Friday, December 31, 2010

Argent Minerals (ARD) to be 4th "pure" Silver play?

Argent Minerals Limited (ASX: ARD) is a company I have been keeping tabs on for sometime. In July this year Argent purchased the Bullant Goldmine from Barrick Gold Corp. While it seemed like a reasonable price paid, it turned me away from Argent as I had been considering them a company predominantly exposed to Silver. However after an unattractive takeover offer from US Nickel (USN) Argent has since agreed to sell the Bullant Goldmine in a deal that looks quite good for ARD shareholders. This will also put Argent back in the position of a company heavily exposed to the price of Silver and they even say as much themselves in one of their recent announcements:

"The new structure is intended to convert Argent into a pure silver “play.”"

In September I mentioned that there were 3 "pure" Silver plays; providing the sale of the Bullant mine goes to plan (still requires shareholder approval, but boards of both USN and ARD unanimously agree) Argent could very well end up being the 4th "pure" Silver play.

The 3 I've spoken of previously are:

Cobar Consolidated Resources Limited (CCU)
Silver Mines Limited (SVL)
Alcyone Resources Limited (AYN)


The structure of the Bullant Goldmine sale to USN looks like this:

- 44,000,000 USN Shares to be distributed to Argent Shareholders
- 19,500,000 ARD shares held by USN to be cancelled
- US Nickel to withdraw current takeover offer

Assuming the sale goes ahead as planned that would leave ARD with the following share structure:

101,891,251 Listed shares - 19,500,000 USN held shares

There are also 48,210,751 options (currently 20c strike, 30/06/11, ARDO), which the company has advised will have the exercise price reduced following the agreement:

"Argent will adjust the exercise price of its listed 20 cent options to reflect the capital reduction envisaged by the Agreement."

This likely means they will be reduced from a 20c exercise price to 16c (given the 20% reduction in shares, a 20% reduction in exercise price seems likely).

In theory this news should have pushed the price of the listed options higher as the capital to turn them into full shares has been reduced, no such increase has been seen and I suspect this is mainly due to this information having being missed by the market in general.

Following the sale of the mine there will be 44m USN shares distributed to ARD shareholders. I suspect option holders will convert to full shares to take advantage of this offer if given the opportunity, so assuming all convert (worst case) we will have 44m USN shares distributed amongst 130.6m ARD shares (or .34 of a USN share to be issued for each ARD share held). Potential for this fraction to be higher (for holders of ARD) if option holders don't convert or are not eligible. At USN's current share price (15c) this will add an additional 5.1c value (or more) to each ARD share and will allow ARD shareholders to maintain exposure to the Bullant Goldmine if they choose.

In April this year a scoping study on the Kempfield Silver project was completed, confirming potential for a profitable mining operation. Cash costs (net of Gold and base metal credits) were estimated at  AUD$10.27 (per ounce of Silver mined), however since that scoping study we have seen a significant rise in the price of Gold and the base metals which should allow for an even lower cash cost.

Further to this, an announcement in November confirmed that due to improved economics of the Kempfield project (due to rising Silver, Gold and base metal prices) the resource was to be upgraded following a change to the cutoff grades. The Kempfield project now has a reported resource of 31.6m ounces of Silver. With Argent's stake in the project soon to increase to 70% this means their share of the Silver resource is approximately 22m ounces.

The Kempfield Silver project has been very much overshadowed by the purchase and now sale of the Bullant Goldmine, but suspect as the sale is finalised early next year that both management and the market will be able to concentrate on the project which will make this company.

Further to Kempfield, Argent also has the right to earn a 70% interest in West Wyalong as well as Sunny Corner (Sunny Corner has a JORC Silver/base metals resource) with set expenditure needing to occur by June 2013. Also they hold 100% interest in phosphate and base metals exploration licenses at Louth (Wanaaring).

There are only a few stocks with serious exposure to the price of Silver on the ASX and even less that have a predominant focus on bringing a Silver mine to production. ARD will be one of the lucky few and that is bound to attract both investors and speculative traders in the short to medium term provided the price of Silver holds or continues to rise from here.


Disclosure: Position held in ARD. Not investment advice. Do your own research.

Thursday, December 23, 2010

IMF Concludes 403.3 ton Gold sale

The IMF has released a press statement concluding the finalisation of their Gold sales:
The International Monetary Fund (IMF) announced today the conclusion of the limited sales program covering 403.3 metric tons of gold that was approved by the Executive Board in September 2009 (see Press Release No. 09/310).

These sales are a central element of the new income model for the IMF that was endorsed by the Executive Board in April 2008. They will also increase the Fund’s capacity to support low-income countries under a strategy endorsed by the Board in July 2009 (Press Releases No. 08/74 and No. 09/268). The gold sales were conducted under modalities to safeguard against disruption of the gold market. All gold sales were at market prices, including direct sales to official holders.
The sale of the 403 tons was announced initially in late 2009. Shortly after this, following speculation that China would be a buyer, it was announced that India had bought 200 tons (this was when Gold was around $1050) and in my opinion was an important turning point, providing a base from which Gold has sprung 30%+ over the last 12 months.

Other known buyers of the IMF Gold have been:

* India - 200 tons (Announced November 2009, as mentioned above)
* Mauritius - 2 tons (Announced November 2009)
* Sri Lanka - 10 tons (Announced November 2009)
* Bangladesh - 10 tons (Announced September 2010)

The buyers of the remaining 181 tons have not been announced publicly to my knowledge. Although with Russia continuing to add frequently to their reserves over the last 12 months I would not be surprised to see some having ended up with them.

The sale has not been without it's controversies with some Gold market commentators claiming the sale was a tactic to keep a lid on the Gold price and others claiming that the IMF didn't have any real Gold to sell and that the sales were simply "paper promises".

Eric Sprott of Sprott Asset Management infact offered (although I have my doubts about the ability of Sprott to buy such a large amount) to buy 191 tons of Gold from the IMF provided they could supply the physical product. After the IMF refused the sale Business Insider spoke to the IMF about the reasoning and found they had very specific protocols they were following for the sale, namely that it was only through specific agents they were selling the Gold and only to central banks, sovereign nations, etc.

While some expected the IMF sales to have a heavy impact on the market, I certainly was not one of them given that the IMF sold a lot more (almost 4x the amount of the sale announced in 2009) Gold in the 1970's Gold bull market:
Auctions and "restitution" sales (1976–80). The IMF sold approximately one-third (50 million ounces) of its then-existing gold holdings following an agreement by its member countries to reduce the role of gold in the international monetary system. Half of this amount was sold in restitution to member countries at the then-official price of SDR 35 per ounce; the other half was auctioned to the market to finance the Trust Fund, which supported concessional lending by the IMF to low-income countries.
The sales in the last Gold bull market didn't seem to have any negative effect on the price appreciation.

With the sale concluded though it now leaves central banks to obtain their Gold from elsewhere which has the potential to add pressure to a market that is already showing signs of physical shortages with retail/intitutional buying alone. In my opinion the conclusion of these sales removes an overhang that has been in place for the last 12 months and when normal market trading resumes early next year I am expecting significant appreciation in the price of Gold.


Disclosure: Positions held in Gold. Not investment advice. Do your own research.

Sunday, December 19, 2010

Silver going to $6000? Not likely!

I get a little tired of the ridiculous price targets being spruiked for Gold & Silver by market commentators. A recent example of this was in an article from The Silver Bear Cafe. Here is a small piece from the article where the writer extracts the target price:
2) I, like many, estimate there is only about 1B ounces in above ground physical silver for investment purposes.

3) I, like many, estimate there is only 5B ounces of above ground physical gold for investment purposes.

4) If the price of gold is not manipulated, like the banks claim, then the price of silver should be 5x the price of gold due to its supply/demand fundamentals.
Silver Bear Cafe
So Silver should be priced 5x Gold simply because there is 1/5 the amount above ground that there is Gold? Using that logic, if there were only 5 Mercedes C-Class sedans produced and 15 S-Class sedans produced, then the C-Class should be 3x more expensive even though it was cheaper to produce, isn't as well liked or as luxurious as the S-Class. The fact is that an items rarity is only one part of the equation.

Even Max Keiser's recent prediction of $500 Silver is likely to be way over the peak price we will see in this bull market.

A recent article on the FOFOA blog poses the question, is Silver still money today? If the answer is "No" then there is one property that Gold has over Silver, what sort of premium should be reflected in Gold for this difference?

It's all well and good to dream about $6000 Silver, but the reality is that it's not making it to those sorts of prices anytime soon (unless we saw hyperinflation in the currency it's quoted in). Anyone waiting for these sorts of prices will be riding this bull market all the way to the top and all the way down the other side. 1980 and other recent spikes have shown us how savage Silver can sell off in some circumstances, so make sure that you have your exit strategy in place in preparation for the time to sell...


Disclosure: Positions held in Gold & Silver. Not investment advice. Do your own research.

Wednesday, December 15, 2010

Stewart Thompson on recent Gold action

It's that time of year where we all get a bit busy, so expect the posts to be a bit less frequent. It's been a great year for Gold and Silver, would like to see them finsih the year with new highs and to continue climbing in price early next year, but one step at a time...

Stewart Thompson is a weekly commentator on the precious metal markets and is well worth the read. I like the way he writes his articles with bullet points, clear, concise, to the point, a very easy read. Here are a couple of excerpts from his latest:
1. Gold war update from the front lines: The Gold Community retook $1400 last night. Silver is close to retaking $30. I won the battle as to whether gold would take out $1424 on the upside or $1315 on the downside. Most thought $1315 would fall.It didn`t. Gold soared to $1430 basis dec futures and many gold stocks continue to exhibit violent upsurges.
2. I don`t like losing. So I don`t. Don`t you throw your gold away either because of all the correction talk going around. Click here now to view this morning`s Gold Chart with the new range highlighted: Gold`s New Range Chart.
3. Gold is now trading between 1370 and 1430, and doing so after breaking out, upside, from the 1315-1424 range. The fact is…. gold is marching higher. An army of gold top callers are about to meet their maker. The Gold Punisher is in the technical analysis house, and he`s not taking prisoners.
4. There is no head and shoulders now, any more than there was one in the last 1315-1424 range.
5. There is no double top either. What there is, fellow gold fiends, is an upside superblast going on right now, climbing a classic wall of worry. I`ve bought US dollars into weakness in some size, from other paper currencies, not from gold sales, and if there is a significant gold correction, later, I`ll use those dollars to increase my gold stock position total size.

And finishes the article on a note about junior stocks:

24. Like bullion, the juniors are trending higher. The difference is that bullion is on the verge of a possible upside pop, while juniors are on the verge of an upside parabolic move! If gold gets taken down hard today, the question is, are you going top out, or top up? Let's do it!

You can read the rest of the article here. Like Thompson I am loaded up with  quality Gold/Silver juniors (although mine are ASX listed) and looking forward to the ride ahead!


Disclosure: Positions held in Gold & Silver. Not investment advice. Do your own research.

Tuesday, December 7, 2010

Silver Breakout?

Only a very short post tonight to share the above chart and a few words.

Silver has been trading under this overhead resistance for the last 7.5 years (essentially the entire bull market). There have been 3 previous spikes that have risen to the overhead resistance and then heavily retraced. I would want to see a couple of days trading and closes above $30 to confirm, but it's looking likely this is a breakout.

What does this mean for Silver prices? It probably means throw out any short term trading ideas and just hold on for the ride as things could get very volatile. Where does the price stop? All I know is that Silver's fundamentals support much higher prices. This leg higher might not slow down until we're coming close to record highs (around US$50).


Disclosure: Positions held in Gold & Silver. Not investment advice. Do your own research.

Sunday, December 5, 2010

Failed Head & Shoulders/Double Top (Gold/Silver)

In an update on November 27th I suggested that Silver might be forming a double top. It's a pattern that formed at the peak of both the 2006 and 2008 spike and I thought it could be the case it was going to form this year as well (based on timing and size of previous moves in the last two spikes). While I provided it as a possible scenario, I am of the belief that we are entering/have entered the 3rd phase of this bull market where previous rules don't apply and we are going to see a lot more volatility. It will be much more difficult to predict short term price movements.

On November 29th in the comments of the November 27th update I had this to say:
While I've pointed out that there is a potential double top forming on the Silver chart, it is actually my personal opinion that Silver's fundamentals will win this time around and that we will see higher prices by Christmas. If this did happen I think it would be an indication that we are at the business end of this bull market and a true parabolic move would not be far away.
The same day on Kitcomm (a discussion board) I said:
The potential for the double top though should keep buyers wary until the Silver price has clearly broken out one way or the other. A close above $28 IMO would mean the double top is unlikely to play out.
The day after these comments (November 30th) Silver closed at $28.02, this was the signal indicating the double top wouldn't play out and that we'd soon be looking at higher Silver prices.

Some other commentators had been talking about the head and shoulders pattern forming in Gold. In my opinion the close on Friday at above $1410 was a confirmation the pattern has failed and that new record high prices are just around the corner.

So with the breakouts we now wait and see what next week brings, I would suggest higher prices. I think record highs for Gold and 30 year record highs for Silver next week are very likely.

Lastly, here is part of an interview with Eric Sprott that I found worthwhile:
Why Eric Sprott sees silver as the next big investing windfall
You have been a bull on gold from the get-go. Is its price over $1,350 (U.S.) unfolding as you expected?
It’s been the investment of the decade. When I bought gold, I was buying gold to hold [as a long-term investment]. As it turned out, it quintupled. I didn’t think it would go that far because no none would have imagined that the central banks and governments would get themselves in a position where they are printing money.

The printing of money makes gold more valuable. You don’t have to be a genius to figure this out. The Johnny-come-latelies – the Paulsons, Einhorns and Soros – all figured out, when [the Fed announced the first round of quantitative easing], that they should own gold. It becomes more obvious every day as you see these financial challenges that we have in Europe.

How high will gold go?
I think gold is the reserve currency today. There is not a currency in the world that it hasn’t appreciated against by at least 300 per cent. And it has beaten every stock market. You can’t even rent a safety deposit box in Germany because they are all full of gold and silver … I am pretty convinced that gold will go a lot higher because it is under-owned as only 1 per cent of people’s money is in it. It could go to $2,000 an ounce. I could imagine it at $5,000. I am not giving a time frame on that, but I could certainly see that happening. But the real story now is silver.

Why are you more bullish on that metal?
Gold has traded at a ratio of 16-to-1 to silver in terms of price, but today it trades in the range of 50 to 1. I think the gold-to-silver ratio is going to go back to 16 to 1 given the passage of time, say three to five years. And I bet you that silver overshoots. The gold-to-silver ratio may even get down to 10 to 1. I believe that the price of silver has been suppressed.

How much of your wealth outside of Sprott Inc. shares are in bullion and precious metals stocks? 
I only own funds and gold and silver. I am probably 90 per cent in precious metals personally. And I don’t lose sleep over it.


Disclosure: Positions held in Gold & Silver. Not investment advice. Do your own research.

Thursday, December 2, 2010

China increases Gold imports

It's interesting, not only is China the worlds largest Gold producer, but they are also importing significant amounts of the metal. While China's official Gold holdings remain quite small in comparison the US, Germany and Italy, it appears obvious that they are stealthily acquiring a larger position. Of course they would not want it to appear that way or it could become very expensive for them to continue along this route.

China gold imports headed for big rise
China’s gold imports are on track for a sharp increase this year, with data for the first 10 months showing bullion shipments up more than four times amid rising interest among investors seeking out a hedge against inflation.

Bullion imported into China in the January-to-October period totaled 209.7 metric tons, compared to 45 metric tons in all of 2009, according to reports Thursday citing figures announced by Shanghai Gold Exchange Chairman Shen Xiangrong.

If current trends hold, China’s gold imports could rise nearly sixfold by the end of the year, according to calculations based on monthly averages.
Market Watch

China is somewhat a wild card in this precious metals bull market. It was only 2009 that it's citizens could start buying the physical metals, I think we are yet to see the real impact this could have on a market already short on physical product.