the upside. After prices hit the 100 psychological resistance level in March this year of 2015, price closed lower a month later with a bearish engulfing candle. Technically, this should have seen prices move lower, but instead I witnessed a sideways price action for nearly 6 months since April 2015. In the process, the US Dollar Index formed a triangle pattern with the current monthly candlestick breaking out from the range.

Chart 1
US Dollar Index – Technical Outlook

I anticipate that another retest to 100 is in the cards in the near term but I expect to see a pullback towards 97.19 through 96.28, ideally by December. The measured move off the triangle pattern points to two targets of 104.8 which mark the 161.8% move from the triangle’s high to the base and 200% move at 107.53. Incidentally, these two levels mark a strong resistance level validating the move to the upside.

Conclusion: The US Dollar Index is expected to make a pullback to 97.19 – 96.28. If prices hold above this level, the US Dollar Index could potentially break out above 100, targeting 104.8 and eventually to 107.53

Technical Analysis – Comex Gold Futures

On the monthly chart for Gold (1087.70), I witnessed sideways price action for the past three months after Gold posted a strong bearish pattern in July this year, closing at 1094.9. This month, as of last week, Gold broke below the 1094.9 level, but a monthly close below 1094 is needed for a confirmation of a bearish continuation pattern. So, for the moment, the downside bias is neutral.

Chart 2
Comex Gold Futures – Technical Outlook

I noticed a short term resistance area near 1141/1130 while a recent low is formed near 1072. A break below 1072 (on a monthly session) could see the bearish momentum takeover, sending prices to 1042/1030, which marks a test to the lower end of the price channel.

As long as 1072 holds without a monthly close below this level, Gold could see a short term reversal to 1200 above support at 1141/1130. A retest then to 1200 would establish 1200 – 1223 as a resistance level opening up the way to a decline lower below 1072.

Conclusion: Gold prices look to be bottoming for now, but a pullback to 1200 – 1223 is in the cards and the bias remains to the downside, for a break below 1072, which will open up the declines to 1000 and lower. Watch the month end closing prices in Gold, as a bearish close at current level of 1087 could form a shooting star pattern hinting at further downside weakness with no hopes of any recovery above 1141/1130.

Forecasts – Gold and US Dollar

The following are the near and medium term outlook for Gold and US Dollar*.

Nov’2015 Dec’2015 Q1 – 2016
Gold 1130 – 1140 1223 – 1200 1087 – 1000
US Dollar 99.25 – 97.2 97.25 – 96.28 100 – 104


Key Takeaways

  • With the October 2015 jobs report showing the US economy reaching full employment, the FED has no further reason to delay rate hikes. Focus will shift from ‘when’ to the ‘pace‘ of the rate hikes, which will be important. Assuming that the emerging markets do not throw yet another tantrum, the December 2015 rate hike decision could be an almost done deal, as long as the November 2015 jobs report does not disappoint. Even ‘OK’ jobs data in November 2015 is sufficient to keep the rate hikes alive for December 2015.
  • Watch the inflation (CPI and PCE) numbers in the remaining 6-weeks. Even a modest pickup or, at worst, unchanged data is sufficient for the FED to proceed with rate hikes.
  • The US Dollar has historically risen strongly ahead of the FED rate hike cycle and then drops, while Gold tends to fall before the rate hike cycle and then rallies.
  • A key risk to consider is that the FED remains the lone Central bank amongst the developed economies to surge ahead with rate hikes. The New Zealand Central bank went through this cycle last year but the New Zealand economy could not sustain rate hikes resulting in a rather quick cycle of rate cuts. With inflation staying low, the FED will no doubt focus its communication on being as soft and slow as it can with rate hikes in hopes that inflation will pick up sooner than later.

Being on the higher end of the rates will give the FED some breathing space to scale back should the US economy start to show signs of weakening (which starts as soon as Q1 2016 where the US economy generally posts the weakest quarterly growth in economic activity).

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Chris Vermeulen

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Nicola Mining
Peter Epstein, CFA, MBA     http://EpsteinResearch.com     epstein.peter4@gmail.com 
 
The July 2013 announcement of Peter Espig’s accepting the role of CEO may have come as a surprise to some; however, to Mr. Espig it was a natural career progression. He grew up around mines and exploration projects, having spent 8 years working as a diamond driller in the 1980s. His career as an internationally renowned turnaround specialist and financier, including working at Goldman Sachs & Olympus Capital, places him in an ideal position to advance Nicola Mining Inc. [NIM.V] (the “Company” or “Nicola”).

Mr. Espig has structured greater than US$2.5 billion globally in private and public deals. According to Mr. Espig, “…regardless of the industry, turnarounds require hard work, professionalism and creativity. Mining is not the Wild West anymore, but managers have to constantly monitor cash burn, assets, debt and cash flow opportunities.”  Prior to accepting the full-time role as CEO, Mr. Espig served as an Independent Director to the Company, a role that allowed him to better understand the value of its assets and to hit the ground running.

The following interview of Peter Espig, CEO Nicola Mining, was conducted by phone and email in the week ended October 30th. The views and opinions of Mr. Espig are entirely his own. The interviewer, Peter Epstein, CFA, MBA believes that the information provided by Mr. Espig is accurate, but cannot guarantee that it is.

Can you please explain the history of Nicola’s predecessor company Huldra Silver as far back as you care to go?

Huldra Silver Inc. (“Huldra”) was incorporated in 1980 and focused on the exploration and development of its wholly-owned group of mineral tenures located in British Columbia, Canada. The silver-lead-zinc Treasure Mountain property, situated 29 km northeast of Hope B.C., comprises 52 mineral tenures in an area covering 3,187 hectares (7,875 acres). After discovering a 250 meter long silver rich vein in 1985, which was tested in 1986, Huldra went public in 1987. Between 1987 and 1989, Huldra explored 4 underground levels with 2,743 meters (9,000 feet) of crosscuts, drifts & raises and punched another 1,676 meters (5,500 feet) of underground drill holes. An additional 3,048 meters (10,000 feet) of surface drilling was completed as well.

A bulk sample of 407 Metric tonnes, “Mt” of high-grade material was shipped to Cominco’s & Asarco’s smelters for testing. The shipped material was compatible with the smelters’ requirements, and Huldra was paid $344,265. However, progress towards achieving continuous production was halted in 1989 due to difficult financial market conditions.

Despite low metals prices in the 1990s and until 2006, Huldra was able to perform modest exploration programs at Treasure Mountain. Notably, management updated property maps, particularly mine plans, and conducted rotary drilling to investigate parts of the property evidencing significant mineralization. In 2007, mine workings were re-entered on two levels and check sampling was done to prepare a National Instrument 43-101 (“NI 43-101”) compliant resource.

On the basis of updated, digitized versions, a NI 43-101 report of Treasure Mountain was completed in 2009. Total Indicated Resource above a 10.0 oz/ton (311g/Mt) cut-off was estimated at 33,000 Mt @ 24.2 opt (753g/Mt) silver, plus 4.16% lead & 3.80% zinc, an Inferred Resource estimated at 120,000 Mt @ 27 opt (840 g/Mt) silver, plus 2.79% lead & 4.36% zinc.

In preparation of a 10,000 Mt sample, Huldra’s Level 1 portal of underground workings was re-timbered. That same year, Huldra conducted an exploration program including stripping, trenching and diamond drilling to further explore a prospective area of silver lead-zinc mineralization. Several studies related to environmental and mine planning were also commenced. In 2011, the Company acquired additional surface rights adjoining historic mineral tenures for $350,000. Camp construction at Treasure Mountain, with facilities capable of supporting 50 workers, was completed at a cost of $1.2 million. Huldra also purchased mining equipment for $1.5 million to commence underground mining.

In 2011, Huldra acquired 100% ownership of Craigmont Holdings for consideration of $8 million. The Craigmont property is located near Merritt, B.C., 70 km north of Treasure Mountain. Huldra’s intent was to acquire a property that already maintained an existing mining and milling permit, as it would expedite the process of developing and mining Treasure Mountain. Given amicable weather, water, electrical infrastructure and proximity to Huldra’s former mining operations, Craigmont’s property was an ideal location to develop a mineral processing facility. The Company invested $21.6 million into a new mill plus $2.0 million into a lined tailings facility. Huldra built the Merritt Mill in 2011-2012, completing it November 2012.

Given a new management team and Board, and a new company focus, what are KEY takeaways from the Company’s history?

Huldra Silver is an example of a company that had viable assets and a working business plan, yet was unable to service its debt. In short, it encountered the, “perfect storm” of excessive debt, falling commodity prices and diminished liquidity in both debt and equity markets. As a result, Nicola owns superior assets (see below) with near-term cash flow and longer-term exploration potential. We expect to deploy cash flow from our milling partnerships to fund other promising assets.

Importantly, the economic environment which continues to be illiquid and unsupportive of junior miners, creates highly attractive M&A opportunities. As a former M&A banker and distressed turnaround specialist, I understand how to acquire (companies / assets) and structure transactions. We continue to look at assets that can be acquired at discounts to total capital invested. However, ultimately it’s not just the discount that matters, but also synergies created by consolidating a valuable property with our new mill site.

Why did you change the name from Huldra Silver Inc. to Nicola Mining Inc.?

The name change is simple. Some may view it as extermination of the stigmatism attached to the previous company which entered into creditor protection and saw its market capitalization collapse, but this is not the reason. Actually, Huldra Silver Inc. was exactly what the name implies, a silver-focused junior mining company, but Nicola has become much more than that. We have the potential to become a consolidator of small high-grade gold and silver deposits, (and associated base metals), located throughout British Columbia. We changed the name to Nicola Mining because we are in the Nicola Region.

Legacy Huldra Silver Debt Structure:

Debt Holder Description Amount
Waterton 1 DIP Financing $3,200,000
Waterton 2 Senior Debt $7,300,000
Convertible Debenture Holders Unsecured $11,000,000
Trade Payables Subordinated $3,000,000
Total $24,500,00
Can you please describe the recently accomplished financial / debt restructuring?

Our team’s proactive restructuring of debt while in CCAA is one of the most compelling parts of the Nicola Mining story.  At the time of my taking over as CEO, the Company had defaulted on $24.5 million in debt and payable obligations that required immediate restructuring.  Post Tranche 3 Financing, the Company will have a senior secured 3% debt note of $1,287,500 and a Secured Convertible Debenture of approximately $8.5 million, which is due in 2 and 3 years.

Restructured Nicola Mining Debt Structure:

Debt Holder Pre-Offering Post Debt Conversion
Waterton 1  (DIP Financing) $3,200,000 $1,287,500 (3 years)
Waterton 2 $7,300,000 $0
Unsecured Convertible Debt $11,500,000 $0
Payables & CRMC Settlement $3,000,000 $0
Secured Convertible Debt $8,500,000  (2 – 3 years)
You have described Nicola Mining as a package of 4 distinct, non-correlated assets. Can you please outline those 4 assets?

Asset # 1: The Merritt Mill is fully operational, requiring no CAPEX to commence milling up to 300 Mt per day, “tpd.” We would  require roughly $150k in CAPEX to install equipment allowing us to utilize a back up crushing system. If installed, Nicola would be able to concurrently process mill feed from two sources. Depending on material, our break-even milling is $50 to $70/Mt. Our mining partners pay mining & transportation costs and a tailings disposal fee. We pay milling costs. Nicola sells the concentrate, with resulting profits split 50 / 50.

A key component of our partnerships is that they are exclusive contracts. It`s truly a win / win. We unlock value of the miner’s properties by giving them an opportunity to monetize. Without Nicola, the miners would probably not be mining at all. We are their only outlet. We intend to share profits equally with our partners to ensure repeat business. It`s extremely difficult and costly to get a milling permit so we’re in a very advantageous position. Currently we have 3 partnership agreements in place; the first guarantees delivery 15 g/Mt gold, the second 1,306 g/Mt silver and the third, 7 g/Mt gold.

Screen Shot 2015-11-03 at 4.00.52 PM

Our third Mining and Milling Profit Share Agreement is with a company called Siwash, see press release. Siwash’s mine is low-cost as its main vein system outcrops at surface. Our partner has about 3,500 Mt stockpiled and is required to deliver a total of 6,500 Mt ending in 2nd Qtr of 2016. Siwash is applying for a 10,000 Mt sample permit, (~ 167 tpd over 60 days). Assuming we process our partner’s 6,500 Mt over the course of 60 days, that would equate to roughly 100 tpd, or 1/3 of Merritt Mill’s current capacity.

Asset # 2: Treasure Mountain, a former operating mine, has $460,000 of remaining costs to mine Level 1 Stope 2 and another $308,000 to ship mill feed to Merritt Mill. Proceeds from our 3 milling partnerships are expected to repay a portion of Waterton’s debt, fund exploration and bolster working capital. Nicola Mining owns 100% of Treasure Mountain’s silver deposit consisting of 51 mineral tenures, 21 legacy claims, 100 cell units and five crown grants totaling 2,850 hectares (7,043 acres). The Company maintains the option of reopening Level 1 to extract silver from Stope 2. However, given depressed silver prices, our near-term focus remains on exploring 3 prospective targets.

Asset # 3: Thule Copper has, without question, tremendous blue-sky potential. I don’t use the term, “blue-sky” lightly, Thule Copper was once the largest open pit copper mine in the world. Thule’s mining leases and rights comprise 20 mineral claims covering 8,457 hectares (20,898 acres), of which 10 claims are contiguous. Thule Copper is known to host mineralization in the form of copper-iron skarn and copper porphyry. It’s located 20 km south of Teck Resources’ Highland Valley Copperoperation, 10 km from Merritt, BC.

Asset #4: Industrial Soil. Our 4th asset was recently developed by Nicola Mining. It’s a portion of our property permitted to accept contaminated (industrial) soil. As mentioned, this asset and the utilization of the Merritt Mill, are the nearest-term cash flow opportunities. By 2h 2016, we expect to be cash flow positive. In the meantime, we don’t anticipate requiring equity capital, except for compelling, accretive acquisitions.

Screen Shot 2015-11-10 at 8.16.51 AM

Did Huldra Silver own all 4 assets? How much capital was deployed?

That’s a good question. Huldra Silver owned the Mill, Treasure Mountain and Thule Copper. Prior management spent a very considerable amount advancing these assets. As can be seen, a total of $51 million has been sunk into our assets. This is noteworthy given that our current market cap is just $6 million. A portion of the $51 million deployed was completed many years ago. In today’s dollars, the cost of replicating these expenditures would be meaningfully greater.

Total historical investment:

Screen Shot 2015-11-09 at 5.07.51 PMPlease explain near and intermediate-term catalysts to watch for

There are several important catalysts to watch for, milling operations, M&A, possible non-core asset sale and industrial soil handling. Milling of miner partnerships’ ore is expected to commence by the 2nd Qtr 2016. Given the distress in the mining industry, we expect very attractive and accretive M&A opportunities. We are reviewing a couple now. We have a contract in place to accept up to 300,000 Mt of industrial sand per year at $6.0/Mt of net revenue to Nicola. We have an offer for a non-core property listed for $2.5 million.

What would be an approximate valuation of Nicola’s assets in an orderly liquidation? Does this represent a reasonable downside scenario?

I don’t want to imply that the sale of our asset(s) has value because in a distressed environment characterized by limited liquidity, there’s no telling what any asset is worth. We do have a potentially valuable hard asset, the Merritt Mill, constructed at a cost of $21.6 million. Our Mill could allow a new owner to generate cash flow next year. However, in this market we would rather be buyers at steep discounts, not sellers. 

The opportunity for us to consolidate in this epic downturn for TSX:V listed companies is exciting and compelling. We could also be an attractive takeover target for international players hoping to secure off-take. I should add that we’ve already been approached. The most important thing is to demonstrate that our assets can generate cash flow. That’s when our valuation could improve very significantly. It’s really hard to come up with a sum of the parts analysis pre cash flow. It’s prudent to assume that the value of a non-cash flowing assets in this environment is essentially zero. I believe we need to look at our assets as an NPV exercise. Screen Shot 2015-11-03 at 7.51.52 PM

Advancing these assets will require investment capital. How will Nicola fund its capital expenditures?

Funding requirements are minimal, although we will be required to spend approximately $100k (50.1% of our Thule Copper ownership) to maintain our permits on Thule Copper. We are really excited about Thule given the work done to date. Other CAPEX will be contingent upon cash flow, leading to cash accumulation. Unless there’s an exceptionally accretive opportunity, we will be highly conservative with our cash. It’s sometimes best to acquire assets at a huge CAPEX discount, rather than pay full price for developing new assets.

If the market fails to reward Nicola with a proper valuation could the Company go private, declare a special dividend or spin out assets?

No, it’s not our goal at all to, “go private,” but rather focus on getting to a point that would entice senior secured debenture holders to convert into equity. More likely, listed miners with solid BC-based assets, but lacking cash flow, will find it difficult to pay listing, accounting and administrative fees. Shareholders of these companies will lose interest and management will look to consolidate with a stronger player like Nicola Mining.

Are there any misconceptions on Nicola Mining that you would like to address?

Thank you Peter [Epstein], I think we covered a lot of ground. In terms of misconceptions, one might be that we’re merely another junior natural resource company requiring ongoing, dilutive, capital raises to fund losses. This is clearly not the case given that we expect to generate revenues and cash flow next year. Our stock price and trading liquidity might be an indicator of that perception, but again, that’s no reflection on our assets and cash flow potential.

I believe our undervaluation could be due to a lack of understanding of the new Nicola Mining. We are just starting to tell our compelling story and to educate shareholders and prospective shareholders. Few may notice that we’re quite advanced on Treasure Mountain. As a past producing mine, the infrastructure is in place, the capital sunk and permits are pending. Finally, our market cap is just $6 million, yet the total amount of capital spent on our assets is $51 million. I believe there’s a disconnect between those figures. Hopefully, over time, our market cap will better reflect the large sum of capital invested and our ability to generate cash flow.

Disclosure: Nicola Mining has a small market cap. Small market cap stocks are highly speculative, not suitable for all investors. I, PeterEpstein, own shares of Nicola Mining. Mr. Epstein, CFA, MBA is not a licensed financial advisor. Readers should take that fact into careful consideration before buying or selling any stocks. 

Readers are encouraged to consult with their own investment advisors before buying or selling any stock, especially speculative ones like Nicola Mining. At the time this article was posted, Nicola Mining was a sponsor of: http://EpsteinResearch.com. Please consider visiting:  http://EpsteinResearch.com for free updates on Nicola Mining and others across a range of sectors. While at http://EpsteinResearch.com, please enter an email for instant delivery of my work. Thank you for supporting my articles & interviews.

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Debt Ceiling

Gold and silver spot prices lost ground to a strengthening U.S. dollar last week. The dollar enjoyed its best week in 5 months, as other major world currencies weakened. European central bankers are once again hinting at more stimulus, and the Chinese government cut interest rates for the 6th time in the past year.

dollar-fed

Federal Reserve officials meet on Wednesday, and almost no one expects them to change interest rates. Because of the overwhelming build-up of government and private debt, the economy appears totally unable to withstand higher interest rates.

But expect the usual parsing of officials’ every utterance for clues. It’s already been over nine years since the Fed has raised rates even a quarter point, so don’t hold your breath.

Meanwhile, the Treasury Department declared a debt ceiling deadline of November 3rd. Outgoing House Speaker John Boehner will try to push through a debt increase before his scheduled departure on Friday (when he’ll likely hand over the gavel to Paul Ryan). If Congress can’t come to an agreement this week, markets could get rattled on the looming possibility of a U.S. default.

It’s a remote possibility, though. Insiders say the Treasury and Federal Reserve could take additional emergency actions to pay the government’s bills well past the Obama administration’s arbitrary cut-off date.351321

As former Federal Reserve chairman Alan Greenspan said:

“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default. We can guarantee cash benefits as far out and whatever size you like but we cannot guarantee their purchasing power.”

In other words, the real threat to investors is inflation, not default.

Meanwhile, stock investors must think better looking economic data is coming, as they have been buying. We’ll see if the latest data matches expectations.

Silver Premiums Have Fallen, but the Short-Term Outlook Is Uncertain

With silver prices rising almost 10%, retail buying of physical silver has lessened over the past three weeks – down from the frenetic pace over the past 4 months. That’s allowed premiums on many products to fall toward normal levels. Production backlogs and delivery delays have also been dissipating.

Ask premiums for the Maple Leaf, American Eagle, and Pre-1965 90% silver U.S. coins – the products that saw the sharpest hikes through the summer – are now leading the way down. The respite will help mints and refiners catch up. Dealers are taking the opportunity to replenish inventories.

One fly in the ointment is the upcoming annual halt in deliveries of silver American Eagles. The U.S. Mint is expected to stop production of 2015 dated coins sometime between early and mid-December and change out the dies for the 2016 date. (While private mints only require a few hours to make a switch, the U.S. government requires a few weeks.) So the market can expect a month of no deliveries until a resumption in mid January.

supply-demand

If dealers cannot build adequate inventory to supply the market during the Mint’s hiatus, we will see upward pressure on premiums once again. January demand for the new year’s coin is also traditionally among the strongest months of the year. That may also push premiums higher.

This adds up to an uncertain outlook for premiums in the short term. Much will depend on what happens to retail demand in the coming months. The extraordinary demand from June through September was based largely on safe-haven buying.

The crisis in Greece has shuffled out of the headlines. Meanwhile, the combination of additional stimulus and the threat of draconian punishment for anyone selling Chinese stocks seems to have stayed the collapse of share prices there.

U.S. stock markets are also recovering from their late September lows. These signals indicate that complacency and the narrative of economic recovery is creeping back into markets. There is no one better at pushing a narrative than officials in Washington, unless it is Wall Street. Their problem, as always, is supporting it with actual facts.

Spot prices will also be a significant factor in bullion demand, of course. Prices have risen well above the recent lows, tempering some interest among bargain hunters. The markets also have some convincing to do before investors trust that the recent recovery actually represents a reversal and the start of a new uptrend.

clint-siegnerClint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

[Image Courtesy of Wand]

Thought Leader Discussions

Gevo, Inc. GEVO Stock News

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Gevo, Inc. (NASDAQ: GEVO) Before we get into this interview, I'd like to extend a special thanks to my friend Joey who both set up the...