Profiting from Gold’s Season and How the Fed Could Help

The time to clean out some of your underperforming metals stocks was a
few weeks ago, as I advised subscribers. Take the tax loss, consolidate
some cash, and be ready to play the pending strong season.

This week’s Maven Weekly letter
to subscribers will outline how I plan to profit in the next few
months, as gold and mining moves from seasonal weakness to
strength. If you are interested, click HERE and sign up for a free
trial. 

In last week’s letter I
discussed drill results from Gold Standard, Integra Gold’s resource
update, and BHP and Vale’s abysmal response to the Samarco tailings dam
failure, before talking through why the dollar’s rise will keep on
keeping on, holding gold down. I also made a new investment
recommendation that I like as a short-term trade: pending news flow and
a promotion push look set to lift it perhaps 25% in the short term.

The recommendation is for subscribers
only, but the rest is reproduced below. Hope you enjoy.

The next Metals
Investor Forum approaches! Join Brent Cook, Eric Coffin, Gwen Preston,
and each writer’s top pick companies for a day of updates and sector
talk. The event will take place in Vancouver on Saturday January 23rd.
Click HERE to register now – seating is limited, so
get your ticket today!

The
next Metals Investor Forum approaches! Join Brent Cook, Eric Coffin,
Gwen Preston, and each writer’s top pick companies for a day of
updates and sector talk. The event will take place in Vancouver on
Saturday January 23rd. Click HERE to register now – seating is limited,
so get your ticket today!

In The News…
 
I wrote about them last week but they’ve made it worth my while to
write about them again. Gold
Standard Ventures (TSXV:
GSV) added to the good drilling news from its Dark Star oxide
gold deposit in Nevada with another solid hole: 157 metres grading 1.51
grams per tonne (g/t) gold.

Quick backstory: GSV has been exploring this property for years. It is
home to three deposits: Dark Star and Pinion at the south end and North
Bullion to the north. Dark Star and Pinion are oxide gold zones that
host 1.8 million oz. gold, according to maiden estimates. North Bullion
is a sulphide zone. A fourth zone, Bald Mountain, offers oxide gold but
does not carry a defined resource as yet.

An 80-hole drill program is underway,
designed to expand and upgrade the resource. Expansion now looks pretty
darn likely.

The new ounces will come from the Dark Star structural corridor, a 6-km
stretch extending north from the Dark Star deposit that shows
continuous potential according to mapping, geophysics, and soil
geochemistry. Hole 10, released last week, returned 149.4 metres of
1.38 g/t gold from 510 metres north of the defined resource. The new
hole was cut 60 metres east and 10 metres north and intersected the
zone at a shallower, updip level.

The gold occurs in the immediate
footwall of a normal fault, which is a common pattern for gold
mineralization on the Carlin trend. From these two holes, it looks like
GSV has tapped
into a new, blind oxide gold zone. Size is completely unknown – the
company suggests there is 6 km of prospective trend to test but in the
Carlin there is always a chance that a fault truncates or the zone
eases off.

Gold Standard has all the permits it needs to continue drill testing
this zone. The challenge will be winter. Dark Star is at 2,200 metres
elevation and winter is very real around those parts, so Gold Standard
will have to weigh the costs and complications of a winter drill
program against the desire to keep testing this new zone.

Whatever they decide, the company is well funded. They expected to wrap
up this drill program and end the year with $13.5 million on hand. The
cash came from Oceanagold, which bought a 14.9% stake in GSV earlier
this year and has continued to buy in the market.

GSV jumped $0.12 on the news and is now up 37% since releasing results
from hole 10.

 ————————————-

Integra Gold (TSXV:
ICG) is the busiest explorer on the Venture exchange and the
company just announced a new resource estimate for a zone its Lamaque
project in Quebec. The calculation incorporates 27,815 metres of
drilling and redraws the map of the Triange deposit.

Triangle is one of seven deposits within the Lamaque project, but it
keeps grabbing more and more of Integra’s attention. It’s big and
carries strong gold grades, but those are not the only factors at play.
Lamaque would be an underground mine, as the historic Sigma and Lamaque
mines on the property were for decades, and for that to work the gold
also has to be mineable.

The new Triangle map moves the deposit closer to that goal. The gold-bearing
structures at Triangle have been divided into two types, C and C Flat
structures. The C structures are the new addition – and as wider, more
steeply dipping zones, they could make Triangle amenable to long hole
mining instead of the higher-cost room and pillar method assumed in the
last PEA, when all the gold was thought to sit in the thinner, flatter
C Flat structures.

Onto the numbers. Indicated resources climbed 21% to 627,810 oz., contained
in 2.65 million tonnes grading 7.37 g/t gold. Inferred resources jumped
400% to 871,530 oz., contained in 3.93 million tonnes grading 6.89 g/t
gold.   

The
table below shows how important the C structures are within the overall
resource.

The C and C Flats structures carry similar grades, but the wider, longer C
structures offer far more tonnes. And the difference in dip is
significant.

The more Integra learns about Triangle, the more it sees to the Sigma
and Lamaque deposits that together produced 9 million oz. of gold from
just a few kilometres away.

For instance, the bulk of the 4.5 million oz. produced at Sigma came
from structures known as the “P shears,” which are identical to the C
structures at Triangle in terms of orientation and in the fact that
they extend beyond the intrusive host into the surrounding volcanics.

I mean it when I say Integra is busy. There are seven drill rigs
turning at Lamaque; since the database was closed off in May those rigs
have completed 17,000 metres of drilling on Triangle that is not
included in the updated resource. Also not included were 43,435 metres
of drilling testing the six other deposits at Lamaque, which will earn
resource updates down the road.

Over the next half year Integra has a long To Do list. It will not only
keep drilling but increase the pace, with an aim to complete 100,000
metres in 2016. It will update the Lamaque PEA incorporating this new
resource and assessing the potential to change to lower-cost long hole
mining. It will keep working towards getting underground to drill.

And
it will receive all the entries from the Gold Rush Challenge, the
contest where $1 million in prize money is available to those who can
turn the massive pile of historic data that came with the Lamaque and
Sigma mines into new discovery targets. The results from that contest
will be announced at PDAC in Toronto in late February. 

————————————-

The collapse of two tailings dams at the Samarco iron ore mine near
Mariana, Brazil, made it abundantly clear that not all miners have
gotten the message.

Six people are confirmed dead. Twenty-one are still missing, a week
later. Farms and entire villages were destroyed.

Samarco is a 50-50 joint venture between BHP Billiton and Vale. BHP is
the world’s largest miner; Vale is fifth. These industry stalwarts
should be the flagbearers for responsible, socially responsive mining.

Why the dams collapsed is still unknown. Official statements to date
describe a three-tiered tailings dam complex in which the first dam
failed and the resulting flood overwhelmed the second dam. The third is
still competent.

I am not saying BHP and Vale were negligent in designing or maintaining
the tailings facility, because at this point we don’t know what
happened. What I am saying is that the companies’ immediate responses
were disgusting.

Both denied responsibility, blaming management at their joint venture
company Samarco.

“Samarco has a management team that’s completely independent from its
shareholders and responsible for technical and financial matters,” Vale
said. “Vale really doesn’t have any responsibility for the occurrence
of the unfortunate and sad accident.”

“It is important to be clear that Samarco is the operator of the joint
venture and, as a separate corporate entity, is responsible for the
entirety of its operations,” said BHP.

I get it – they’re trying to protect their bank accounts, which they’re
supposed to do for their shareholders. But grab a tiny bit of
perspective.

First, it is likely that 27 people died and many, many more saw their
homes and livelihoods destroyed.

Second, the general population hates mining as it is. Sidestepping obvious
responsibility for a fatal disaster makes that worse. And social
perceptions matter.

Every
time a mine goes through permitting, perceptions matter. And every
investor who turns away from mining out of distain for how the industry
operates weakens an already limited support base.

Today
the CEOs of Vale and BHP finally toured the site, made mournful
statements about the devastation, and pledged to support an emergency
fund for rebuilding.

Too
little, too late. 
 
Macro Observations

Gold has been getting hit (how’s that for an understatement?). The spot
price has closed down 15 of the last 19 days, cutting the price by more
than US$100 per oz. Miners have felt the pain; the GDX is down 19%
since Oct. 19th. Explorers have been hurt some, but they are so
downtrodden that the effect is muted.

The near-term outlook for gold was weak when I wrote last week and it
has weakened since. A much stronger than expected U.S. jobs report
released on Friday has put a December rate hike firmly back on the
table. As I’ve said, a 0.25% interest rate increase does not actually
matter in terms of debt servicing costs, but it does matter in terms of
mentality.

For evidence, look no further than the dollar.

Following
the Fed’s September decision to leave rates at zero, the dollar drifted
sideways and then down. That helped gold gain 7% between mid-September
and mid-October. Then the EU started talking about additional
quantitative easing, the Bank of Japan made similar noises, and China cut
interest rates again. The greenback regained its gleam against the rest
of the world’s more tarnished currencies and climbed 5.6% in a little
over two weeks, the late-stage jump from 96 to 99 fueled by the
addition of that strong jobs report.   

With
a rate hike likely in a month, the dollar will remain strong. That
isn’t good for gold. Neither is this time of year, seasonally weak for
the yellow metal. Tax loss selling is another factor that will play
against weak gold equities. All told, not a great outlook from here.

That being said, gold may actually rise following a rate hike. The
increase is already priced in and removing rate uncertainty should
alleviate some of the pressure bearing down on gold. 

The other silver lining is that January is the start of gold’s strong
season and if gold manages to define a new multi-year low before then
perhaps all the chartists who keep predicting such will quiet down. And
gold will get a chance to move up properly.

Resource Maven finds and explains the news that matters in the
world of resource exploration and development.
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