OceanaGold: good news from the mine

[elZorro]

I was just reading from a perhaps more reputable writeup, that major economies try to hold back gold prices (presumably to curb inflation?).
Anyway, that didn't happen last night.

http://www.kitco.com/reports/KitcoNews20100506F.html

[elZorro]

Seems to make sense..

Forget the Dow and watch gold on Friday

The market's volatility today wasn't based on stocks -- it was based on currencies, sovereign debt and the flight to gold
Posted by InvestorPlace on Thursday, May 6, 2010 5:11 PM
By John Lansing, InvestorPlace.com

Wall Street suffered a brutal session today, with the Dow Jones Industrial Average dropping as much as 1,000 points intraday and temporarily dipping below the 10,000 mark. That’s a mid-day swing of more than 9% -- sending the benchmark index to its worst reading since February. The market ended up fighting back to 10,520 at the close, but still logged its worst intraday decline in history.

But the most important story, believe it or not, is not the stock market per se. The real chaos investors need to watch closely is the currency markets and gold. This will tell us whether the bull market is over or whether investors can count on the market recovering from today's sell-off.

Driving the market’s declines were fears that Greece’s $140 billion rescue package from the International Monetary Fund and euro zone nations is just the tip of the iceberg. Some of the nations footing the bill -- Portugal and Spain chiefly among them -- are in pretty dire straits themselves and may need a bailout of their own. On top of that, some fear that the bailout may not be enough to right Greece’s economy and prop up the euro zone.

Governments and investors alike aren’t asking whether Greece’s economy is too big to fail, but whether it’s too big to save. It was painful to prop up AIG, GM and Fannie Mae ... but it was within Uncle Sam's power (barely) to do so. But if an entire nation had to band together to bail out these companies, who will band together to bail out these nations?

Related: Don't Get Bitten by a Dead Cat Bounce

With no answer to that question, investors are fleeing to gold and roiling the currency markets. Some currencies, in some folks' minds, aren't even worth the paper they're printed on.

The Japanese Yen, the Swiss Franc, the Australian dollar all moved 4 to 6% during today’s volatile session. That’s no accident -- massive triggering of institutional stop losses can’t drive currency markets that crazy, nor can a flood of short selling. And certainly not a "glitch" or some trader with a fat finger registering the wrong trade on a Dow component stock.

The encouraging sign is that after the market’s gut-wrenching dip at around 2:45 p.m., it began a steady march back upwards. The Dow eventually closed down “only” 3.2% The S&P was also off 3.2% and the Nasdaq shed 3.4% when all was said and done.

So where do we go from here? Unfortunately with a Friday ahead of us it’s too soon to tell since investors really don’t like to go long over a weekend when uncertainty like this is gripping the market. We’ll know more based on the market’s movements tomorrow and early next week -- and here’s what you need to watch:

Gold: If the market is up a hundred points or so but gold is also up, it’s time to run for the hills. A clear sign of a dead-cat bounce in equities is if investors are still seeking shelter in gold and driving it up $20, $40 or $60 in a single session. A run in gold tomorrow and into early next week means Wall Street is stockpiling the yellow stuff before running to the bomb shelter. Stability in gold means that the panic selling has abated.

Related: Top Gold Stock to Buy Now

Currencies: If the Euro drops another 3% or so tomorrow, it means that Greece’s debt fears and the subsequent fallout are still weighing heavily on investors everywhere. It’s just plain impossible for the market to move higher if the euro doesn’t bottom out. If we’re seeing improvement in the currency then things may be stabilizing … but if not, look out below.

Related Articles:

Five of the Worst Stocks Out There
Gold Rises as Risks in Europe Grow (GLD, GDX)
VIX Explodes, Is the Market Going Up in Smoke?

[geezy]

elzorro , i think commods will be taking a big hit, gold included?

[elZorro]

Hi Geezy, I'll bite..
I don't know much about most commodities. I see Nickel has dropped a lot, implying lower S/S production estimates in a downturn. Gold on the other hand, has risen in the last few days, as widely predicted.

Is gold really just a commodity? In most cultures it has extra intrinsic value. While quite a bit of gold is used in the electronic industry for example, it is in such small amounts per component (very thin plating) that it doesn't affect the costs much. So POG could rise for this industry without much bother. Let's face it, being a heavy metal, it drops lower into the earth's crust every time it gets the chance, and it's getting more expensive to find it and recover it in the lower grades.

Mining companies with lots of gold in the ground at lower grades will only bring it out when the POG is high enough, like it is now. But there does seem to be a lot of demand for gold bars, with tonnes being purchased and shipped around the world in the last few months. I have read that the vast majority of gold traded is not available physically, and if you asked to view all of it at once, there would be a severe shortfall.

I don't want to see the value of equities worldwide being shot to hell, but I do think that companies like OGC with their gold exposure might do better than most. A slow and steady increase in the POG would be a tidy outcome, as perhaps inflationary factors become more important in the next year or two.

OGC is a leveraged gold investment. The value of its shares are still low because the market has seen their books. It cost nearly as much to recover the gold (even with fairly good grades) as they were getting for it under their hedged contracts, for the last year or two. We can estimate what the change will be over 2010-2011, and it's a lot better.

Take an imaginary example of a miner recovering gold for NZ$700 per oz, selling it on a contract for $800 per oz. No matter what the POG, the GP will always be $100 per oz (let's say the average POG was $1200). If the same miner keeps mining at $700 per oz costs, but the POG rises to $1700 per oz unhedged, the GP is now $1,000 per oz, 10x the previous level. The market capitalisation is strongly linked to the GP, all other things being equal. (perhaps 10x annual GP).

Note that from $1200/oz to $1700/oz, the POG increase is only 41%, but the GP of the imaginary company would go up 900% (unhedged to hedged) or by 100% (if it had been unhedged already)

Will the POG go up, or down, in the short term? Most think upwards.

http://www.kitco.com/reports/KitcoNe...7_update2.html

It doesn't matter what commonsense tells us, most of us will follow a trend, play safe. In a way, that's why gold is so good. Most punters will wait until OGC puts out a press release saying how much money they have in the bank now, from the first 6 months or so of unhedged gold production. It'll be too late by then , to get OGC shares at a real bargain. (Sure, they were an even better bargain right under our noses a year or two ago).

Short answer: I don't think gold will take a hit, and OGC is my main equities investment at the moment

[elZorro]

From the ODT: OGC looks determined to raise its profile with investors. Thinking about it, their team is well connected with gold and the market prices for it. They must have a reasonable expectation that the POG is not going downwards in a hurry. And this news will add more profit and probably reduce the cost per ounce as well.

Oceana Gold takes over Frasers contract
Home » News » Business
By Simon Hartley on Sat, 8 May 2010
News: Business | Oceana Gold
Oceana Gold is taking over the Frasers underground mining contract, which was costing it about $25 million per year, and is offering the contractor's 100 staff employment with Oceana.

Australian-based Byrnecut Mining has been contracted at the East Otago Macraes site to mine Frasers - which cost $US54 million ($NZ75.8 million) to develop - since April 2006, with the tunnel fully commissioned in January 2008.

Oceana chief operating officer Mark Cadzow said the company would maintain manning levels and would offer employment to Byrnecut's 100 employees, plus Byrnecut would act in an advisory role until September.

Frasers has about 125 staff.

"The main advantage is leveraging off other parts of the [open pit] operation and utilising those synergies to reduce costs," Mr Cadzow said.

Oceana recently got out of its forward contract hedging arrangements to sell all its gold on the global spot market and expects an extra $70 million-$80 million if prices remain around the $US1100 per ounce level. Prices spiked yesterday above $US1200.

About 1 million tonnes of ore is taken out of Frasers annually. It is forecast to deliver 55,000-65,000oz of gold annually for three years.

However, the extent of the ore body remains undefined at depths beyond the present 580m.

Test drilling in adjacent areas recently delivered "promising results" of "significant" grades.

This is also fairly new, from the website. It graphically shows the current market perception of OGC is on the low side (at least half) by comparison with other unhedged producers. Still uses the lower resources quantities from 31 December 2009.

http://www.oceanagold.com/images/doc...esentation.pdf

OGC is not alone in closing out hedges: they are behind the trend.

http://www.mineweb.com/mineweb/view/...8957&sn=Detail

[elZorro]

Here are the voting papers and notes for the AGM and special meeting, to be held 4 June in Canada. There will be a vote for options to directors, a parcel of 100,000 each, at sensible prices depending on their term with the company.

http://www.asx.net.au/asx/research/c...de&asxCode=OGC

Notice to market yesterday.

On the TSX last night, OGC finished at $3.23 equiv, was higher than that at times ($3.30), good volume. Looks like the ASX is having some issues today.

[elZorro]

http://cxa.marketwatch.com/tsx/en/ma...l=ogc&x=8&y=10

Much bigger volume on the TSX overnight, OGC is still climbing and should finish above CAD$2.55 (NZ $3.47).
A disturbing late increase in POG helping.

http://www.kitco.com/charts/popup/au24hr3day.html

[Vtrader]

Z
Thanks for the little and often approach here, valuable
V.

[elZorro]

Z
Thanks for the little and often approach here, valuable
V.

Hi Vtrader, thanks, thought I was a voice in the wilderness for a while there. My broking a/c is offline for 30 mins, but I hear things are looking up for OGC. Guess I was lucky to buy more yesterday.

OGC stands to benefit by about 12c/share for every $10 increase in POG (gold being sold on the unhedged market now), which is about how much the share went up today, nearly 30c. It should still crab its way higher in any case, as it is undervalued by about half on most measures against similar miners.

And this is before the lastest finds are quantified, and any new drilling results are presented to the market. Maybe it won't be too long before we hear about these.

[geezy]

u must be smiling today elzorro, my order was not met!