Friday, 3 February 2012

Junior Gold Miners' Large Low Grade Deposits - Leverage To $3,000 Gold Price?

We may be entering the aggressive "wave 3 of 3" in gold as indicated by Alf Field, targeting $4500, and Silver to >$150/oz. Alf Field's forecasting of the gold price is outstanding, however he did call the bottom early in 2008.

We may be entering a new 17 month Growth pattern as indicated by David Nichols, peaking in June 2013, although his current target is $3,000. Nichols has called March 2008 tops and October 2008 bottoms in the gold market. However he had believed we should see a large top in Jan 2011 and has been re-positioning since.

We await Jeff Kern's "Ski" analysis at 321 Gold of whether we have entered a "true bull market" for the miners.

If this is the case and $1,500 /oz and then $2,000/oz is to be seen as a solid base price the gold miners and especially junior gold and silver miners will undergo a dramatic re-rating and some degree of mania should enter the precious metals market as the virtuous cycle of mergers and acquisitions drives up valuations.

Gross metal in the ground valuations will dwarf capital and extraction costs unless we see dramatic, cost inflation and hyper-inflation.
I believe we will see a controlled devaluation of currencies and debt against gold, and for some period of time silver, during the strongest wave of the precious metals bull market. Gold is used to signal that there will be no deflation. Can other commodity values be controlled? I think this is why Jim Sinclair explains the Fed want higher gold, to act as a revaluation tool, just as Bernanke identifies coming off the gold standard in the 30's depression as pivotal. Jim Sinclair also identified that all 1m oz gold deposits will be developed. At a gold price of $2,000 then $2bn gross metal value.
The right mines will make enormous profits so long as the tax regime is safe.

The maximum leverage to these price increases should be the marginal producers whose profits will increase most dramatically, from current small losses or breakeven, and the developers of large low grade projects whose deposits will become commercially viable.
The question here is how long it takes for the market to believe higher gold prices are sustainable.
The companies with a credible path to production, permitting etc, should gain most on acquistion hopes, equally capital may seek out specific opportunities and develop directly. Hedgefund Manager Thomas Kaplan in directly involved as Chairman of the board at Novagold for example.
Sunward has a group of investors directly involved.

The Page on this blog "Large Low Grade Gold Deposits" reviews this theme on an ongoing basis and now includes a spreadsheet of some relevant companies.

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