Wits Gold bids for Burnstone, decision expected next week

JOHANNESBURG – Witwatersrand Consolidated Gold Resources (Wits Gold) on Friday said that it had offered to buy embattled Great Basin Gold’s (GBG’s) suspended Burnstone gold operation, in Mpumalanga.

The TSX- and JSE-listed group aimed to deliver dividends to its shareholders and generate cash flow in the near term, as Wits Gold brought Burnstone into production.

“Moving to producer status will serve as a solid platform with which to start generating free cash flow for shareholders,” Wits Gold CEO Philip Kotze said, adding that the bid was in line with the company’s strategy of owning and developing shallow mines in South Africa.

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Wits Gold would pay $7.25-million in cash towards GBG South African subsidiary Southgold Exploration’s debt, which was restructured and cut by 55% to $177.35-million.

Southgold would, from generated actual cash flow, repay the remaining $170.1-million liability.

Wits Gold would also advance a $100-million shareholder loan with an interest rate of 4%, which was also to be paid back on a preferential basis from Southgold’s operating cash flow.

The offer to buy the mine would be put to vote on July 11, but Wits Gold had signed irrevocable undertakings from the major creditors that its bid would be voted for to eliminate deal uncertainty.

Burnstone was put on care and maintenance in September, after several production setbacks and an inability to afford the mine’s required working capital to reach cash-flow breakeven forced the mine into business rescue.

Kotze noted that a new underground mining plan, which would allow for flexibility in the production approach, had been developed, after due diligence found the previous mine plan “far too ambitious”.

GBG’s mine plan had created market expectations, which had resulted in the team rapidly trying to deliver into high production, at 250 000 oz/y, without the required structures in place, he explained.

Burnstone, which started producing in 2010, encountered a geological fault that GBG did not find during exploration drilling, leading to the company having to revise its 2011 production guidance to 30 000 oz – which it missed by 6 000 oz – from the previous levels between 85 000 oz and 110 000 oz.

The mine’s production target – before suspension – for 2012 was 90 000 oz to 100 000 oz.

Wits Gold lowered production by 50%, with plans in place to potentially ramp up production in a gradual phased approach to a maximum 130 000 oz/y for a $100-million investment. First production is expected 12 months after the initial takeover.

“We have a number of options that require less capital for lower production or more for higher production [than the middle ground of 50 000 oz/y],” he said, noting the current Wits Gold plan for the mine required $50-million in capital expenditure and would enable production ramp-up to about 70 000 oz/y.

Wits Gold expected to take control of the operation – which has more than six-million ounces of gold in proven and probable reserves and a forecast life-of-mine upwards of 25 years – during the second half of 2014, after which the final mine plan would be decided on according to the market at the time.

Wits Gold aimed to initially focus on establishing the appropriate infrastructure for the relevant plan, and develop until enough ore reserve had been opened up for sustainable production.

The company would complete the footwall development in advance, and create a drilling platform to predetermine the geological structure and paychannels.

Wits Gold also planned a three-dimensional seismic survey, which would constrain the highly faulted underground structure and enable mine design optimisation.

Source: http://www.miningweekly.com/article/wits-gold-bids-for-burnstone-decision-expected-next-week-2013-07-05

4 Absolutely Spectacular Gold Charts & Commentary

With oil surging and gold and silver rebounding, today top Citi analyst Tom Fitzpatrick sent King World News four incredible charts and commentary covering the gold market.  Fitzpatrick takes KWN readers through a fantastic look at the gold market as only he can, and KWN readers around the world will enjoy this extraordinary piece.

Here is Fitzpatrick’s piece along with 4 tremendous charts:  “(Below is an article covering gold from the) New York Times, 29 August 1976 (3 days after the corrective low had been posted in 1975-1976 before Gold started a 3 year rally into late 1979/early 1980):

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“Two years ago gold bugs ran wild as the price of gold rose nearly six times.  But since cresting two years ago it has steadily declined, almost by half, putting the gold bugs in flight.  The most recent advisory from a leading Wall Street firm suggests that the price will continue to drift downward, and may ultimately settle 40% below current levels.
The rout says a lot about consumer confidence in the worldwide recovery.  The sharply reduced rates of inflation combined with resurgence of other, more economically productive investments, such as stocks, real estate, and bank savings have combined to eliminate gold‘s allure.
Although the American economy has reduced its rapid rate of recovery, it is still on a firm expansionary course.  The fear that dominated two years ago has largely vanished, replaced by a recovery that has turned the gold speculators’ dreams into a nightmare.”

The above note is probably a close representation of consensus market view at the moment.

We are biased to believe that the low in this correction may have been posted for Gold.  However it is early days and we need to see some more positive price action to support this view.

–  Crude has consolidated but still looks bullish overall

Between 1973 and 1974 the DJIA fell 45%.  As the Equity market then recovered Gold went into a corrective phase within 3 months that saw it fall 445 as the Equity market rallied.

This time around gold has in fact been much more resilient.

–  It did not peak until Sept 2011 (2 1⁄2 years after the Equity market bottomed out).

–  It has so far corrected 39% with an Equity market that has rallied 140% off the March 2009 low (DJIA).  In 1975-1976 it corrected 44% as the equity market rallied 76%.

“In 1976 the Gold correction ended in August and the Equity market began a deep correction in September (27% over 18 months).  During that period Gold rallied by about 78% and over the 1976-1980 period it multiplied in value by a factor of 8 from just over $100 to over $800.  The final part of that rally saw Gold rise from about $470 to $850 over about 4 weeks on the back of the USSR invasion of Afghanistan.  Even without that move it still multiplied by about 4.5 times in just over 3 years.

So what are we looking at to increase the likelihood of the low being in?

In addition, daily momentum is turning up from more oversold levels than those seen before the $270 bounce in 2012.  On a daily chart this is the most oversold we have Been since the turn higher in Gold in 2001.

It has become very stretched to the 55-and-200-day moving averages which now have a big gap between them.

An important thing to note is that Gold broke its support level the same week as the S&P broke above its 2007 high.  As long as the equity market stays resilient (As we saw in 1975-1976) it may be a drag on Gold’s ability to rally substantially.  In the 1980-2000 period when financial assets were aggressively rallying, Gold took a back seat.  We may need the market to be more concerned about the financial/economic backdrop before Gold can get any real traction again.

Source: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/3_4_Absolutely_Spectacular_Gold_Charts_%26_Commentary.html

Gold Bug Bashing, 1976 Edition

The Golden Cycle

The New York Times had the definitive take on the vicious sell off in gold. To summarize one of their articles:

Two years ago gold bugs ran wild as the price of gold rose nearly six times. But since cresting two years ago it has steadily declined, almost by half, putting the gold bugs in flight. The most recent advisory from a leading Wall Street firm suggests that the price will continue to drift downward, and may ultimately settle 40% below current levels.

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The rout says a lot about consumer confidence in the worldwide recovery. The sharply reduced rates of inflation combined with resurgence of other, more economically productive investments, such as stocks, real estate, and bank savings have combined to eliminate gold‘s allure.

Although the American economy has reduced its rapid rate of recovery, it is still on a firm expansionary course. The fear that dominated two years ago has largely vanished, replaced by a recovery that has turned the gold speculators’ dreams into a nightmare.

This analysis provides a good representation of the current conventional wisdom. The only twist here is that the article from which this summary is derived appeared in the August 29, 1976 edition of The New York Times. At that time gold was preparing to embark on an historic rally that would push it up more than 700% a little over three years later. Is it possible that the history is about to repeat itself?

At the time The Times article was written gold had fallen to $103 per ounce, a decline of nearly 50% from the roughly $200 it had sold for in the closing days of 1974. The $200 price had capped a furious three-year rally that began in August of 1971 when President Nixon “temporarily” closed the gold window and allowed gold to float freely. Prior to that decision gold had been fixed at $35 per ounce for nearly two generations. That initial three year 450% rally had validated the forecasts of the “gold bugs” who had predicted a rapid rise in gold prices should the dollar’s link to gold be severed. The accuracy of these formerly marginalized analysts proved to be a bitter pill for the mainstream voices in Washington and Wall Street who, for reasons of power, politics and profit, were anxious to confine the “barbarous relic” to the dustbin of history. Incredulous as it may seem now, with gold still priced at $35 per ounce, official forecasts of both the Secretary of the Treasury and the Chairman of the Federal Reserve were that demonetizing gold would undermine its value, and that its price would actually fall as a result.

Of course government experts could not have been more wrong. Once uncoupled from the dollar, gold‘s initial ascent in the early 1970′s was fueled by the highest inflation in generations and the deteriorating health of the U.S. economy that had been ravaged by the “guns and butter” policies of the 1960′s. But the American economy stabilized during the mid-years of the 1970′s and both inflation and unemployment fell. When gold reversed course in 1975 the voices of traditional power elite could not contain their glee. When the gold price approached $100 per ounce, a nearly 50% decline, the obituaries came fast and furious. Everyone assumed that the gold mania would never return.

Although the writer of The Times piece did not yet know it, the bottom for gold had been established four days before his article was published. Few realized at the time that the real economic pain of the 1970′s had (to paraphrase The Carpenters 1970′s hit) “Only Just Begun”. When inflation and recession came back with a vengeance in the late 1970′s, gold took off (to quote another 1970′s gem), like a skyrocket in flight. By January 1980, gold topped out at $850 an ounce. The second leg of the rally proved to be bigger than the first.

The parallel between the 1970s and the current period are even more striking when you look closely at the numbers. For example, from 1971 to 1974 gold prices rose by 458% from $35 to $195.25, which was then followed by a two-year correction of nearly 50%. This reduced total gains to just under 200%. The current bull market that began back in 2000 took a bit longer to evolve, but the percentage gains are very similar. (We should allow for a more compressed time frame in the 1970s because of the sudden untethering of gold after decades of restraint.) From its 1999 low to its 2011 peak, gold rose by about 650% from $253 to $1895 per ounce, followed by a two year correction of approximately 37%, down to around $1190 per ounce. The pullback has reduced the total rally to about 370%. The mainstream is saying now, as they did then, that the pullback has invalidated fears that rising U. S. budget deficits, overly accommodative monetary policy, and a weakening economy will combine to bring down the dollar and ignite inflation. But 1976 was not the end of the game. In all likelihood, 2013 will not be either.

The biggest difference between then and now is that until 1975 ordinary Americans were barred by law from buying and owning gold. About the only route available to participate in the earlier stage of the precious metal rally was by hording silver dimes, quarters and half dollars minted prior to 1965. My father indulged in this process himself by sifting through his change, the cash registers of any merchant who would allow him (exchanging new non-silver coins and bills for silver), and by sifting out silver coins from rolls he bought from banks. It was a time-consuming process, and most of his friends and family members thought he was crazy. After all, he had $10,000 worth of pocket change earning no interest.But the $10,000 face value worth of those coins he collected had a melt value of over $350,000 when silver hit its peak.

By the mid 1970′s none of the problems that initially led to the recession in the early years of the decade had been solved. Contrary to the claims of the “experts” things got much worse in the years ahead. It took the much deeper recession of the late 1970′s and early 1980′s, which at the time was the worst economic down-turn since the great Depression, to finally purge the economy of all the excesses. The lower marginal tax rates and cuts in regulation implemented by President Reagan and tight money under Volcker helped get the economy back on track and create investment opportunities that drew money away from gold. As a result gold fell hard during the early 1980′s. But even after the declines, gold maintained levels for the next 20 years that were three to four times as high as the 1976 lows.

Although the economy improved in the 1980′s, the cure was not complete. Government spending, budget and trade deficits continued to take a heavy toll. The U.S. was transformed from the world’s largest creditor to its largest debtor. When the time came to face the music in 2001, the Fed kept the party going by opening the monetary spigots. Then when decades of monetary excess finally came to a head in 2008, the Fed open up its monetary spigots even wider, flooding the economy with even more cheap money.

Unfortunately just like 1976, a true economic recovery is not just around the corner. More likely we are in the eye of an economic storm that will blow much harder than the stagflation winds of the Jimmy Carter years. And once again the establishment is using the decline it the price of gold to validate its misguided policies and discredit its critics. But none of the problems that led me and other modern day gold bugs to buy gold ten years ago have been solved. In fact, monetary and fiscal policies have actually made them much worse. The sad truth is that as bad as things were back in 1976, they are much worse now. Whether as a nation we will be able to rise to the occasion, and actually finish the job that Ronald Reagan and Paul Volcker started remains to be seen. But I am confident that the price of gold will rise much higher, and that its final ascent will be that much more spectacular the longer we continue on our current policy path. Don’t believe the mainstream. Just as before, they will likely be wrong again.

Source: http://www.zerohedge.com/news/2013-07-01/gold-bug-bashing-1976-edition