Tag: Gold

Torque Metals Ltd IPO

by Barry Dawes

Torque Metals Ltd is raising $2,000,000 through a public offer of 20,000,000 Shares at an issue price of $0.10 each.

Torque Metals Key Points

  • Small highly leveraged gold play
  • Two major projects in key WA locations
  • All underexplored by modern methods
  • Paris project near important Boulder-Lefroy Fault
  • Paris/HHH gold project has 32koz Indicated resource on existing Mining Lease
  • Inground value >A$80m  Net value ~A$16m (min)
  • Bullfinch gold project has good exploration prospects
  • Pre money value of Torque is only A$4m
  • A$2m @ A$0.10 IPO closing 3 July   
  • Very good Independent Expert’s Report in Prospectus
  • Listing on SSX in mid July
  • Term Sheet and Prospectus attached

Call me to discuss investment here.  +61 2 9222 9111

bdawes@mpsecurities.com.au


For a public offer of 20,000,000 Shares at an issue price of $0.10 each to raise $2,000,000.

Oversubscriptions of up to a further 5,000,000 Shares at an issue price of $0.10 each to raise a further $500,000 may be accepted.
SSX Code: 8TM

Lead Manager

Martin Place Securities
AFSL 291787
bdawes@mpsecurities.com.au
Phone: +61 2 9222 9111
www.mpsecurities.com.au

SSX Sponsor

Trident Capital
AFSL 292674
http://www.tridentcap.com/

Important Information
You must read this important notice before you attempt to access the electronic version of the Prospectus through this website. The information on this page is not part of the Prospectus. If you do not understand it, you should consult your professional adviser without delay.

Lodgement of Prospectus with ASIC
The paper form of the electronic version of the Prospectus (including its attached Entitlement and Acceptance Form) accessible through this website has been lodged with the Australian Securities and Investments Commission.

No offer of securities is made on the basis of the electronic version of the Prospectus accessible through this website. An application for securities can be made by completing the Entitlement and Acceptance Form attached to or accompanied by a paper form of the Prospectus and then lodging the form and the application monies in accordance with the details set out in the Prospectus and the relevant Entitlement and Acceptance Form.

No Advice
Nothing contained on this website or in the Prospectus constitutes investment, legal, business, tax or other advice. In particular, the information on this website and in the Prospectus does not take into account your investment objectives, financial situation or particular needs. In making an investment decision, you must rely on your own examination of the Company and the securities and terms of the offering, including the merits and risks involved. You should consult your professional adviser for legal, business or tax advice.

WARNING
For legal reasons, the electronic version of the Prospectus accessible through this website is available to persons accessing this website from within Australia and New Zealand, only. If you are accessing this website from anywhere outside Australia and New Zealand please do not download the electronic version of the Prospectus.

The Prospectus does not constitute an offer of securities in any jurisdiction where, or to any person to whom, it would not be lawful to issue the Prospectus or make the offer. It is the responsibility of any applicant outside Australia and New Zealand to ensure compliance with all laws of any country relevant to their applications, and any such applicant should consult their professional advisers as to whether any government or other consents are required, or whether any formalities need to be observed to enable them to apply for and be allotted any securities.

It is not practicable for the Company to comply generally with the securities laws of overseas jurisdictions having regard to the number of overseas shareholders, the number and value of securities these shareholders would be offered and the cost of complying with regulatory requirements in each relevant jurisdiction. Accordingly, the offer pursuant to the Prospectus is only being extended and securities will only be issued to shareholders with a registered address in Australia and New Zealand.

​Clicking on the Prospectus means that you agree to the above terms and conditions and Torque Metals Limited privacy and cookies statement

Torque Metals has two projects - One at Paris/HHH to the South of Kalgoorlie and the second at Bullfinch at Southern Cross to the West of Kalgoorlie.

Paris/HHH is near to production and surplus cash would provide additional funds for further exploration.

Torque Metals Bulfinch map

The Boulder-Lefroy Fault is the dominant structural feature in the Kalgoorlie region and this diagram clearly shows its NNW-SSE orientation

and the numerous subparallel structures either side.

All the largest gold mines in this region are on or very near this Boulder-Lefroy fault which is acting as the mineralised fluids plumbing system. Paris/HHH is within 50km of some very large gold deposits and the area has not had much modern exploration.   

The Paris/HHH Gold Project deposit had 18koz recovered in 2017 in a small mining operation and currently has a JORC `Indicated’ resource of 32,000 ounces

on existing granted pre Native Title mining leases that should allow gold production within the next 18 months.  The previous scoping study is still basically current.

Assuming a conservative 50% recovery and $1000/oz margin at A$2500/oz just this resource this would bring  A$16m cash surplus to the project.

As with all mines, the increased A$ gold price will increase the total gold in a revised pit design so the resource number should be higher

Paris has good high grade zones and some old workings and good potential down plunge.

The HHH deposit has potential down dip and in the footwall.

Additional potential is noted in a sub parallel structure at Paris North where 5.2m @ 14.2g/t has been intersected.

The 68km2 contiguous granted mining lease tenements have additional potential along strike at in the sub parallel zones for Strauss and Marmaracs.

But much of this is underexplored.

Paris has also has a 10km northward extension in a 80% earn in JV with Jindalee Resources Ltd. 

Some high grade intersections have been encountered including Maynard’s Dam with 3m @28g/t.

Bonds, Gold, Economic Activity and the Great Bifurcation Revolution – Part 1 

by Alison Sammes

Key Points

  • Bond market tumble may be terminal
  • Sea change in activity underway
  • Non-OECD is leading everything now
  • Bifurcation Revolution underway
  • All resources commodities looking very strong
  • Gold outlook improving rapidly
The probable peaking of the global bond market bubble over the past month or so could be an indication again that the `Bifurcation' strategy is now in full swing and that the outlook for commodities, equities and technologies is now improving rapidly. 'Bubbles' are those occurrences and mania when everyone is so engrossed with fine detail that no one is focusing on the bigger picture and doesn't notice that a bubble even existed. Bubbles are usually reserved for the fringe players in the fringe markets where cowboys are rife and the gullible public is sucked in.  Something like gold or mining stocks.  China stock market or property. Japanese stock market.  Tulips or something in the South Seas.   But never in the conservative markets like government bonds! No, never!  Yeah, right. Sentiment in the bond markets has clearly been somewhat euphoric such that investors have actually paid governments to hold their money. So the world's biggest non-currency market with all its US$100trillion or so (with about US$19.4tn from the US Federal Government) has been in a bubble. In my experience this is a bubble and one like no other. Firstly, there seems to been an almost universal acceptance of the infallibility of central banks, bureaucrats and bankers and then there is an economist and media focus on the minutiae of the next rate cut or hike.  As noted previously, one paragraph from the US Fed and 10,000 different interpretations. Look also at the role of super bureaucrats in the unelected European Commission.  This is a link to a Wall Street Journal article on the Apple US$14.5bn tax.  http://www.wsj.com/articles/europes-apple-tax-ambush-1472599362 This is exactly why we will have our `bifurcation'. Secondly, current US interest rate policy is not about 'tighter' or 'easier' money.  It is about the price of money from the Fed.  It does not currently affect the availability of money nor the stock of currency but maybe it may affect the flow of money.  The US QE went to the banks to repair their balance sheets.  The banks kept the money.  Now with rates rising, the pressure is on the banks to lend it out.  The conclusion must be that the US economy is and will be quite strong. But now some matters are falling into place that will now affect the flow of money as capital. The matter of the quality of the issuer.  Who is actually issuing and standing behind government bonds in Euro currency?   Are investors likely to be enthralled by either of the front runners in the US Presidential elections?  Japan, with almost 300% GDP as debt?  Australia, with the pettiness of the current very poor crop of Federal politicians? If weak economies need short term government welfare and other programmes that generate very modest IRRs and save citizens from loss of self-esteem then those `short term' actions may be workable with ultralow interest rates.  But low IRR programmes won't work if rates are higher. Social welfare costs are rising dangerously all around the world now and as politicians are in on the game it is up to the markets to force the changes.  And the best way is for people to get jobs or start businesses have better lives.  The coming Global Boom will do all of that.  People are making money in the share markets again and property prices are holding up very well. Everyone should be aware of the concept of the economic multiplier and how social welfare transfer payments have a multiplier of less than one after bureaucracy costs. In contrast, infrastructure expenditures often have very high economic multipliers that reach double digits. The world's debt mountain is there and still growing.  The cash mountain is still rising too and offsets much of this.  In Australia the cash mountain is still growing but the rate of change is heading lower so the capital flow action away from fear is actually now underway. Australia's huge cash mountain that needs to be put to work. Keep in mind that now it has begun the turning process it will be flowing into shares and property for MANY years to come. The key to the fear market is the rush to cash and bonds for income. The bubble that encapsulates the bond markets and talk of negative yields is now about to burst. This graphic clearly highlights the deterioration in the price of the key US 10 year T-Bond. The price on the 10 year bond is the same as in the nadir of the GFC and the peak in this US T bond market came back in mid 2012. This graphic appears very bearish to me since each 'good bye kiss' on the lower uptrend line confirms internal market weakness.  A sharp move down is really possible and would signal much lower prices and rising bond yields. The 30 Year has made its high in 2016 but is massively overbought and yes that is a rising narrowing wedge that is usually resolved with a sharp break in the opposite direction. These two markets had important spike lows in yields in the past two months and are signalling that all rates are likely to be heading higher now. And the US Treasury thinks that the US Deficit will bottom in FY18 and head higher again.  More bonds to sell. Surprisingly, the US Treasury has only about 30% of its bond portfolio with maturities more than 5 years.   It would have seemed logical to get as much long term money at these low rates as possible. The Euphoria in the bubble gave us the negative interest rate baloney and these are the nearest actions to market 'reversals' one could ever imagine. UK yields are heading higher. Germany is certainly bottoming too. And Japan.  Still negative but rising. Now this is not a doomsday note, far from it, because most of the debt will be rolled over but analysis of the take up of US borrowing does show that domestic Investors have been the largest buyers in this euphoric bubble. But we are most interested in the flow out of bonds into gold, commodities and equities. And this is just a wonderful single graph pointing it all out. Gold is leading. Australian Gold Stocks have been the key market leaders. All the rest will follow. In my view the real economy in the US seems to be doing well with employment, motor vehicle sales and housing.  The evidence is strong. I continue to like this pair of graphics.  Housing starts at the highest levels since 2007 but still well below the long term level of 1.5m units pa.  The area under the curve is inventory catch up of about 6 million dwellings.  Note that the companies in the sector are also doing very well. These alone suggest interest rates are too low and should be heading higher. Copper vs 30 Year T Bonds might also be telling us that the deflationary forces are ending and recovery is underway. All the LME metals have had a good 2016 with zinc and tin being the stars.  Expect a lot more to come. And LME inventories for Copper Lead Zinc Tin are at new lows on the MPS model. Even more impressive though is the decline in Aluminium LME inventories from 5.4mt (12% of annual consumption – 6 weeks supply) in early 2014 to 2.1mt (just 3.6% now - The ASX Metals and Minerals has made an important downtrend break. And you may have noticed coking coal prices hit US$200/t last week. Source: Metal Bulletin Quite an impressive performance.  Up 144% in under 6 months.  Many other commodities will be doing this soon too. I hope you are feeling the Boom coming through. The world has changed radically over the past decade as the emerging countries of Asia and their 3,300m people accelerate their wealth generation and living standards. Here we can see the aggregates in terms of energy consumption and also from steel consumption as Non-OECD (mostly China, India and ASEAN) rapidly overtakes the OECD countries.  Make sure you are not looking at the world through the rear vision mirror.
The strong growth from China in basic raw materials of steel and energy have totally distorted the historic global consumption graph so that for the resources sector what happens in China is far more important than what is occurring in Europe or even Japan.  As Non-OECD (essentially China) is well over 55% (try 60%) by definition and strong growth here increases the overall average growth rate in demand.  Global demand is now accelerating!  Keep this in mind if you are in the supply of tonnes business. So coming back to China we have the world's behemoth of steel actually hitting new all time highs in the production of crude steel in June (845mtpa) but more importantly the 12 month moving average of rate of change for crude steel production actually turned positive again.
Note steel can be used as a proxy for all metals. So this is not a bearish development. Concerns have been raised about the level of steel output in China on a per capita basis but as this Wood McKenzie data (courtesy of Fortescue and concept highlighted in 2014 by Dawes Points) shows, the 4 billion tonnes of steel production in China since 2000 has still left the capital stock of steel well below the US, let alone the highly steel intensive nearby countries like Japan and Sth Korea. Wood McKenzie also kindly has shown (again courtesy of Fortescue) a graphic showing the different regional growth rates in China. The rolling recession in 1982 in the US provided a wonderful example of a significant and very diverse economic unit.  Misery in the Oil Patch and the Rust Belts of the day were offset by the Florida grey immigration and booming SW.   Silicon Valley was emerging as well.  Transitions and transpositions. The Recession of 1982, the worst there since the 1930s, led to the biggest US equity bull market ever.  Is this what is happening again now, globally? Technology is leading. There is much more to say about technology in so many areas and do watch closely Virtual Reality and Augmented Reality.  More coming in Part 2. And this graphic speaks volumes for India if you haven't seen it before. I still like gold very much and consider that after almost 10 weeks of correction gold and gold stocks are about to move ahead strongly You might like to note some of my recent interviews on gold Kitco Alan Kohler CNBC I hope you are on board. Barry Dawes BSc F AusIMM MSAA 

Mining Journal: Australia’s gold renaissance

by Alison Sammes
mining-journal-logoThe current move up in the US$ gold price is doing wonderful things for the Australian gold industry today. For the past three months since May 1, 2016, the average weekly close has been A$1,753/oz and so far in our July/June financial year it has been A$1,768 after being A$1,663 for the June 2016 half – A$100/oz better than the June half. Read the full article in the Mining Journalhttp://www.mining-journal.com/gold-and-silver-investor-hub/gold-and-silver-investor-hub-research/australias-gold-renaissance/

CNBC: Gold is in a powerful bull market

by Alison Sammes

cnbc-13-sep-2016-gold-is-in-a-powerful-bull-marke-investor-3

Tuesday, 13 Sep 2016: Barry Dawes appeared on CNBC's  "Commodities Corner" talking about the gold market. Watch the full video on the CNBC website: http://video.cnbc.com/gallery/?video=3000550879&play=1

Every correction in the gold market has been quite shallow, which hints at strong underlying demand, says Barry Dawes from Martin Place Securities.

 

Interview: This Is a Powerful Bull Market in Gold

by Alison Sammes
Don't miss Barry Dawes' interview on "The Street" with Daniela Cambone.
KITCO NEWS - Gold is in a strong bull market, and it's only going to get better, this according to Barry Dawes, executive chairman of Australian-based investment firm Martin Place Securities. But, unlike the doomsayers, Dawes is calling for a global economic boom and thinks gold stands to gain. 'This is a powerful bull market in gold,' says Dawes, noting that even more powerful forces are at work that will change the global allocation of capital. 'The world has never been as wealthy and the wealth is no longer a U.S. or Europe dominated force. China, India and South East Asia are now wealthy blocs with over 3,300 million people,' he said. In an interview with Kitco News, Dawes said he is calling for $1,500 an ounce gold by year end. 'The strength in the gold market has been displayed since the lows in January 2016 and long before Brexit became a market issue. Markets respond to the major long-term issues and tend not to be reversed over short-term matters,' he said. ... Read the full article on Kitco News 
Watch the interview with Daniela Combone on The Street: https://www.thestreet.com/video/13666564/this-is-a-powerful-bull-market-in-gold.html or on YouTube:

TheStreet-Icon142x142TheStreet is a leading digital financial media company whose network of digital services provides users, subscribers and advertisers with a variety of content and tools through a range of online, social media, tablet and mobile channels. Our mission is to provide the most actionable ideas from the world of investing, finance and business in order to break down information barriers, level the playing field and help all individuals and organizations grow their wealth. With an unmatched suite of digital services, TheStreet offers all of the tools and insight needed to make the best decisions about earning, investing, saving and spending money.

Australian Gold Sector thriving

by Barry Dawes

Key Points

  • Gold market gaining confidence
  • Australian Gold Producers well placed
  • Paradigm Gold Portfolio was up 75.5% in 13 months to 31 Dec
  • Kalgoorlie gold region being reinvigorated
  • 2016 should see further Australian gold development resurgence
  • Long term trends may be indicating end of deflationary times
The strong performances of key ASX-listed Australian domestic gold producers have been a key feature of Dawes Points' views of the world.  Upbeat reports on production, cost reductions, earnings, cash and dividends assisting a +75% untraded weighted portfolio gain have insulated many clients from the external volatility in most other market sectors.  Exploration results have also helped for some companies. These gains in Australia have encouraged Dawes Points to consider that the actions in the global gold, gold equities, commodities and commodities equities will be following those in Australia sooner or later in the new year of 2016. The Paradigm ASX 300 Gold Index share of All Ords value turnover graphic has been of great assistance in showing that the relevance of Gold Stocks was recovering and that indeed a major turning point was coming about after a very long decline. Similar but still nascent changes seem to be underway in ASX Small Resources and also in the XMM, with prices still falling but volumes and market share increasing.  All good tentative signs. The Dawes Points 3 December 2014 untraded gold stock portfolio provided a 73.6% return for 13 months to 31 December plus almost 2% in dividends. Here is the proof. Great gains by overweighted leaders Northern Star and Evolution together with half weighted emerging companies Blackham, Saracen and Gold Road gave the portfolio most of the performance and it outperformed the ASX Gold Index by about 20 % points in value and about 0.5% in yield. It is easy to say that the local gold sector has done well because of the weaker A$ but the A$ gold price has been around A$1,500/oz for the past five years.  The recent moves above A$1,600/oz and last week's surge to A$1,588 will certainly help sentiment. The gold price at A$1,500/oz has made good earnings for many companies and I expect that the Dec Half of 2015 will bring even more gold production growth, lower operating costs and higher earnings. Expect many gold producers this month to put out early advice of good production stats ahead of the formal quarterlies. But it is not just the A$ gold price that has made these good market performances. Real effort, ingenuity and investment is involved in this local industry and here is where the industry is going with the production growth results very clear in WA which has consistently produced 65-70% of Australia's mined gold. The longer term appears robust for all Australia. In assessing the Gold Sector Portfolio, emphasis was placed on the S&P ASX 300 Gold Index to ensure investors were looking at visibility and liquidity for most chosen stocks. However, since the ASX sold its index business to S&P the resources market has never been quite the same.  The Gold Index was discarded and not resuscitated until about 2005 and then was backdated. The actual XGD Index was recently critically reviewed by Dawes Points to analyse its effectiveness. This index has been found to be an appalling collection of gold, non-gold, local and foreign listed stocks that gives no real reflection on the activity in the Australian gold industry of the past decade. So coming to the real action in the ASX Gold Index today we have a tale of two sub sectors:- Domestic gold producers; and locally domiciled companies with offshore gold production. The ASX 300 Gold Index currently has 22 stocks.  Ten are gold-only plays domiciled in Australia and operating mostly Australian gold mines.  Eight are Australian domiciled and operate mines offshore.  Two are foreign domiciled and have all or mostly foreign gold mining operations.  One is a diversified miner with local gold production and one is a diamond mine developer. Look at this. First of all, note the June 2013 low that I have often mentioned!    An unweighted index of up to ten Australian local producers is up 165% since that low. The eight offshore producers are down exactly 50%.  The Index itself is up just 28%. Where did you want to be in this index?  Clearly with Australian gold companies producing locally. The other four stocks in this 24 stock universe have little or no relationship with the Australian Gold Index. What a misallocation of resources.  What would be the interest in ASX gold stocks be if the ASX Gold Index actually reflected these strong gains and the activity in the Australian gold industry itself! ASX investors should be able to invest in confidence in Australian companies involved in the gold industry. Australia is the second largest producer of gold, after China, and the opportunities should be large and many.  A decade ago, almost two thirds of Australia's gold production was owned by overseas domiciled gold companies.  Recently, substantial gold production assets have come back to Australia through sell downs and acquisition by Northern Star, Evolution and MetalsX. Everyone should be investing in this production growth and not, as suggested by the ASX 300 Gold Index, in some foreign domiciled offshore producer and certainly not in an offshore uranium prospect.  Or in a coal miner, iron ore producer, or a gas company. Actually, the story of these Australian gold producers gets better. These terrific ten Australian gold producers make up over 90% of the XGD turnover and as noted above this is now back up to around 2% of All Ords turnover. Makes the current makeup of the XGD Index look silly. Well, my 2016 portfolio will still emphasise most of these top ten (eight actually) with a few more that should soon come into the XGD:- Only three of the offshore producers make the grade for the portfolio. I have added some emerging stars to give us the Dawes Points 2016 Gold Stock Portfolio for a A$100,000 portfolio.  $40% in the larger stocks, 30% in mid caps, 20% in growth opportunities and 10% in minnows. I am taking the 31 Dec as the start date so let's follow the performance over the year and compare it with the 2015 Portfolio. I would like to refer to two other minnows that wouldn't fit in the Gold Portfolio but could provide some excitement in 2016.  Mustang Resources (MUS.ASX) has some very high quality projects in Mozambique that include rubies and diamonds. Alt Resources (ARS.ASX) is a recently listed explorer with an outstanding copper porphyry target near Cooma in the Snowy Mountains on NSW.

The Big Picture

The current sell-offs in commodity and equity markets continue the bearish trend of the past few years and we all are experiencing tough times outside these local gold stocks. But these gold stocks are showing that not all is dismal and pessimistic. The big picture for gold remains that market sentiment remains poor and most professional investors have been out and probably short since the highs in 2011. We have now had over four years of declining US$ gold prices and all manner of uptrends have been broken.  However, the graphic below shows US$ gold is almost bouncing off the US$1032 high of the GFC in March 2008.  This may be very important.  The momentum and sentiment indicators are good enough for the gold price to have completed most of its decline and to bounce and renew the bull market. Long Term Gold Price from 1980. The US Fed has begun its interest rate hikes as that economy strengthens.  The evidence is clear that this is a sub normal recovery but the deleveraging has been substantial at personal and government levels and even the US Budget Deficit seems to now be 40% lower than just a few years ago.  Savings rates around the world have improved balance sheets everywhere.  The US$18trillion debt is still there but the bond market is still signalling that higher yields are in store over the next few years. Rising bond yields after such an extended period of easy money will be reinforcing the probabilities of the end to the deflationary days and a pick up in inflation. Over US$90trillion of capital is tied up in government and corporate bonds.  This is a massive source of capital and when coupled with the global cash levels, there should be strong flows of capital out of cash and bonds to gold when sentiment changes. US 10 Year Bond Prices - Weekly The market for gold is now driven by the Love Trade for jewellery in India and China and is likely to do so for quite some time. From this graphic it is easy to see that most of the world's 170,000 tonnes of gold is held as jewellery and demand for gold into India is insatiable. China in 2015 according to Koos Jansen at Bullion Star had another record year of imports (~1,200tpa) and domestic withdrawals (2,405t ytd) through the Shanghai Gold Exchange. World mine production is only about 3100t so between them China and India absorb all mine production. Coin demand remains robust and silver coins mint production in North America has maintained the very high levels of 2013 and 2014 to meet this strong demand. This Supply and Demand for Gold for the Next Ten Years strongly suggests a tight market for gold will exist for quite some time. You will be familiar with graphics of the Philadelphia Gold Index (XAU) that is showing an index level that is almost as low as that at the US$248/oz low in 2000. My reading of this indicates we are near the lows in these major North American gold stocks and if the market is completing the Wave 2 correction then the upside should be strong and should follow what we have already seen in the Australian Gold Production Sector above. The market is currently all about sentiment and the sentiment has not yet turned favourably towards gold but that change cannot be too far away now and the response could be rapid. This strong view for North American gold stocks is supported by the very long term graphic for the Barron's Gold Mining Index which goes back to 1940. An excellent long term uptrend is matching support of 2000 and is also about the same as highs in 1969! Readers will probably be also familiar with the XAU vs the S&P500 whereby gold stocks there have fallen 90% against the S&P500. We can look again at the S&P500 against all commodities (CRB Index) and extreme is the only word that can apply! And market sentiment shows it very well. Finally, four major indices that don't look as if they are about to crash.
Shanghai Germany
India Japan
The Paradigm Gold Portfolio has performed well in 2015 and by my assessment the stocks are cheap on PERs and yields and well as having the lower A$ protection and production growth. As noted, this portfolio performance has underpinned the optimism of this newsletter and as noted on a recent CNBC interview  appearance, it was hard to be overall bearish when the portfolio was doing so well. Of course the Non Gold sectors have been horrible despite record exports, imports and consumption for almost all the industrial metals and for iron ore.  Please note that LME inventories have continued their medium term declines (other than some obvious warehouse transfers from stale bulls(?)) and this reflects the record consumption and limited new supply. Oil, iron ore and coal have seen substantial investment in new capacity so the concept of oversupply against firm demand has applied.  More on oil at a later date and but you should note this data :-
  • double digit growth in consumption of transportation fuels in many countries in 2015,
  • the ~1.8% total increase in global oil consumption in 2015 and more in 2016
  • the 64% decline in the Baker Hughes US oil rig count in Calendar 2015(52% fall for gas rigs)
  •  the 30% decline crude oil output since  the peak in Dec 2014 in key Eagle Ford tight oil field.
  • Global crude oil stocks are high but are still only 6-8% above the five year averages
All make fascinating reading and the issues developing between Iran and Saudi Arabia may yet become a major issue for Saudi oil production.   Note too the big bond issues to prop up the Saudi budget, local petrol price subsidies significantly reduced there and also the discussions on selling assets, including listing 5% of Saudi Aramco oil company with its 260bn bbls of reserves.  Saudi Arabia might also be raising cash to fund military activities. Oil is back to the 2008 lows and also the highs of the 1990s.  May soon be time to call a bottom here. Markets are always difficult to assess but true value always wins. You can contact me at bdawes@psec.com.au or +61 2 9222 9111. I own: NST, BLK, GOR, MLX, TBR, DRM, MML, RSG, CGN, GEE, TNR, TYX, MUS, ARS Edition #44

The bottoming process for the upturn is getting stronger

by Alison Sammes
  • Gold sector leading the market upturn
  • Gold stock market action confirming new year long bull market
  • Major players in gold physical market covering shorts
  • Australian Gold Index up 46% since 1 December 2014
  • Paradigm Portfolio is up 78%
  • Resources turnover market share downtrends decisively broken
  • Global economic activity still lively
  • Global bond market continuing to roll over into bear market
  • Further STRONG BUY signal for Australia gold stocks
  • Preferred stocks NST, EVN, MLX, BLK, DRM, DCN, MML, RSG
  • Smaller plays with  TNR, TYX, PNR
Robust market action is signalling Australian Gold Stocks are leading the global recovery in resources stocks.  Resources equities are also displaying non confirmation of the weaknesses in physical commodity prices and the underlying demand for resources raw materials continues to make new records in consumption.  Continuing declines in LME inventories suggest physical demand is at odds with the negativity infecting futures markets and some sharp upside resolution may be at hand. Furthermore, recent COMEX participation trends in gold and silver futures are showing massive short covering and new long positions being set by commercial traders while the general poor sentiment has encouraged speculators and hedge funds to increase their bearish bets. A major change is likely to develop soon. In the past 12 months since the important 6 November 2014 low at 1642 the ASX 300 Gold Index (XGD) has provided a 51% index gain and the Paradigm 1 Dec 2014 nontraded 17 company gold stock portfolio is up 72.3% unweighted (including 1.2% in dividends) and 78.6% weighted (including 2.0% in dividends) against XGD's 46% gain from 1 Dec 2014.  XGD is up 21% from 1 January 2015. The XGD is barely above the levels of 2003 and PERs and yields are now very attractive for this sector.  Also the buybacks of so many Australian gold mines from the likes of Barrick and Newmont is actually giving domestic companies a more significant share of Australian gold production again. The A$ below US$0.75 has provided an average gold price of around A$1,550 so far in 2015 and helped a large build up in cash for gold producers. Dividends are flowing again. Gold production in Australia is increasing and several new important expansions should see further growth over the next several years. Source: BREE and Paradigm estimates The action in the gold share market here in Australia is strongly suggestive of the bottoming process being mature and the real long term uptrend in gold and gold stocks is resuming. As stated, this market action is very constructive and an improvement is being noted in market breadth, smaller stocks are running and investors are taking up capital raisings again. I actually have my first gold sector IPO sponsorship since 2007 now underway with A$4.2m for Golden Eagle Mining coming soon. The market action is very encouraging with XGD's share of All Ordinaries market $ turnover now well over 2% again and looking to double from here. The prospects for earnings and dividends is what drives stock prices and gold companies always have also had the option value of a higher gold price or increased resources.  The prospects in recent years have been quite the opposite so all option value has been squeezed out and value is now substantial. The prospects now are greatly enhanced but sentiment is still very poor so the opportunity has ''once in a generation'' status. The XGD is still 70% below the April 2011 high when A$ gold was A$1408/oz.  It is now A$1550. As always, it is important to put all market action in to perspective and to consider what the markets are really telling us. Again, the adage, `heed the markets, not the commentators' has helped so much. The markets are also saying that the physical demand from India and China is strongly underpinning demand and that, in great contrast, the record level of over 300 futures contract ounces sold for each deliverable ounce registered on COMEX says a serious mismatch might just develop along the way. The current market is not a just a random point in time but a manifestation of the long term global outlook but coloured by today's sentiment. Returning to my previously published long term themes we can note that the oil price bottomed at around US$10/bbl in Dec Qtr 1998 and then had almost 10 years of rising prices before peaking at US$147 in May 2008.   The CRB index of commodities (itself highly skewed to energy) showed a similar rise. The forces behind the commodity bull market were global growth and the remarkable entry of China and its voracious demand for raw materials.  From the resource sector perspective, the rise of the steel industry in China to over 800mtpa and China being responsible for the consumption of around 50% of most industrial metals dwarfed anything in modern economic history. Export volumes and market prices were very strong and the marginal increases in demand required marginal increases in output and often these marginal increases were from marginal projects. So a slowing in demand growth created a change in the market momentum and sentiment and brought about a sharp fall in prices and over seven years of bear market since mid 2008. The speculative blip was 2010-2011 but this has now been thoroughly squeezed out. We can see this in the performances of the various resources indices in terms of price but we can see this even more painfully in the declining share of ASX market turnover. Mining and Metals had 25-30% of turnover for 2007 to 2012 with spikes to 35%.  Its down to just 13% now.  Google, Apple, Tesla and banks have been far more attractive to investors. But this downtrend has now broken and like the Gold Sector is attracting accumulation. However, we should all note that the real reason for this improvement is what Dawes Points has been saying all along. The Chinese economy is still growing and with the important One Road One Belt Silk Road concept the demand for raw materials will be maintained and will continue to grow. Crude steel production has held up well against the calls for a major fall but surging steel exports to ASEAN and to the numerous China-sponsored infrastructure projects in many parts of the world have hidden weaker internal demand. Nevertheless there has been a major drawdown of iron ore  inventory on the part of the steel mills in China, a drawdown in the port stocks in China from over 110mt to under 90mt and all the major producers have run down their own mine and port stocks.   Obviously the high cost exporters around the world have stopped and domestic magnetite concentrate production in China is falling sharply at last. I had expected a short cover rally in iron ore in this half year as this inventory reduction is readjusted upwards but it hasn't eventuated. Consumption of most metals however is still at record or near record levels and LME inventories continue their declines. This is not the stuff of recessions and major declines in economic activity. The GFC only spurred China onward but its 1,375m people have had a taste of a better life and this can only grow stronger. China has also the long term goals of its westward-looking agenda that aims to link not only the 3,300 mi people Dawes Points referred to over the past few months but to Europe linking another 1,100m to East Asia. In today's crisis with IS in the Middle East, the infrastructure quest through the `Stans might actually change the power base and outflank the extremists and lead to Islam's own Reformation.   Who knows! We still need to continually revise what we think of China.  Those 1,375m people will be 1,400m very soon and the build of infrastructure will continue to change trade patterns. The Dongfang Modern Agricultural Holding Group IPO by Paradigm Securities also gave us a very important window into another side of China.  (The IPO raised over A$39m and so far has reached a peak of 45% gain on the IPO price.) China has so many important regions that have over 200m people individual economies that can be operating economically quite separately from each other so we should be wary of commentary from Guangzhou or Shenzhen close to Hong Kong when all the action might be in faraway Chongqing or Chengdu. So China has this combination of 50% of global consumption on one hand and then the emergence and entry of so many new intermediaries with different trading policies and procedures.  For the resources sector this really means numerous new players in the supply chains and the participation of these new traders with or without inventory.  Who is long or short on anything?  Who is a producer or user? Extremely hard to know yet. More new players are in the markets but many of the established groups elsewhere in the world are now holding back. Could this be new but inexperienced players trading in the futures markets? Following the sentiment and not the facts?  Heeding the commentators and not the markets? In my experience, all this is almost guaranteeing a return to robustly positive markets in the decade ahead. In contrast, the market place is still extremely bearish and copper hit a six year low last week but some interesting things are taking place elsewhere. Firstly here at home Australia is a major global producer of raw materials. The lower A$ has been very helpful in allowing A$ cost producers to recover and rapid changes have been made in the domestic cost structures as well.  Some stocks are holding up well and like the Gold Sector, are leading the world out of the gloom. On a bigger scale, the performance of commodities and the equities of those companies that produce and use them often give us clues to the sentiment of the market place. Oil may be bottoming because major integrated oil and gas companies' stock prices and the US E&P indices are not confirming recent lower oil prices. Oil demand is still rising at 1.5mbopd each year and US tight oil output is declining. We can look at Exxon, Conoco, Chevron, SHELL, BP and BG Group to show constructive market action and the S&P E&P (Exploration and Production) Index may be indicating its 60% fall in 18 months is overdone.   In Australia, Woodside, Beach/Drillsearch and Origin look better and Santos after its capital raising might just get by. Iron ore stocks FMG and Rio are not confirming a lower US$ iron ore price although BHP and Vale are weaker and are carrying the weight of the SAMARCO tailings dam collapse.  (We might ask what the Brazillian bureaucracy was doing about the standards they had previously laid down.) All this is against a global economy that hasn't fallen over and the US, China and India may just get stronger.  Even Japan with its stagnant economy is still cranking out steel at full capacity of 110mtpa. So the outlook is looking even more encouraging and for us in Resourcesland this graphic below is speaking volumes in clear data. Our basic livelihood of emerging resources companies (XSR) is showing another clear break in the decline of market share of All Ords turnover. The market for small resources is improving.  This is hard evidence here but the signs are everywhere. Interestingly, while the XMM and ASX200 Resources were breaking to new lows the XSR has been assisted by the XGD and has held up well. Dawes Points also knows this from recent capital raisings for small resources companies.

THE BIG PICTURE AGAIN

The major trend assessments for investment markets have to start with assessing the direction of the bond markets. It is so clear that the growth figures in the US with record sales levels in many markets sectors and declining unemployment that interest rates must rise. US Housing Starts are still well below replacement levels of 1.5m units pa and the Philadelphia Housing Stocks Index looks to want to surge soon. So the US bond market is looking very toppy with the 10 year having its peak over three years ago.  It is taking a long time to roll over but the result is inevitable.   The downward adjustment could take place at anytime now and the raising of short term interest rates may be the trigger. The world has invested almost US$90trillion in bonds. Even a tiny flow into hedges could be massive in commodity and resources stocks.

Stocks to think about

The recommended Gold stocks noted above are for Core Positions that should be held for years and not really traded. Stock  |  Price cents (AUD) More speculative plays are

I own DRM, NST,MLX, RSG, TBR, GOR, BLK, MML, TNR, TYX and PNR.  STO, BHP, DFM, BPT. Edition #43