The state of the market: Patience WILL be rewarded

April 2, 2019

In March 2019, gold was down 1.82% and closed at US $ 1295.15 an ounce. Silver fell 3.92% to close at $ 15.19 an ounce. Platinum depreciated by 3.44% to close at $ 841 an ounce. Palladium was down 12.44% (a profit taking was expected) and closed the month at $ 1352 an ounce. As of March 26, 2019, Gold net non-commercial futures positions were at 11.9 million ounces, sequentially lower, primarily due to a decrease in gold non-commercial long contracts (down 9.3%). The US dollar was up 1.17% ending the month at 97.28 (US dollar index) while real interest rates fell by 24 basis points (a decrease of more than 40 basis points since the beginning of the year). The FTSE Gold Mines index was up 2.54% in Euros. The S&P / TSX Gold Index gained 2.45%.

March was marked by the saga involving Barrick Gold Corp. and Newmont Mining Corp. The former launched a hostile takeover bid on the latter. Barrick was offering the equivalent of $33.5 per Newmont share, which were trading at a price of approximately $36.10, equivalent to a discount of almost 10%. Unheard of!

 This highly arrogant approach was perceived by many Newmont Gold shareholders as disruptive, but above all, destructive in terms of credibility for the industry. That said, these tensions and uncertainties did not last long and the two protagonists finally agreed on the creation of a joint venture encompassing their assets in Nevada allowing them to realize on paper $ 500 million in annual synergies. Both Barrick and Newmont shareholders should be satisfied with this market-driven deal as both Barrick and Newmont have outperformed the gold mining benchmark over the past month.

The second constructive message sent by the industry involved the adherence to the ongoing financial discipline: Alamos Gold Inc. obtained the operating license for the Kirazlı project in Turkey showing an internal rate of return of 44%; IAMGOLD Corporation reduced its workforce by 32% at the Westwood Gold mine in Quebec to be in aligned with a downward revision of their mining plan. Leagold Mining Corporation, for its part, released a technical report towards expanding its Los Filos operations in Mexico: at $ 1250 per ounce, this project has an internal rate of return of 86%.

In other news, MAG Silver Corp. reported the discovery of the northeast oriented ‘Venadas Vein” within the Minera Juanicipio Joint Venture Property (Fresnillo plc 56% / MAG 44%). The New Venadas Vein discovery is the first ever mineralized vein in the Fresnillo district oriented at a high angle (NE) to the historically mined northwest (“NW”) oriented veins suggesting considerable depth potential.

While the Federal Reserve’s monetary policy is now at its neutral rate, the twin deficits are widening, the US debt to GDP is close to one and inflation is anchored. In this US. landscape, real interest rates will stay low for a long time and the US currency will depreciate. For now, the trade tensions associated to a global economic slowdown and a non-ending European crisis thwart this movement. Patience will be rewarded. 

Alain Corbani

Head of Mining
Portfolio manager of the Global Gold and precious fund at Finance SA

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MiningIR hosts a variety of articles from a range of sources. Our content, while interesting, should not be considered as formal financial advice. Always seek professional guidance and consult a range of sources before investing.
James Hyland, MiningIR