Co-operation, positives and negatives at major gold event

The first full day of this year’s Denver Gold Forum opened with an announcement of a co-operative agreement between the Denver Gold Group (DGG) and the World Gold Council (WGC), followed by some extremely interesting presentations and a fascinating and informative panel discussion on paper gold, but which still left some key questions unanswered, or unclear.

Regarding the co-operation – in a joint announcement the DGG and WGC noted that between them the two groups represent almost all the world’s top gold miners in terms of production, mineral reserves and market value. Through closer co-ordination and collaboration they aim to ensure that miners are better informed on demand drivers, market trends and key developments.  While both parties may have differing outlooks on the industry, arguably their purposes do coincide.

The DGG’s Executive Director, Tim Wood commenting on the agreement noted: ““For some time the interests of our members have been aligned, so it makes strategic sense to work more closely. After nearly three decades of service to the industry, the Denver Gold Group has evolved as a significant platform for sharing ideas, information and experience. The World Gold Council produces the highest quality market data and insights, informed by its direct experience of the consumer markets. We believe this knowledge and perspective is important for our members, particularly to counter-balance the short-term, sentiment-driven commentary that often crowds the gold space.”

But back to the conference, the day opened early with two parallel keynote addresses and the writer attended the one on exploration trends and their likely impact on the industry looking ahead from David Cox of SNL Financial – which has recently been acquired by McGraw Hill.  While the overall mood of the conference may indeed be more positive than the past three years’ precious metals price performance might suggest – well the mining companies wouldn’t be in it if they didn’t think there was great excellent upside potential ahead – Cox and SNL’s analysis showed what has been in effect a pretty disastrous experience within the gold exploration space, with the majors initiating some big cutbacks, while the juniors, which had hitherto provided the largest part of exploration activity, struggling with lack of funding available to maintain a decent level of exploration activity.

What this is that global gold production is likely to move into long term decline with the mining companies no longer having the new gold resources available to them to replace aging assets due for closure or where grades are falling off.  Coupled with the huge lead times in moving a potential project from exploration through to production it could be many years, if ever, that miners get back to the gold output levels seen over the past couple of years.

Interestingly, Cox noted that SNL research suggests that global new mined gold output this year will see a small decline.  This runs counter to the forecasts from the major mainstream precious metals analysts who are all predicting a small increase.  Indeed Jeff Christian of CPM group sees production rising until 2017 before falling back sharply in 2018.  When questioned on the SNL projection Cox commented that the SNL figures are perhaps more up to date than those of the analysts which will have been calculated early in the year.

Peak gold – or crest gold as another delegate put it – may thus already have passed if SNL is correct.  The same delegate who works for one of the big mid-tier gold producers also expressed the view that although gold output may be beginning to fall it will have little impact on the metal’s price performance as this was more affected by gold trading and sentiment – although interestingly the paper gold panellists, who participated later in the day, held the opposite view and saw declining mine production of gold being key to the longer term performance of the metal price. More on this panel discussion later on.

Corporate presentations followed and the international nature of the Denver Gold Group’s membership was demonstrated here with talks from companies headquartered in the USA, Canada, China, Russia, the UK, Peru, Mexico and Australia and many of these with their operations in a number of other countries too.  With parallel sessions and various other meeting commitments one can only give a brief snapshot of the various corporate talks.

Presentations from gold, silver and other precious metals producers were almost unanimous in seeing costs still on the downwards path as they have sought to get to grips with the lower prevailing metals prices.  Those with operations in non-dollar area countries are also seeing some substantial benefits from local currency depreciation.

Of the bigger gold miners to present on the first full conference day, Gold Fields in particular has seen big benefits from the fall in the Australian dollar against its U.S. counterpart, while Russian-owned Nordgold, which will probably mine 1 million gold ounces this year at low costs and producing strong cashflows, sees the current gold price as opening up some great opportunities for acquisitions leading to further growth.

Ivanhoe’s presentation was limited to its Platreef wide reef platinum find on the northern limb of South Africa’s Bushveld Igneous Complex which could be something of a game-changer for South Africa’s beleaguered pgm sector.  Here it was good to hear a presentation by Ivanhoe’s David Broughton – free of much of the hype which normally surrounds presentations on the project by the company’s founder Robert Friedland.

Silver miner Coeur saw this as being a transformational year, while Hecla, already a low cost producer, was looking to its revitalised San Sebastian mine as the catalyst for further growth with a very low capital cost to production of a newly exposed high grade vein system suggesting a phenomenal project IRR of 444%!

Yamana’s Peter Marrone reported a much improved business model for the company with a focus on core assets and the monetization of non-core properties.  The second half of the year would see a substantial improvement over H1 with Q3 being better than Q2 and Q4 better than Q3.  There are high hopes for the developing Cerro Moro high grade gold/silver project in Argentina which is being brought to production.

A complete session was devoted to Royalty companies which have been among the best performers in what has been a difficult metal price climate.

The lunchtime panel presentation on paper gold was very well attended – with the fact that it is paper gold which appears to have been setting the price – and also responsible for some of the downward spikes seen by many gold bulls as proof of market manipulation.  None of the trading element on the panel saw manipulation as being in evidence putting these pricing anomalies down to being part of the vagaries of algorithmic high frequency trading which can hugely exaggerate market movements, although none were really able to give a convincing explanation in these terms for the big July 19 downward spike which took place almost simultaneously on COMEX and the SGE  when Western markets were closed and activity was extremely thin.  Someone had to have made the initial trades after which the algos took over and took the price down vertically before generating some partial recovery.

Interestingly even the traders on the panel all professed to be strongly bullish longer term on gold, but also all felt the price could yet fall to new lows before a strong recovery.

Nonetheless some of the explanations of how the markets actually worked were enlightening – but perhaps not so much so as to convince the out and out gold bulls that markets were not being manipulated so as to depress gold and silver prices.  There was also an explanation on  how the COMEX approved warehouse stock position worked, but not sufficiently so to clear up what proportion of eligible gold stocks is actually available to be converted to the registered category to prevent a possible default given the huge recent decline in the registered stock position.  The principal comment seemed to be that so little of COMEX trade is actually in physical metal, that the low registered stock position was largely irrelevant.

The afternoon saw presentations from a number of other gold and silver producers, including Pretium Resources developing the big high grade Brucejack gold/silver project to production over the next two years.  Pretium has just closed a $540 million financing – a probably unique feat for a junior in the current metal price and financial climate, demonstrating that there is still money available for a top of the class new mine project development.

All in all another very interesting day.  Again it is fair to say the mood was far more upbeat than the past few years’ precious metals price performance would seem to justify.  But as we have pointed out before, to be in mining at all one has to be something of an optimist – or perhaps a masochist as one Filipino mining executive once told the writer in the distant past.  But the DGG organisers should be congratulated in generating such a strong financial audience in what could at the best be described as an extremely difficult investment climate.  There’s still life in precious metals mining yet!

 

 

 

 

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