Energy & Commodities

Rare Earths Companies that are closest to delivering

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Winning the Rare Earth Economic War

China’s sudden cuts to rare earth export quotas and domestic production marked the beginning of a Rare Earth Economic War, proposes Jacob Securities’ Senior Mining and Metals Analyst Luisa Moreno. The good news is that partnerships between end-users and mining companies may just be the secret weapon to level the playing field for critical metals producers operating beyond China’s borders. In this exclusive interview with The Critical Metals ReportMoreno points to the companies that are closest to delivering high-quality goods for the benefit of manufacturers and investors alike.

COMPANIES MENTIONED: AVALON RARE METALS INC. – FRONTIER RARE EARTHS LTD. – LYNAS CORP. –MATAMEC EXPLORATIONS INC. – MEDALLION RESOURCES LTD. – MOLYCORP INC. – MONTERO MINING AND EXPLORATION LTD. – NEO MATERIAL TECHNOLOGIES – RARE ELEMENT RESOURCES LTD. –TASMAN METALS LTD. – UCORE RARE METALS INC.

The Critical Metals Report: Last year you published a research report called the Rare Earth Economic War. When we talked last time, you said that China was on one side and industrialized nations were on the other, with China winning. Does China’s new five-year plan with an emphasis on consumer consumption change that balance?

Luisa Moreno: China’s new five-year plan as it concerns raw materials suggests that China wants to better utilize its resources primarily for its own economic development, which in part supports the concept of a raw materials economic war. China, just as most nations, would like to be self-sufficient in key mineral resources. The country has about one-third of all the total rare earth element (REE) resources, but it supplies the world with more than 95% of its rare earth needs. I believe China is in a resource-preservation mode. However, what is not so fair are the differences between China’s domestic rare earths prices and international prices, which are usually much higher, and China’s dramatic decrease in production and export quotas in such a short period of time. China is well aware of the critical uses of some of the rare earths and it seems that it is determined to allocate a limited amount to the world and increasingly consume most of it by attracting REE-dependent manufacturing into China. The leaders plan to manage sustainable growth of the Chinese REE sector by attracting companies that utilize these resources. That would bring jobs while developing advanced rare earth-based technologies. It is no different from what other nations would like to do. Of course, China is at an advantage because it has the largest capacity in the world for the production of these elements and the know-how to refine them. The rest of the world is left with the option of moving manufacturing to China for better access to these materials. 

TCMR: So you are saying that China is still winning?

LM: I believe so. Actually, the recent move by the U.S., EU and Japan to file a law suit against China may end up supporting that conclusion, if they are unable to persuade it to change its rare earth policies. It seems that China is increasingly consuming most of these elements and it is trying to control supply and prices. 

TCMR: Can lawsuits and political pressure really make China change its export habits?

LM: Potentially. I think a negative ruling could make leaders think twice before deciding on export quotas or other related trading policies. But China will put Chinese interests first, obviously. I don’t think that the rest of the world has much leverage with what is now the second-largest world economy. I think the lawsuits bring attention to how other nations may feel, but might not necessarily be sufficient to change China’s policies regarding rare earths or other critical materials. 

TCMR: China’s Ministry of Commerce recently announced that the export quotas would remain essentially the same—30,184 tons (t) in 2012—but only 50% of the quota was used last year. Is that quota meaningful? 

LM: 2011 was an exceptionally bad year, the tsunami in Japan, the second-largest REE consumer, having caused a slowdown in demand, not to mention the global economic slowdown in the second half of the year, which was marked by poor economic conditions in Europe and negative economic politics in the U.S. The second half of 2011 was clearly not a favorable one for rare earths and many other commodities. Now that the rare earth element export quotas are separated into lights, mediums and heavies, I think it will become more evident where the real demand is and how tight the export quotas really are, assuming that we see some economic recovery. 

I think the new invoicing system that China is implementing to better control production and exports may decrease illegal exports of rare earths as well. Right now, official export numbers are not the total picture because so much is illegally produced and exported. I’m not sure China will be able to control all of the illegal exports, but at least reining it in a little bit will impact the supply-demand equation. 

If Lynas Corp. (LYC:ASX) comes into production and Molycorp Inc. (MCP:NYSE) ramps up production, we should see an increase in production of light rare earth elements (LREEs). That may make export quotas for LREEs less meaningful. However, China will probably maintain export quotas for some of the most critical REEs, including the light element neodymium and some of the heavy rare earths (HREEs) like dysprosium and yttrium. For the next five to 10 years, as long as there is a risk that some of these elements might be in shortfall, we may still see an REE export quota of some sort. 

TCMR: You called 2011 an exceptional year in terms of bad economic news, but could the drop in rare earths prices indicate that it had been in a bubble? Have companies’ efforts to re-engineer products and eliminate their needs for rare earths been successful? Or was it just the economy in general that accounted for the price drops?

LM: Likely it was a combination of all those things. I think the current and future demand for materials such as dysprosium should be healthy, but I’m not sure if $3,000/kilogram (kg) was justifiable. Similarly, the prices of lanthanum and cerium, which are fairly common elements historically below $10/kg , were above $100/kg back in August, a level we now know is not really sustainable. Prices seem to have been in a bubble and when demand decreased, REE prices also fell significantly. Chinese officials may have wanted prices to stay high and some Chinese refiners even suspended production for a few months when prices were falling and demand was weak.

TCMR: Considering that not all REEs are created equal in terms of market value, what are some of the most in-demand elements, and could those prices break out this year?

LM: I think the critical elements identified by the U.S. Department of Energy—neodymium, praseodymium, terbium, dysprosium and yttrium—could experience a significant increase in demand; some may even be in shortfall right now. It is possible that the prices of these elements may rise, but in the short term, we might see continued decreasing prices until they stabilize. I have already seen signs that they are starting to stabilize. If there is stability, or better yet growth in the global economy, the prices for some of these elements could potentially increase this year.

TCMR: You mentioned Molycorp and Lynas. Molycorp just announced the start-up of its manufacturing facility in Mountain Pass, California. Will that produce mostly LREEs? Could those two companies make a difference in global supply in the next couple of years?

LM: Absolutely. Light rare earths are the most sold or consumed elements—particularly lanthanum and cerium. They are the cheapest, but they are the ones that are sold in the highest volume. Lynas and Molycorp could also produce significant amounts of neodymium, which is very important for the production of super magnets used in hybrid cars, computers and wind turbines. Molycorp really does not have much of the heavies like dysprosium and terbium at Mountain Pass. Lynas might be able to produce some of the most critical heavies from its plant in Malaysia, but it would be rather expensive given that it only has small percentages of heavy lanthanides. In any case, even if both companies ramp up production, it won’t completely close the gap in demand that exists for some of these critical elements outside China.

TCMR: When do you see each of those companies going into production?

LM: There have been delays with the Lynas project because of permitting issues, but I think it hopes to start production in Malaysia before the end of the year. Molycorp expects to reach its phase one annualized production of 19,050t of mixed rare earth oxides by Q312 and separated products perhaps before the end of the year. It’s hard to say exactly when these companies will be able to reach their target production. As you know, with mining projects delays are not unusual, but both companies are working very hard to deliver on their promises.

TCMR: What are your top picks for non-Chinese companies that could supply some of the heavy elements in the future?

LM: My top picks include Matamec Explorations Inc. (MAT:TSX.V; MRHEF:OTCQX) and Ucore Rare Metals Inc. (UCU:TSX.V; UURAF:OTCQX). I cover both companies and they both have a favorable REE distribution with high percentages of the critical elements. I think Matamec has made significant progress with its metallurgy and its partnerships. The company just announced that Toyota Tsusho Corp. (TYHOF:OTC; 8015:JP) has signed a binding memo of understanding with Matamec, which means it has priority over the development of the Kipawa. That is very good for Matamec. 

Ucore should come out with a preliminary economic assessment (PEA) in the next few weeks, and we should be able to better assess if it is an economically viable project. The project is in Alaska and we believe it is the most significant HREE deposit in the U.S. It’s very interesting. 

TCMR: Could either of these companies be takeover targets for a Molycorp looking to cover the HREE space?

LM: If Molycorp wants to become the leading rare earths company, it will have to find a solution for the heavy rare earths. I think Matamec could have filled that role, but because Toyota has now the binding agreement, it will be difficult for Molycorp to approach Matamec. Besides, it seems that Toyota is interested in a 100% offtake deal with Matamec. Ucore, on the other hand, continues to be another good option for Molycorp, although the company is still working on its metallurgy and may be seen as too early stage. When the PEA comes out, hopefully we’ll have a much better idea of the progress of the project. 

Another company that would also be of interest is Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.A; TASXF:OTCPK; T61:FSE), which has the Norra Karr deposit in Sweden. It is close to Molycorp’s Silmet refinery in Europe. Tasman has one of the highest percentages of heavies. Contrary to Ucore and Matamec, it actually has a very large resource. My understanding is that in terms of the metallurgy, it made significant progress but it is not as advanced as Matamec or Rare Element Resources Ltd. (RES:TSX; REE:NYSE.A). Hopefully, it will file a PEA this year as well.

TCMR: Matamec is trading at $0.32 today and Ucore at $0.41. Could the recent news be catalysts for both of those companies? 

LM: I think so. As the market looks around for HREE alternatives to Molycorp, I think there is great potential for Ucore and Tasman to be recognized by the market as potential targets. Matamec is currently working on the details of a definitive agreement with Toyota Tsusho, to be completed by July. 

TCMR: You have commented on the importance of metallurgy and the refining process for extracting and efficiently delivering high-quality oxides for each individual mineral source because each one is very different. What companies are well on their way to doing this?

LM: Like I said, Matamec is well underway in doing this. Now, it has a fantastic partner, which is Toyota Tsusho and all the associated companies and likely universities that will be involved in developing that project. 

I think another company that has made significant progress is Montero Mining and Exploration Ltd. (MON:TSX.V). It has a deposit in Tanzania and it just announced that it has produced an oxide concentrate. That’s really good. 

Rare Element Resources Ltd. is another. I visited its pilot plant last year. It has also made significant progress. The resource is mainly comprised of bastnasite mineral, which, relative to other deposits, might mean that it will have fewer processing challenges. It has been able to produce a mixed oxide concentrate and is moving towards separating the elements and producing individual elements oxides. As I said, it’s already at the pilot level and completed a prefeasibility study. Rare Element is one of the most advanced projects; we believe however that the company needs to secure offtake agreements and a JV partner capable of co-financing the $375 million project. 

Another one that I like is Frontier Rare Earths Ltd. (FRO:TSX). It just published a comprehensive PEA, which included a separation plant. No other company has done that yet. Frontier has a partnership and partial offtake agreement with Korea Resource Corporation and the support of a consortium of Korean companies. 

TCMR: Could other REE companies that you’re following break out in the next few years, either because of agreements with partners or as takeout candidates or because they might actually start producing?

LM: I think we should perhaps pay more attention to what is going on in Brazil. We believe that Neo Material Technologies (NEM:TSX) spent some time there before being acquired by Molycorp. It seems that the company may have been looking at recovering xenotime from tailings at the Pitinga mine in Brazil.

Another private project is owned by Mining Ventures Brasil. It seems to have a colluvial deposit with high percentages of xenotime and monazite. The distribution for the heavies may be quite favorable. It’s an early-stage project; the company is moving forward with the metallurgy now. There is a possibility that things could work out pretty fast for them.

Another private project still in Brazil is the one that it is ongoing at Companhia Brasileira de Metalurgia e Mineração (CBMM). It is the largest producer of niobium but it also has rare earths in its deposit. 

Medallion Resources Ltd. (MDL:TSX.V; MLLOF:OTCQX; MRD:FSE) is a public company targeting monazite deposits around the world. Monazite, just like xenotime, has been used in the past to recover rare earths. The model is to find these monazite deposits because they represent a far easier metallurgic process than other sources. That could allow Medallion to fast-track its project. 

A lot of folks are trying to find solutions for these metals. 

TCMR: The sheer number of early-stage projects presents a challenge for potential investors. How can investors pick which companies might be successful? What should they focus on when there are so many moving parts—the management, the location, the metallurgy and the different elements themselves?

LM: To start, investors should be looking at the same factors they usually use to assess mining companies. Beyond that, the most important factors for REE projects specifically are metallurgy and industry partnerships. However, it depends what investors are looking for. Essentially, there are some names in the rare earths space that are well known and respected. Examples of that are Avalon Rare Metals Inc. (AVL:TSX; AVL:NYSE; AVARF:OTCQX) and Rare Element Resources Ltd. They were the first ones to publish PEAs and are still perceived by some as the frontrunners. There are, however, lesser-known companies that have received far less love from the market, despite having made significant advances. That includes Matamec and Frontier, which I still feel are somewhat under the radar. 

If investors are anticipating a bounce in rare earths stocks and would like to hold rare earths companies that have made major progress in metallurgy, with solid industry partnerships and have great potential for significant long-term upside, I think names like Matamec and Frontier might be good. They’re relatively more advanced, particularly in metallurgy, which is very important because you can have 100 million tons at high grades, but if the metallurgy is complex and you are five years away from solving the processing to a level where it’s economic to recover these elements, that might not be so competitive in this market. Those that are more advanced will be better positioned to secure development partners. That’s very important because the PEAs coming out show that projects are capital expenditure intensive and industry partners can help finance these projects. 

Rare earths are not commodities; end users, usually through joint ventures, guide companies toward production of appropriate materials. It’s a very complex space. As I said, although Matamec and Frontier have made significant progress, they consistently have underperformed some of their peers. So investors who are interested in those names will have to be really patient. We believe, however, that Molycorp is the undisputable leading non-Chinese rare earth listed company at the moment and investor interest in this space should follow and analyze this company to determine a good entry point.

TCMR: You’re going to be speaking at the International Rare Earths Summit in San Francisco in May. What message will you be delivering?

LM: Seeing as a significant part of the audience is expected to be end users who are extremely concerned about the long-term availability of these elements, I’ll be talking about the challenges that rare earth miners and future producers face, focusing on how end-users may better participate in the development of a global rare earths supply industry. They could surely help fast track the development of the rare earths industry outside China.

TCMR: Thank you very much for your time, Luisa.

Luisa Moreno is a senior mining and metals analyst at Jacob Securities Inc. in Toronto. She covers industrial materials with a major focus on technology and energy metal companies. She has been a guest speaker on television and at international conferences. Moreno has published reports on rare earths and other critical materials and has been quoted in newspapers and industry blogs. She holds a bachelor’s and master’s in physics engineering as well as a Ph.D. in materials and mechanics from Imperial College, London.

Want to read more exclusive Critical Metals Report articles like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators and learn more about critical metals companies, visit our Critical Metals Report page.

DISCLOSURE:
1) JT Long conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: Rare Element Resources Ltd., Medallion Resources Ltd., Frontier Rare Earths Ltd., Tasman Metals Ltd., Matamec Explorations Inc. and Ucore Rare MetalsInc. Streetwise Reports does not accept stock in exchange for services.
3) Luisa Moreno: I personally and/or my family own shares of the following companies mentioned in this interview: None. I was not paid to do this interview.



These “Pick & Shovel” Investments Pay Reliable Double-Digit Dividend Yields

These stable businesses offer some of the most reliable dividends on the market today.

When gold was first discovered at Sutter’s Mill in the foothills of California’s Sierra Nevada mountains in 1848, thousands of people dropped everything and headed west with dreams of striking it rich. 

Within a year, San Francisco was transformed from a sleepy outpost with a few dozen shacks into a bustling mining hub. As gold fever spread, would-be prospectors poured in by the boatload from as far away as Chile and Hawaii. 

There was plenty of gold to be had in rivers and streams, particularly in the early days. But much of it went to larger operations that utilized high-volume hydraulic recovery techniques. The average miner sifting with a simple pan or other crude device was lucky to break even and recoup expenses. Thousands went home disillusioned and broke. 

However, while the great gold rush was a bust for many, the huge population influx was a boon for gaming houses, saloons and brothels. And several entrepreneurs made a fortune, among them a peddler of denim pants named Levi Strauss. 

In fact, the first millionaire to emerge from all of this was an enterprising retailer named Sam Brannan. Brannan famously cornered the market and bought nearly all of the available supplies of picks, shovels and pans. Then to drum up business, he ran through the streets showing everyone the newfound gold dust. 

Brannan was clever. He knew that some would find gold and others wouldn’t — but they would all need tools. And he was happy to supply them, at a substantial mark-up, of course. At the peak, Brannan was reportedly raking in $5,000 a day in sales, more than $140,000 in today’s dollars.

What does any of this have to do with income investing? Plenty…

As the Chief Strategist behind StreetAuthority’s Energy & Income advisory, I think the easiest way to explain this is using the energy field as an example.

From small independent explorers to integrated global giants, companies that find and produce oil and gas can make a ton of money for their shareholders. 

And many of these companies pay out steady dividends. For example, ExxonMobil (NYSE: XOM) has raised dividends nearly 6% annually for the past three decades.

But these companies are also exposed to fluctuating commodity markets. And as we all know, energy prices can be notoriously volatile. 

For example, Exxon shares are still well below their highs from before the recession on the heels of lower energy prices.

By contrast, companies that provide necessary equipment and services to these exploration companies aren’t in the business of selling oil and gas. So they don’t directly feel those day-to-day price swings. As long as prices are strong enough to support continued exploration and development activity, they stay happy.

It’s the same situation that the “pick and shovel” companies during the Gold Rush were able to use to their advantage. 

In the income and energy field, there are a number of these types of companies… and many pay high yields.

Perhaps the best known group is master limited partnerships (MLPs). These aren’t your traditional equipment and service companies that make pumps or drill bits… but they are every bit as important.

Without MLPs, the energy pumped out of the ground by energy companies would be useless. That’s because these companies own the pipeline and storage assets — so called “midstream” assets — that help get energy from the field to the end user.

03-12-Alerian

MLPs typically aren’t concerned with energy prices. They get paid for the volume shipped through their pipelines and storage terminals. They usually earn the same amount whether a barrel of oil is $150 or $50.

Of course, when you make money from simply transporting commodities (which are in constant demand) and don’t have to worry about swings in their prices, you’d expect to see steady cash flow. This is the case with many MLPs, which pass along the bulk of that money to their investors in the form of steady yields. Most MLPs have yields averaging 5-6%, and it’s not uncommon for some MLPs yield in the double-digits. 

But this same principal can be applied across the entire income universe. There are plenty of yields that come from companies doing the “exploring” — whether it be actual exploration for energy, delivering the next breakthrough drug, or building a new airplane.

If you want to invest in the most stable businesses, however, look to the companies that will make money supplying the “picks, shovels and pans”… even if other companies don’t strike gold.

[Note: For more about the income opportunities in the energy field, don’t miss my recent presentation about energy royalty trusts. This field is small — only about two dozen trade on the market. But we’ve found one trust yielding up to 17.1%. For more information — including names and ticker symbols — visit this link.]

Good investing!

Nathan Slaughter
Chief Investment Strategist, Energy & Income

Disclosure:  Neither Nathan Slaughter not StreetAuthority own shares of the securities mentioned. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.


What’s hot, what’s not and loving volatility: Top Analyst Mickey Fulp sounds off at PDAC

 Bullish Uranium ‘We’re using something like 20 to 30% more uranium than we mine and we’re running out of sovereign and utility stockpiles”, Graphite Copper & Gold & Volatility.

 Mickey Fulp, who topped the site’s list of recommended mining bloggers and newsletter writers. In this brief interview on the sidelines of the PDAC convention in Toronto, Fulp touches on gold stocks, current market volatility, and two metals he likes best right now: uranium and graphite.

Andrew Topf: I heard a lot of commentators saying at PDAC that the rally we experienced in January is looking more like a deadcat bounce. Where are we in the markets right now?
Mickey Fulp: It does look like that, but if you look at the venture exchange index it’s up 14% on the year and 2% in February, so we’ve seen a flattening of the market. A lot of that I think has to do with the price of gold, it was down $12 over the course of February. Gold really drives our market, and we were really having a good performance in gold till Bernanke did his little thing and the massive selloff came last week and the price of gold dropped $80 in one day. But anybody that’s unhappy with $1700 an ounce gold shouldn’t be in the gold mining business. There’s plenty of room for margins at $1700 gold.

Andrew Topf: You said recently that investors shouldn’t be afraid of the current volatility. So how should investors play mining stocks right now?
Mickey Fulp: In 2011 it was very common for gold to be up or down $50 in a day, same with the New York Stock Exchange, the Dow to be up 100 points or down 100 points, so that sort of volatility is often driven by fear and panic and greed. Daytraders and professional investors welcome volatility, the lay investor is the one who is intimidated by it, but from my point of view volatility gives multiple exit or entry points in a stock, so my new mantra is embrace volatility. Take emotion out of your trading and embrace the volatility and use it to your advantage.

Andrew Topf: Gold mining stocks are still lagging the price of bullion. Why is that the case and what is it going to take for the disparity to narrow?
Mickey Fulp: What’s really changed in the market is the ETFs. The Gold ETF (GLD) is now the third largest gold holder on the planet. At 2400 tons of gold, that’s a lot of gold. That’s not much less than the yearly supply of mined gold (2800 tons). What that has done for a lot of people is offered a new way to invest in the gold market. Before you either owned physical gold or you played gold stocks. Now you can hold physical gold, you can play gold stocks or you can own the ETF, so I think it’s sucked a lot of money away from the gold stocks and decreased liquidity, decreased volume and decreased prices.

Andrew Topf: You mentioned in your presentation that you like open pittable operations and insitu uranium and copper oxide projects. On the latter, is it simply the lower-cost of these operations that attract you?
Mickey Fulp: They’re environmentally benign, and they’re the lowest cost operations around. All you’re moving around is mineral-laden water and you’re actually cleaning up aquifers so they’re easier to permit, they’re quicker into production. It’s a wellfield not a hole in the ground.

Andrew Topf: How are you feeling about uranium these days?
Mickey Fulp: I remain a uranium bull and it all comes down to uranium fundamentals.We’re using something like 20 to 30% more uranium than we mine and we’re running out of sovereign and utility stockpiles, and the Russians are going to quit converting nuclear bombs to fuel, so there’s a pending shortage of uranium. What Fukushima did is it created supply disruption more than deamdd destruction so if anything the supply is going to decrease.

Uranium-Idealized-Chart-Entry

The Germans took 8 reactors off and now 2 of them are back on. The Japanese have only 2 of 54 reactors currently producing electricity. A lot of that was because of scheduled maintenance and also stress tests and some safety upgrades. There are brownouts in Tokyo and how long can that go on? That whole northeast coast of Japan lost all its industrial capacity so there has been demand destruction but that will come back. I think they’re locked into nuclear power and so my prediction is by the end of the year a significant number of reactors will be back online.

Andrew Topf: What metals are you bullish on right now?
Mickey Fulp: Copper, gold and uranium, and I’ll put graphite into that too.
Andrew Topf: Right, graphite seems to be the belle of the ball right now.
Mickey Fulp: It is, it’s the next big thing it reminds me very much what happened with REEs in 2009. We’re building a bubble in graphite, every snake oil salesman, shark and charlatan is swimming aorund in Coal Harbor in Vanouver right now. Every Vancouver promoter is scurrying around trying to find a shell to throw a graphite project in, so it looks very much like the next big thing. Like other area and commodity plays the juniors will rush in and 95% of them will fail and the ones with good deposits and good business plans will succeed.

Andrew Topf: Do you see any issues with mining and processing graphite?
Mickey Fulp: Well, it doesn’t have any of the processing confusion that happens with the rare earths sector, it’s at all-time high prices right now, and we have a shortage of graphite particularly large flake graphite which is needed in certain applications. The Chinese who supply 70% of the world’s graphite are running out of large flake graphite so the world needs more graphite and the mining and marketing and processing are very straightforward compared to the REE sector.

Andrew Topf: But you mentioned it’s a bubble.
Mickey Fulp: Yes it is a bubble. Let’s go back to the way this business works. 95% of these companies that are listed are doing nothing more than mining the stock market. Look at the Yukon gold play. That’s last year’s story isn’t it? Ultimately there will be successes coming out of the Yukon and we were sitting here last year hearing Yukon gold Yukon gold, and they had a horrible year. We want to wash a bunch of those pretenders out. That’s the way this market works. Anything where there’s a rush in, the good companies realize at first, get the best prospects, the best deposits, then the herd comes running in and becomes the next big thing and everybody has to have an REE project or graphite project or gold play in the Yukon. They rush in and then in a year or two they rush out because they’ve been unsuccessful and then they’re on to the next big thing. The key is to get the contenders. Go in early and find the contenders.

Andrew Topf: Think there will ever be a gold mine built in the Yukon?
Mickey Fulp: Oh sure there will be one or two gold mines built out of this, but it’s a harsh place and there’s little infrastructure, so we’re looking probably 10 years down the road.

Andrew Topf

Andrew Topf

Email: atopf@mining.com“>atopf@mining.com

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Andrew Topf is an editor at MINING.com. With a background in newspaper and trade magazine reporting, Andrew specializes in writing about mining and commodities. He has written for the Black Press newspaper chain in British Columbia, Business in Vancouver, and Baum Publications.

An Update on Seasonality of Gold Equities

 

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The PDAC Curse continues! Canadian gold equities have a history of moving higher from the last week in December until the third week in February in anticipation of encouraging news to be released just before or during the annual Prospectors and Developers Association Conference in Toronto early in March. Thereafter, Canadian gold equities tend to move lower. They followed their seasonal pattern once again this year. The TSX Gold Index from its low on December 29th to its high on February 23rd gained 13.4%. Subsequently, the Index plunged 13.4% by this Wednesday to reach a 20 month low. Moreover, next major support for the Index on the charts is 14% below current levels.

Weakness in gold equities this week is related to a $US68 per ounce plunge in the price of gold from last Friday to this Wednesday. On Wednesday, gold fell below its 200 day moving average at $1,679, a technical level that previously had provide strong support. Gold was responding partially to strength in the U.S. Dollar following news that U.S. Non-farm Payrolls in February continued to recover from depressed levels. The U.S. Dollar also strengthened following encouraging news from the Federal Reserve on Tuesday confirming slow, but steady economic growth in 2012. The Federal Reserve also noted its intention to maintain an easy money policy until the end of 2014.

The TSX Gold Index did not respond well to the news. Weakness in the Gold Index was the main reason why the TSX Composite Index dropped sharply on Wednesday when major U.S. equities indices were reaching multi-year highs. Moreover, prospects for gold and gold stocks are not encouraging between now and November 6th, the day when the next U.S president is elected. The U.S. Dollar has a history of moving higher between the end of March and the end of October during a U.S. Presidential election year. Not surprising, gold and gold stocks have a history of moving slightly lower during this period. Normally, gold and Canadian gold stocks have a period of seasonal strength from the end of July to the end of September followed by a second period of strength from the beginning of November to the third week in February. The latter period is likely to be the better period for re-entering the gold trade this year.

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Preferred strategy is to look for better opportunities than gold and gold equities between now and November. Silver, platinum and their related equities are preferred over gold if your investment focus is on precious metals. Silver and platinum benefit from a growing demand for industrial purposes and have a history of outperforming gold between now and May..

The Gold Bugs Index fell another 33.44 points (6.56%) last week. It broke support at 477.93 to confirm an intermediate downtrend. Strength relative to gold remains negative.

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Updated Post Today’s Close – Gold & Gold Stocks & New Article

After Mar. 20 Close:

TSE Gold Index Seasonality:

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Via Don & Jon Vialoux’s Equity Clock

Good As Gold!

Just as a matter of reference on January 1, 2010 the Dow was at 10,550 so to date it has risen 25.42% while gold has moved from 1,100.00 for a gain 50.54%! So in spite of the Fed’s best efforts to pump the stock market up with a barrage of fiat currency while at the same time suppressing the price of gold with relentless intervention, gold has out performed the Dow two to one!! That tells you all you need to know.

They say a picture is worth a thousand words so if that’s true

goldagain

…..read the rest & view more charts HERE

(also don’t miss Mark Leibovits daily gold comment HERE


A Big Relative Decline

Since April of 2011, gold stocks have entered a notable downtrend relative to the prices of gold and silver. Various theories have been advanced as to why this is the case and all of them have some merit (e.g. the fact that ‘resource nationalism’ is increasing all over the world, that costs are ratcheting higher, that metal-backed ETFs give investors exposure to the metals while avoiding the hassles gold mining companies have to deal with, and so forth).

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…..read and view more charts HERE