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Goldcorp picks up more Osisko…

Sharda Prashad — Tue, 11 Aug 2009 19:54:32 +0000

Goldcorp, Inc. (TSX: G) yesterday announced that it acquired 8.5 million shares of Osisko Mining Corp. (TSX: OSK). This represents 12.9% of Osisko’s outstanding common shares. It also acquired 4.3 million purchase warrants of the junior miner, bringing its total Osisko stake to 4.8%.
Goldcorp noted that it’s not currently planning to increase its stake in Osisko. But that’s not to say that Osisko wouldn’t be a pretty good takeover target. Osisko is something of gem among juniors. It’s expected to produce 591,000 ounces of gold annually, over ten-years, with an average operating cost of US$319/oz. Its flagship property is the wholly-owned Canadian Malartic property in Quebec’s Abitibi mining district.
For Q2/09, Goldcorp announced adjusted net earnings of $99.2 million, or $0.14 per share, compared to $83.2 million or $0.12 per share, in the second quarter of 2008. Gold production increased 5% over the 2008 second quarter to 582,400 ounces.
At the time of this writing, Osisko was trading up 6.53% at $7.50/share, while Goldcorp was trading down 0.89% at $38.92.

Rumblings of China taking over as top gold consumer premature…

Sharda Prashad — Thu, 30 Jul 2009 18:41:41 +0000

There have been rumblings that China may top India as the world’s largest gold consumer. The buzz started at the end of Q1/09, when China’s consumption of gold jewelry and its gold retail investment beat India’s as Indian investors were actually dishoarding.

Q2/09 results won’t be out for another two weeks, but Neil Meader, research director at gold consultancy GFMS, says it wouldn’t be surprising to see India back to its usual spot – at the top. For the past few years India jewelry consumption has been moving sideways thanks to high gold prices, says Meader. Meanwhile, China’s consumption been steadily growing. As for India’s dishoarding, Meader said that was very unusual behaviour and would probably not be repeated in future quarters.

While China’s definitely been narrowing the gap with India as the world’s largest gold consumer, Neader said it would very premature to say that India is any immediate danger of losing its golden status.

Teck continues to make progress…and takes a second look at coal production plans

Sharda Prashad — Mon, 27 Jul 2009 16:46:23 +0000

Last week, Teck Resources Ltd. (TSX: TCK.B) announced its Q2/09 results and reported net earning reached $570 million, compared to $497 million, one year earlier.
“We have also made substantial progress with our debt reduction plan,” Don Lindsay, Teck’s president and CEO, said in a statement. “The US$5.81 billion bridge loan related to our acquisition of Fording’s assets now has been paid in full and the US$4 billion term loan has been reduced to US$2.74 billion.” Teck’s total debt has been reduced by $4.6 billion since it completed the Fording acquisition in October 2008, and it expects to further reduce its debt by $1 billion after it close the sales of future gold production from out Andacollo mine and the Waneta Dame later this year.
During a conference call with analysts on July 23rd, Lindsay said Teck wasn’t planning any merger and acquisitions as it has “tremendous internal growth…we’re sort of past the phase of adding resources to the company.” He also said Teck had no plans for the significant sale of assets. Lindsay mentioned that Teck was in no rush to sell 20% of its coal assets, “It’s not something that we need to do from a financial point of view.”
As for whether there’s a rebound in coal sales in Europe and North America, Lindsay said, “[It’s] moderate, but there’s no doubt that Asia is the strength in the market. There’s some interesting signs. Like we’ve made shipments to a customer who we hadn’t for a long time and that sort of thing, but there’s not enough to say that there’s been a significant uplift.”
Lindsay said Teck isn’t able to meet consumer demand for coal right now and he’s been looking into increasing production but “you can’t ramp-up production as quickly as you’d like.” He has asked his team to revisit a plan to increase coal production to 30-million-tons by 2014 that was first drawn up between mid-2007 and mid-2008. Lindsay’s not sure if the plan is still feasible within the same timeframe, but said it was possible to achieve that production level. The plan called for a capital budget of between $400 million and $500 million.
“But we’re going to redo all that now just to refresh it, because we do believe that demand will be there. There’s no doubt that the plans for building very large steel to refresh it, because we do believe that the demand will be there. There’s no doubt that the plans for building very large steel plants on the coast of China are continuing and that we will have a significant effect on long-term demand for seaborne met coal.”

Gold could drop on the heels of a summer lull…

Sharda Prashad — Mon, 13 Jul 2009 15:23:06 +0000

Gold could drop to less than $900/oz in the short-term, says U.K.-based consultancy GFMS Ltd. In a statement released last week, the consultancy anticipates that the gold market will be in surplus this year fueled by concerns over the global economy and the health of financial markets. “Moreover, investors will increasingly focus on a newer worry, namely the probable longer-run inflationary consequences of governments’ and central banks’ ultra-loose fiscal and monetary policies.”

That being said, GFMS warns, “it may well not be a straight line rally as a summer lull or the need for inflationary pressures to build could result in a period of sub-$900 prices in the short term.” After the drop, the consultancy expects gold to reach $1,000 and even reach a new record high before year-end.

In other gold news, the World Gold Council (WGC) last week warned the Indian government that a new policy to double the gold import duty “could lead to additional smuggling especially during periods of high demand during festival season. The import duty has doubled from 100 rupees per 10 grams to 200 rupees per 10 grams. According to the WGC this brings the price difference between internationally sourced gold and Indian domestic gold to 3.5%, up from 3.0%.

“The Indian gold market is notoriously sensitive to price,” said Ajay Mitra, WGC’s managing director of the Indian sub-continent. “We have recently seen record rupee prices, and coupled with the impact of global recession this has put a significant dampener on local gold demand.”

India is, of course, the world’s largest consumer of gold.

At the time of this writing, gold is trading at $910.

Teck reaches ruling on rail transport costs

Sharda Prashad — Tue, 07 Jul 2009 20:58:22 +0000

Teck Resources Ltd. has received an arbitration ruling that could cut its rail transportation costs by 16% for coal moved from southern British Columbia to the coast. In a decision by a federal arbitrator between a Teck subsidiary and Canadian Pacific Railway, westbound shipments from Teck’s five mines in southeastern British Columbia will experience lower costs. The previous five-year agreement expired in March 2009 and Teck “initiated final offer arbitration proceedings to establish rates and conditions of service thereafter.” As a result of the decision, Teck expects its average transportation costs to fall to between $33 and $35 per tonne from previous guidance of $35 and $37 per tonne.

In a press release dated July 5, Teck estimated the arbitration could result in a savings of $70 million for the year starting April 2009. Details from the arbitration process, however, have not been released.

This news comes days after Teck announced a $1.7-billion private placement by China Investment Corp. That deal represented the largest Chinese investment to date in a Canadian mining company.
During an analyst conference call on Friday, Don Lindsay, Teck chief, answered a question about whether this deal marked a change in strategy for Teck since Lindsay had been quoted in the past that Teck wasn’t looking to raise equity. “I think the most important aspect is the partner that we’re dealing with, the China Investment Corporation, of course, is China’s sovereign wealth fund,” said Lindsay. “And China, for anyone in the commodities business, is without question the key market, the key country in our business. So, to enter into a strategic relationship and have them as a strategic investor, I think, is very important for any mining company.”

In a note to clients released Friday, UBS analyst Brian MacArthur wrote: “We believe the transaction is dilutive to both earnings and NAV under UBS prices. However, we believe this transaction further increases Teck’s financial flexibility as it should allow the company to improve its financial ratios and therefore eliminate the restrictive financial covenants sooner.” His Buy rating, however, is unchanged as is his 12-month target price of $21.00. Meanwhile, Credit Suisse analysts Ralph Profiti, David Gagliano and Edward Yew wrote: “We view the transaction as a positive step towards debt repayment and management has demonstrated good execution on the deleveraging front.” They have a Neutral rating on the stock, with a 12-month target price of $20.00.

Teck lightens debt with $1.74-billion Chinese deal

Sharda Prashad — Fri, 03 Jul 2009 18:55:57 +0000

In news that was somewhat anticipated, Vancouver-based Teck Resources (TSX: TCK.B) announced today a $1.74-billion private placement by state-owned China Investment Corp. The Chinese investor will purchase, through a wholly owned subsidiary, 101.3 billion Class B subordinate voting shares for $17.21 a share. At the time of this writing, Teck was trading at $19.92, up almost 8% from Thursday’s close.

“This transaction will have an immediate and very positive effect on Teck’s balance sheet, and represents an attractive opportunity for Teck to establish a relationship with a major Chinese financial investor, with a deep understanding of China, the world’s largest consumer of our principal products,” said Don Lindsay, Teck president and CEO, in a statement.

The deal translates to China Investment taking a 17.2% economic interest and 6.7% voting interest in Teck. However, it will be a passive investment. China Investment will not have board representation and it has a minimum hold commitment of 12 months.

In a presentation, Teck gave its rationale for the deal, which included allowing it to immediately pay off its bridge loan, reduce its term debt and expedite its return to investment grade.

The deal is expected to close July 14, 2009.

Last month, Canadian Business ran a story about Teck’s path to recovery. Teck Resources: Back from the brink featured an exclusive interview with Lindsay.

Teck, Yamana and German Gold Vending Machines

Sharda Prashad — Thu, 18 Jun 2009 20:15:38 +0000

A couple of noteworthy news bites over the last few days in the world of base metals and precious metals.

Teck:
Yesterday, B.C.’s Teck Resources Limited (TSX: TCK.B, NYSE: TCK) announced it had entered a non-binding agreement to sell its one-third interest in Waneta Dam for $825 million to BC Hydro. The proceeds will be used to pay off Teck’s debt.
“This transaction with BC Hydro is the latest step in Teck’s plan to significantly reduce our debt and position the company for long-term success,” said Don Lindsay, Teck president and CEO in a statement. Teck anticipates the deal will close by year-end and it is subject, among other things, to the completion of due diligence.
For a recent Canadian Business interview with Teck’s Lindsay, follow the link.
Yamana:
Yesterday, Yamana Gold Inc. (TSX: YRI, NYSE: AUY) provided an update on some of its development and near development stage projects. The update comes less than two weeks after the Toronto-based gold miner announced it was selling three of its non-core assets to Aura Minerals Inc. I made a recent blog entry about this.
For the Mercedes project in Mexico, Yamana expects to drill 30,000 metres at a cost of about US$4 million with the goal of extending the life of the mine. A feasibility study and a construction decision for the project are expected by the first quarter of 2010.
At the Pilar project in Mexico, Yamana has budgeted US$4.1 million for exploration and similar to Mercedes, expects both a feasibility study and a construction decision by the first quarter of 2010.
And last, at Minera Florida, in Chile, exploration efforts at the operating mine have continued. Yamana expects a resource estimate for these new targets will be completed in the last quarter of this year.

Gold Vending Machines:
According to a news report in Britain’s Times Online.
Germans have a new way to sell gold–through vending machines. After depositing your money in the machines, out comes a bar of gold ranging in weight from one to 10 grams. Customers can even select from a Maple Leaf Five Canadian dollar coin or a Kangaroo Fifteen Australian dollar coin. As for gold’s recent fluctuations, the vending machine even considers that. Every 15 minutes it updates the price of the golden bars. The machine is a prototype and was just installed in the Frankfurt airport. TG-Gold-Super-Markt, the gold machine vendor, hopes to install 500 of the machines throughout Germany, Switzerland and Austria. To prevent anyone running off with the machine or its golden contents, it is encased in armour-plated casing and is located near security cameras.

Agnico tacks on $600 million to its credit limit

Sharda Prashad — Tue, 16 Jun 2009 18:27:06 +0000

Agnico-Eagle Mines Ltd. (TSX: AEM) yesterday announced it has a new US$600 million revolving credit limit, bringing its total credit line to US$900 million. The Toronto-based gold miner didn’t say what specifically the extra financing would be used for, but did offer a broad sense of where it would apply the money: “The new facility provides Agnico-Eagle with additional financing for internal expansion opportunities, as well as financing flexibility to deal with potential investment opportunities and other corporate priorities,” said Sean Boyd, Agnico vice-chairman and chief executive in a statement.
Even though it’s not clear what those “investment opportunities” might be, a few weeks ago, Agnico hinted there wouldn’t be any massive acquisitions. During an analyst presentation at the end May, Agnico noted that the priorities included in its corporate strategy were to “acquire small, think big,” and to be a low-cost leader. It also noted that its Q1/09 total cash costs were among the lowest of its peer group at $312/oz, compared to a weighted average of $445/oz, in a group that included Goldcorp, Yamana, Barrick and Newmont. As of March 31, Agnico’s cash and cash equivalents totaled $208.4 million, while it had long-term debt of $415.0 million.
Agnico’s Q2/09 results are expected to be released at the end of July.

Yamana streamlines as it prepares for growth

Sharda Prashad — Thu, 11 Jun 2009 19:44:48 +0000

Yamana Gold Inc. (TSX: YRI, NYSE: AUY) announced earlier this week it will sell three of its non-core operating mines for about US$200 million to fellow Canadian miner Aura Minerals (TSX: ORA). Yamana is selling two mines in Brazil—Sao Francisco and Sao Vincente—and Honduras’ San Andres mine for US$90 million in cash, US$70 million in deferred cash payments and US$40 million of Aura stock. Moreover, Yamana will receive royalty payments of up to US$40 million from the three mines starting in 2012.

Yamana is among the world’s largest gold producers. It is expected to produce one million ounces of gold this year and to surpass two million ounces by 2012.

This sale will position Yamana for the next wave of growth, said Peter Marrone, Yamana’s chairman and chief executive, in a press release. “The sale of these non-core mines is expected to result in lower cash operating costs, higher margins and increased reserves, production and cash flow per mine.”

Overall, research analysts were positive about the deal, but noted that the sale price was less than the net asset value of the three mines. Among those were Michael Curran, research analyst at RBC Capital. His net asset value for the three mines sold was US$385 million. But that didn’t make the deal a bad news story. Curran is bullish on the prospects of Yamana’s remaining assets. “We believe some of the company’s internal growth projects are likely to show better economics than the non-core assets being sold, and therefore the sale will enable Yamana to proceed on several fronts, expanding other operations and/or building new mines,” wrote Curran in a note to clients.

Craig West, research analyst at GMP Securities, had a net asset value of $US420 million on the three assets and said the deal was dilutive. However, West noted the deal on the whole was good news for the gold producer. “Although our target price has declined from the sale [to $13.50 from $14.25], we view it as positive, allowing the company to better focus on its existing core assets, and advance its development and exploration projects that are essential to achieving long term goals for growth,” wrote West in a note to clients. “As, we’ve stated previously, performing in line with expectations operationally is key to success for Yamana—a leaner simplified, portfolio of assets makes this easier in our view.”

Yamana, which in the past had a reputation of growth by acquisition, now has a goal of organic growth. This sale of the mines in Brazil and Honduras moves it closer to reaching its goal.

ETFs fuel gold demand in Q1

Sharda Prashad — Wed, 20 May 2009 20:19:49 +0000

The World Gold Council today released its Gold Demand Trends report for the first quarter of 2009. The WGC, for those who don’t know, is based in London and sources its research from GFMS Ltd. for this report.

It was no real surprise to find that gold demand dropped in the first quarter for both jewelry (down 24% from Q1/08, with China and Hong Kong being the only two regions to show an increase) and industrial uses (down 31% from Q1/08, with electronic uses contributing most to the decline). However, gold demand for investment purposes soared 248% to 595.9 tonnes compared to Q1/08. The main contributor to this increase was ETFs, which added 465.1 tonnes, a jump of 540%, compared to one year earlier. The demand for gold bars and coins also continued to be strong this quarter, up 130.8 tonnes, a jump of 33%, compared to Q1/08.

Overall, the WGC found that gold demand this quarter reached US$29.7 billion, a jump of 36%, and gold averaged US$908/oz, a slight drop of 2% compared to Q1/08. Meanwhile, gold supply was up 34% thanks to recycled scrap gold.

The WGC believes demand for jewelry and industrial will continue to struggle. Meanwhile, it anticipates investment demand will rise. Should the economy recover, the WGC anticipates that inflation concerns will continue to ignite gold demand. The WGC also predicts that uncertainty of gold supply will be fuelled by recycled scrap.

Mining execs on recovery

Sharda Prashad — Tue, 19 May 2009 20:17:08 +0000

The mining industry has had a wild ride since the markets collapsed last fall, with gold bouncing between a close price of $712/oz and $993/oz between September and today. Gold’s average price during this time has been $859/oz and today it’s at about $926/oz. The yellow metal is down but not far off from its record high of $1,032 reached March 2008. Some predictions have called for gold to rise to thousands of dollars an ounce while others have called for gold to drop several hundreds of dollars. Both gold bugs and bears can make a sound argument, but the market is what it is, and predictions aren’t tough to make. Accurate predictions, however, are.
All of the above is a long introduction to a new survey of 130 mining executives. The survey was released last week by Toronto’s Bedford Consulting Group and it found that the executives, who hailed from all over the world, are split on when their industry will recover. About half of the executives, 47%, expect the industry to show recovery by the second-half of this year, while 45% anticipate the recovery not take place before the fourth quarter of 2010. The others predict the recession will drag on beyond 2010.
The mining brass identified four specific areas holding back mining’s recovery. These include: lack of available credit, a declining markets for metals, the volatility of commodity prices and difficulty finding new sources of investment financing. While none of these should come as a surprise, it’s a good check on what the industry is thinking.
The vast majority of executives – a whopping 92% —also predict that for the remainder of 2009 capital projects will be delayed and 72% of executives anticipate further shutdowns in operations.
As for the commodity that’s most likely to show improvements this year, 84% executives gave the nod to gold. Other commodities likely to show improvement this year include base metals, uranium, potash and iron ore.
For investors out there, this isn’t a hint to start investing in these commodities. But these predictions are good to tuck away, make good fodder for water-cooler chat, and add to your own research.

Forget about red, B.C.’s mining industry is in the black

Sharda Prashad — Tue, 05 May 2009 20:10:50 +0000

The mining industry in B.C. didn’t see red in 2008, despite the market meltdown last fall. Instead, it saw record black. According to a new report released today by accountancy PricewaterhouseCoopers, The Mining Industry in British Columbia (click here for the report)in 2008 the aggregate pre-tax net earnings for the industry was up 88% to $3.2 billion, the highest in the 41-year history of PWC’s annual survey.

The main contributor to the historic performance is the record price for coal, which jumped 225% to US$261/tonne over 2007. Other commodities, which added to the record earnings, included gold, molybdenum and silver, which respectively added $231 million, $472 million and $272 million to B.C. mining revenue last year. Copper concentrates saw its contribution to revenue fall in 2008 to $1.19 billion, down from $1.66 billion, while zinc saw its contribution to revenue fall 40% to $736 million.

“While we saw records set in 2008, there is currently a mix of uncertainty and cautious optimism within the BC mining industry,” said Michael Cinnamond, PwC partner and co-author of the report. A PwC poll of 33 mining CEOs of B.C.-based mining companies in April 2009 found that 27% are conserving cash; 39% have implemented either moderate or other spending cuts, 12% are just hanging on and 15% are more optimistic and are “actively seeking acquisitions and looking to grow.”

Barrick makes headway on Pascua-Lama

Sharda Prashad — Thu, 30 Apr 2009 20:21:10 +0000

The world’s largest gold producer is one step closer to moving forward on its controversial project that straddles Chile and Argentina. Barrick Gold Corp. (TSX: ABX) was advised yesterday that a tax agreement for the Pascua-Lama project, the first bi-national mining project in the world, had been reached between the two countries. The project has more than 17.8 million ounces of gold and 717.6 million ounces of silver. Barrick has endured controversy over Pascua-Lama since at least 2006 when a chain letter alleged that the project would require destroying glaciers, which Barrick has refuted. This link includes Barrick’s response to past criticisms of the project: Barrick on Pascua-Lama.

The bi-lateral tax agreement has been a hurdle to moving the project forward, but now Barrick has one of it main obstacles out of the way and expects to begin production in late-2012 or early 2013.

The news of the project comes just days after Barrick, and its partner on the Donlin Creek project, Nova Gold Resources Ltd. (TSX: NG), released a feasibility study on the Donlin Creek project in Alaska. The study gave us some new information on the capital costs related to the project, which were estimated at $4.48 billion, almost double previous estimates. During a conference call yesterday with analysts to discuss Q1/2009 results, Aaron Regent, Barrick CEO, said “This is a project that has a lot of gold in it. And if we are in a world where the gold price is going to continue to rise, it does provide enormous option value for us. On that basis, I think has potentially some strategic, interesting strategic value for the company.”

Barrick’s results for Q1/2009 were down over the same quarter last, but in-line with analyst expectations. Q1/2009 net income was $371 million, down from $514 million one year earlier. One reason for the drop was a significant jump in cash costs to $484/oz versus $395/oz, one year earlier. Escalating mine costs and a hedge on oil prices were to blame. Overall, though, Barrick’s new CEO said that the company in on track to meet operating guidance of between 7.2 and 7.6 million ounces, with a net cash cost of between $360 and $385 per ounce.

In other Barrick-related news, The Ethical Funds Company put out a press release yesterday saying it had secured support of almost 20% of Barrick’s shares for a shareholder proposal requesting the company “to hire an independent party to assess performance against Barrick’s current Community Engagement and sustainable Development Guidelines.” Bob Walker, a vice-president with Ethical Funds, said that while Barrick had good policies in place, it was falling behind competitors, such as Newmont and Goldcorp, which had independent reviews. As The Ethical Funds press release emphasizes, it is not alone in its concern about Barrick since the Norwegian Pension Fund divested its Barrick holdings this year, citing environmental concerns with its Porgera Mine in New Guinea.

Earlier this year, I wrote a story for CB on Barrick. Below is the link:

Gold: Ring in the new leader

Link to other CB article on Pascua-Lama: Moving Mountains

Donlin Creek’s golden promise

Sharda Prashad — Tue, 28 Apr 2009 16:26:46 +0000

Two Canadian gold producers have made inroads in reaping gold from an undeveloped project in Alaska. Barrick Gold Corp. (TSX: ABX), the world’s largest gold producer, and Vancouver’s Nova Gold Resources Inc. (TSX: NG) released this morning their feasibility study on the Donlin Creek project. Each own a 50% stake in the project.

Donlin Creek will be one of the world’s largest gold producers when it is built for an estimated $4.48 billion and will produce an average of 1.5 million ounces of gold during its first 12 full years and 1.25 million ounces of gold during its 21-year lifetime. The total cash costs for the project are expected to be $394/oz. The total proven and probable reserves of the project are 29.3 million ounces of gold.

The feasibility report was prepared for Donlin Creek LLC, a limited liability company jointly owned by Barrick and Nova Gold. On Nova Gold’s website, the company notes construction is expected to begin in 2012.

At the time of this writing, the spot price of gold is $891.40/oz, Barrick is trading at $35.49 and Nova Gold is trading at $3.20.

The feasibility study brings Donlin Creek’s golden promise one step closer to reality – especially for investors looking for a large producer in a politically stable region.

China’s golden secret

Sharda Prashad — Fri, 24 Apr 2009 19:48:45 +0000

The long-held suspicion that China has been hoarding gold was confirmed today and sent the price of bullion up. Reuters news agency confirmed that China’s head of the State Administration of Foreign Exchange (SAFE) said the country’s gold reserve had jumped to 1,454 tonnes from 600 tonnes in 2003, a rise of 76%. The total value of China’s gold is a cool US$30.9 billion. At the time of this writing, the spot price of gold is up $9.40/oz from Thurday’s close to $914.20.

With today’s revelation, China is now the fifth-largest holder of gold by country, surpassing Switzerland, Japan and the Netherlands. It is the seventh-largest holder of gold in the world, with the International Monetary Fund and the SPDR Gold Trust exchange traded fund holding more. China is the world’s largest producer of gold.

China is expected to buy more gold with its almost $2 trillion in savings as it builds reserves and tries to build the country’s buying power. With the IMF’s decision last year to sell 403 tonnes of gold from its holdings, this could be an opportunity for China to boost its gold holdings quickly. IMF gold sales, however, need ratification from its member countries, including the United States.

With the suspicion confirmed that China has been buying gold and will likely continue to do so this just adds to the gold bug’s case for investors to continue to flock to the safe-haven metal.

The platinum and palladium bounce…

Sharda Prashad — Thu, 23 Apr 2009 18:19:35 +0000

A few precious metals forecasts were revealed today by GFMS Limited, a precious metals consultancy based in the U.K. Platinum is expected to trade between US$900 and $1375 per ounce this year, while palladium should trade between $170 and $325, according to GFMS’ Platinum and Palladium Survey 2009. At the time of this writing, platinum was trading at $1,185 and palladium was trading at $235.

While the survey offered a look ahead, it also offered a retrospective. Platinum’s gross surplus more than tripled in 2008 to more than 280,000 oz last year, thanks in large part to lower vehicle production. Demand for platinum jewellery, however, has risen since the middle of last year. Production dropped 7% last year because of power crisis in the world’s largest producer of platinum, South Africa.

Meanwhile, palladium faced a gross deficit of almost 650,000 oz in 2008. The gross deficit was double that in the previous year. GFMS attributed the deficit primarily to the drop in mine supply in both South Africa and Russia, the main producers of the metal.

What’s GFMS’ final word on the topic? Overall, the consultants anticipate investors will gravitate towards precious metals to preserve their wealth in an environment of a weak stock market and long-term inflation concerns. But demand for both platinum and palladium will be muted because of the decline from the auto sector.

Teck buys oxygen

Sharda Prashad — Wed, 22 Apr 2009 18:12:27 +0000

Although not primarily in the business of precious metals, Teck Cominco Ltd.’s (TSX: TCK.B) US$4.4-billion bridge financing deal announced yesterday needs mentioning. The deal, which essentially pushes out its main debt obligations out a few years, has bought Teck — a diversified miner of copper, coal, zinc, and gold — breathing room.

“Effectively, the company’s repayment schedule has been extended by two to three years, lessening the need for a rushed and potentially value destructive asset sale or security issue,” wrote Tony Robson, analyst at BMO Capital Markets, in a note to clients.

“[It] takes the pressure off Teck to sell assets at fire sale prices and gives the company time to let credit markets heal,” wrote Greg Barnes, analyst at TD Newcrest, in a note to clients.

Investors sent Teck’s stock soaring more than 35% yesterday. Besides yesterday announcing the bridge financing, Teck also announced its Q1/09 earnings, which included a jump in revenue of 11% to $1.7 billion and a jump in operating profit before depreciation and pricing adjustments of 29% to $765 million. At the time to of this writing, Teck shares are trading at $12.23, down 1.92% from yesterday’s close.

Teck has faced increasing pressure after it purchased Fording Canadian Coal Trust last year, in a deal that closed October. Most of its $10-billion debt is related to the Fording acquisition.

During the Q1/09 analyst conference call yesterday, Don Lindsay, Teck’s president and CEO, said “I guess the message that we are sending is that while we do have a refinancing challenge to complete, the underlying assets of the company are operating very well. Indeed, there is a new growth coming that we are particularly pleased with.” He also reiterated that Teck has no plans for an equity issue.

Says one observer, Teck is still on track to be a Canadian success story in bulk commodities.

Gold sales to be subdued in final year of Central Bank Gold Agreement

Sharda Prashad — Fri, 17 Apr 2009 18:05:15 +0000

The World Gold Council this week announced that European central banks have reported selling a total of 91 tonnes of gold from the 500 tonnes permitted under the Central Bank Gold Agreement (CBGA). The fifth and final year of the CBGA started on Sept. 27, 2008 and the 91 tonnes represent sales in the first six months. Total sales in the 2007-2008 year were 358 tonnes and sales in 2006-2007 year were 475.8 tonnes. A spokesman for the World Gold Council noted, “With France and Sweden currently the only professed sellers, the rate of sales has slowed noticeably and is likely to remain subdued for the remainder of year 5.” The CBGA was renewed in 2004 by 15 European central bankers after the pact signed in 1999 expired. The CBGA limits annual gold sales to 500 tonnes and caps total gold sales to 2,500 tonnes over five years in an attempt to moderate the flow of gold to the market. In the first four years of the agreement, 1,727 tonnes of gold were sold. As of the end of 2008, the largest holders of gold in the world were: the United States, Germany, the International Monetary Fund, Italy, France and Switzerland.

India gold demand still sluggish

Sharda Prashad — Thu, 16 Apr 2009 20:18:28 +0000

One of the largest markets for gold demand in the world is not showing a strong affinity for the metal. India’s second-most popular holiday to buy gold, Akshaya Tritiya, which falls on April 27, looms less than two weeks away, but demand is still down by 50%, says one wholesaler in Chennai, according to an article by Reuters. Gold and gold jewellery bought for this day are believed to bring good fortune. Yet, despite the auspicious custom, buyers are just starting to “trickle in,” noted traders. Gold has fallen to under $900/oz from the lofty highs of US$1,000/oz it hit earlier this year, and traders are waiting for gold to fall even further before demand picks up. In the GFMS Gold Survey 2008 – Update 2 released earlier this year, gold demand from India was second to only East Asia for world gold fabrication and for world jewellery fabrication. Weak demand from India could mark a further descent in gold’s recent tumble.

G20 and Gold

Sharda Prashad — Mon, 30 Mar 2009 19:12:14 +0000

When the G20 meet in London on April 2—a “make or break event” according to George Soros—the sale of a portion of the International Monetary Fund’s gold holdings will be on the agenda, according to Reuters. Leaders will contemplate using proceeds from the gold sales to double funding to poor nations, “which need help dealing with the global economic crisis,” a source familiar with the plan told Reuters on Sunday. The source also said there was not unanimous support for the deal, even within the IMF, because of the low-interest generated from lending to poor nations, and the speed at which that money will make it to these nations remains to be seen.

Last year, the IMF approved the sale 403 tonnes of gold—it has 103.4 million ounces and is one of the largest holders of gold in the world—in order to create an endowment and put itself in a better financial position. In the past, the IMF has said gold sales would be made under the central bank gold agreement to avoid disruption of the market.

The sale of gold by the IMF can take several months because it requires ratification by member countries. Thus, its plans to sell gold won’t be part of any near term plan to help with the economic crisis. An overview of the IMF’s policies on gold can be found here.

Since I’m a new blogger on Canadian Business Online, I thought readers might be interested in checking out some of my articles. Here are a few from recent issues of Canadian Business: