Gold sector going from strength to strength
Key Points
- ASX Gold Index up 141% from Dec 2014 lows and +55% in 2016
- Dawes Points 2016 Portfolio up 68%, 2015 Portfolio up 165%
- Gold price beginning its next upmove
- Australia's regional gold provinces offer great potential
- Key recommended producers are NST, EVN, TBR, NCM, MLX
- Recommended emerging producers BLK, AHK, CYL, PNR, AUC
Australian Gold Sector is having a wonderful start to 2016 with many of our preferred stocks making new all-time highs in the confluence of cost reductions, increased gold production and the highest A$ gold price in almost 5 years. The Dawes Points Portfolios of producers have provided high returns with little risk because of the strong resource asset bases, low debt levels and rising cash flows. Dividends should also flow strongly. Gains have been substantial and further gains are anticipated as the ASX XGD Gold Index heads for our 2016 target of 6000, now just 1900pts away.
ASX Gold Stocks are still cheap on average against the A$ gold price and are not over priced by any means.
And the XGD is still down 50% from its highs.
Domestic producers are still outperforming offshore producers although some offshore players are starting to catch up.
Of interest here is the past three months from the last intermediate peak in week ending 4 March.
The ASX-listed Australian based with domestic operations did well, aided by the weaker A$, and some have showed relative strength showing investor appreciation of value.
The ASX-listed Australian based with overseas operations had a mixed 3 months but PRU, RSG and TRY are showing strong relative strength and should continue to do well.
|
Company |
ASX |
A$ 4 Mar 16 |
3 June 16 |
%change |
Comment |
|
Doray Minerals |
DRM |
0.93 |
0.90 |
-3% |
Value here |
|
Evolution Mining |
EVN |
1.85 |
2.01 |
9% |
Performing |
|
Gold Road Resources |
GOR |
0.50 |
0.59 |
19% |
Outperform |
|
Newcrest Mining |
NCM |
17.20 |
19.76 |
15% |
Strong |
|
Northern Star Resources |
NST |
3.97 |
4.24 |
7% |
Performing |
|
Regis Resources |
RRL |
2.70 |
2.95 |
9% |
Performing |
|
Saracen Mineral Holdings |
SAR |
1.06 |
1.15 |
8% |
Performing |
|
St Barbara |
SBM |
2.02 |
2.62 |
30% |
Very strong |
|
Silver Lake Resources |
SLR |
0.37 |
0.45 |
23% |
Very strong |
|
Tribune Resources |
TBR |
3.66 |
7.35 |
101% |
Thank you!! |
|
Index Value |
|
689 |
793 |
+15% |
Best place to be |
|
|
|
|
|
|
|
|
Beadell Resources |
BDR |
0.28 |
0.29 |
5% |
OK |
|
Kingsgate Consolidated |
KCN |
0.45 |
0.41 |
-9% |
Licence issues??? |
|
Kingsrose Mining |
KRM |
0.26 |
0.17 |
-35% |
No thanks |
|
Medusa Mining |
MML |
0.74 |
0.65 |
-13% |
Value created |
|
OceanaGold Corp |
OCG |
3.92 |
4.07 |
4% |
Performing |
|
Perseus Mining |
PRU |
3.92 |
0.49 |
31% |
Relative value |
|
Resolute Mining |
RSG |
0.38 |
0.97 |
58% |
Relative value |
|
Troy Resources |
TRY |
0.62 |
0.55 |
13% |
Relative value |
|
Index Value |
|
78 |
77 |
-1% |
Still tough |
|
Overall Values |
|
417 |
475 |
+14% |
|
|
XGD |
|
3598 |
4099 |
+14% |
|
The Gold Sector share of All Ords turnover is rising nicely now to give further confirmation.
However, the ASX Gold Index is a moveable feast so we might need to be careful in our conclusions.
S&P uses its ASX 300 Index to determine the sub indices.
If a mining company fits in the ASX 300 it can be in the Metals and Mining, Small Resources or Gold.
If a handful of the 60 odd lithium stocks make the ASX300 some gold stocks might miss out. Or if Fintechs have a run you might also miss out.
Look at this with the Gold Sector.
The XGD share of ASX All Ord turnover is now around 4% based on 24 stocks which is 8% of all ASX 300 stocks. At the peak in 2011-2012 there were 52 companies in the XGD making it over 15% of companies on ASX but making only about 6-7% of All Ords turnover.
I used to think it was good when gold stocks made up 15% of the ASX300 companies. I am now not sure what this XGD Index means now. Do you? Please let me know if you do.
I tend to think that ASX cast the resources sector down the river when it sold its indices to S&P.
For the Outlook, evidence set out in Dawes Points over the past year or so and more particularly in the past five months gives a reasonable confirmation that the Bear Market since 2011 has ended and that a new Bull Market is underway. The supply/demand picture for the gold market looks strong and the uptrend should last years.
The duration of the first stage from about 1999 to 2011 was as much as 11 years with almost five years of correction. In my experience, markets will have a second leg that is at least as long as the first. So I expect at least 10 years of bull market where an uptrend will be established that supports higher prices. But it won't be over by then, there will be much more to correct the massive imbalances of the Western Welfare State for many years yet.
So how might we project future prices?
If we took the underlying uptrend from US$250 in 2000 to about US$1600 in 2011 (not just a line from the lows to the US$1923 high) we can come up with about 17%pa.
Since 2000 gold had an average annual volatility of 15.5% so possibly a 10% pa uptrend would be reasonable to start with.
If we took US$1050 in early 2016 as the low, we can come up with various uptrend base line price projections to the end of 2016 and for 5 years to 2020 and 10 years to 2025.
In A$ at US$/A$ = 0.75 the figures look a lot of fun!
However, in the Dawes Points world the A$ will rise to follow gold and gold stocks so it won't be this high.
Nevertheless, the theme here is that once you get your core gold stocks like NST, EVN and NCM you should never be a seller. The dividend flow will be outstanding.
Keep coming back to the long term to get your perspectives.
Gold is in a long term bull market that should run for years yet and this wave count graphic shows the strength in 2011 creating an `irregular B wave' that was very unusual but is underpinning the great power developing in gold. Much, much higher gold prices are coming in the decades ahead.
This long term graphic from Barrons also shows the long term significance of the recent low in major gold mining shares.
With this we really know where we are and where we are going!
Heed the Markets not the Commentators!!
In recent times I have made a number of site visits to assess the prospects of the companies.
It is so important to visit and attempt to understand the local regional geology and mineral endowment that are so well intertwined. Understanding this substantially reduces exploration risk because so often it means a matter of `where' and `when' and not `if' mineralisation is found.
Also keep in mind that the Australian Gold Mining Industry currently has a large network of milling plant and haul road infrastructure with underutilised capacity and also excess contracting capacity so mine development lead times can be so much shorter before cashflows come through. Gold mining is a cashflow business and just not a few speculative drill holes.
The geological understanding of the Yilgarn is continually evolving and the past decade has provided some major advances.
WA Government has also made great strides in digitising the bountiful data on WA's numerous mineral deposits as it makes it determined thrust to become the global #1 mining destination and the world's most online efficient administration.
And look at this.
WA produces about 65-70% of Australia's gold and most comes from the Yilgarn Archean Greenstone Belts that spread across WA in mostly NW-SE trends.
The Dawes Points regional plays are well placed with large tenement holdings in the best parts.
From WA's Archean Greenstone Yilgarn Craton west to east we have
- Boddington 30moz
- Katanning AUC 0.6moz (1moz? -3moz??)
- Southern Cross Nothing of interest yet
- Bullabulling Zijin 4-5moz Golden Eagle IPO (0.15moz -0.7moz? 1.5moz?)
- Kalgoorlie
- Zuleika Mineralised Corridor (simply the best!) TBR, NST, EVN, TNR
- Higginsville MLX
- Leonora Trend SBM KIN
- Laverton RRL SAR BRB DCN
- Yamarna Belt GOR
- Tropicana Belt IGO
- Up North
- Wiluna 4.8moz BLK
- Murchison DRM
Elsewhere in Australia in important goldfields we have
- Lachlan Fold Belt Cadia NCM (43moz Au )
- Bendigo Whitelaw Mineralised Corridor CYL (1- 15 - 20moz?????)
- Tennant Ck TRM (0.1moz - 2moz???)
- Gawler Craton WGP TYX
- New England Fold Belt WRM
- Pine Creek Geosyncline AHK
We are invested in most of these and we can sit back and watch, share and finance the growth over the next decade.
There will be more of course and we will applaud and encourage our explorers and keep in mind that about 68% of Australia's landmass has some sort of surface cover so the search for deposits without outcrop can run for many years yet.
We are also watching the true explorers with base metal and gold targets. Think of THX, CZI and ARS in particular. Has ARS found another copper-gold porphyry in NSW?
My concluding view remains that the Australian Gold Sector is leading the world and that gold is leading the entire economic outlook.
And reading the IRESS news flow it seems the gold stock analyst community has still yet to understand what is happening. The numerous upgradings of a price target of a stock to 20% below the current price in a moving market shows they are still `on the wrong side of the market'.
Hold the course or jump on board now. The journey should still be long and rewarding.
Contact me at +61 2 9222 9111 Bdawes@psec.com.au
Some sad news.
Vale Keith Harold Dawes 1948 – 2016 PhD MA Dip Ed
Lifelong friend, mentor, psychologist, educator, farmer, musician, author and big brother.
Suddenly, last week.
So much experience in life but life is not always golden.
Resting in Peace
Barry Dawes
I own, or control in diversified portfolios, most of the stocks mentioned in this report.
Edition #49
Indeed, this Dawes Points rate of change indicator recently predicting the upturn very nicely.
The impact on iron ore was likewise just as predictable as the anticipated restocking proceeded. A major rundown in inventory of steel product and ore itself by the steel mills needed to be corrected. The huge volumes on the Dalian futures market also showed massive short covering by speculators and so it went. Record and rising imports of iron ore show inventory ratios are in fact quite low.
I stuck my neck out and suggested we would see US$80 soon. We almost saw US$70 in late April before it pulled back. I am sticking it out again to say this market has bottomed!
This view of steel is helpful especially when combined with this indicator below of metals consumption essentially confirming the continuing consumption strength and clearly no buildup of terminal market inventory. This does not suggest a metals bear market. This says to me less than one week LME inventory.
It says as the sentiment recovers, the demand will quickly absorb this and much more. Much higher prices are coming in the years ahead.
Commodities everywhere were sold off in a frenzy that never truly reflected the underlying supply and demand. Oversold and ready for a very strong rebound.
I come back to technology and I see it everywhere providing minor and major benefits to producers and consumers in so many areas. Computing, telecommunications, innovative power generation, new high performance technology materials (graphite/graphene, lithium, cobalt, scandium, rare earths, titanium, copper, niobium, antimony and much more), automobiles, military technology, space technology, aerospace, consumer electronics), fintech, meditech and the list goes on. And the new technologies are coming from many sources:- the US, China, Israel and Australia.
I think it will also be very important in the next major upleg in global markets that it might actually be driven by the newly wealthy Millenials as their Baby Boomer parent/grandparents shuffle off this mortal coil and pass on their stocks and bond investments. The old industries and dangerous boring low yielding government bonds will be jettisoned to provide the capital for the next leg.
As ever, it is necessary to heed the markets and not the commentators.
Have look at this long term NASDAQ as it is about to break through the old 2001 highs. This very oversold despite recent strength and after a year of consolidation. Looks powerful!
But then look at the Dow Jones 30 Industrials:- It is again challenging recent new highs.
The S&P 500 also looks very powerful, oversold and seems coiled like a spring and ready to go.
The Russell 2000 Small Caps shows similar positioning.
And with the market breadth of the Wilshire 5000 this looks perhaps the strongest.
With the US reporting record sales of automobiles and having strong housing where current levels are still below the required 1.5m dwellings per annum - and are probably still 6m dwellings short:-
The Philadelphia Housing Index thinks so too.
And it seems the Banking Sector is loving it!
Does this look like the end of the world described by those very long the global bond markets and cash?
But let's now follow the action around the world by just looking `East' at Germany and the DAX:-
Then the FTSE:-
Then to Asia with India leading:-
And Japan still OK.
The China Shanghai hysteria in 2015 was just hysteria all along as we suggested:-
Hong Kong is OK.
And Sth Korea looks magic.
Even the Philippines is on track.
I can only conclude that the basic thesis of a global boom is still very much on track despite all the recenty increased doom and gloom mongering.
Back at home the evidence is breathtakingly brilliant!!
The Bear is well and truly dead!
The Bull is alive and gaining strength for that +15 year run.
The Resources sector continues to increase market share of All Ords turnover and there is a new spring in the step of the broking community.
It is all happening again out there and from my sector point of view there is a great backlog of capital raisings in the junior resources sector.
My theme of the past 18 months has been that gold is leading the whole global reflation and that Australian domestic gold producers are showing the way.
This graph should bring joy to the hearts of those in the Australian resources industry!
What great indicators these market share graphs are!
I think it is getting very close to a major break out in all major equity indices.
The themes on economic growth, strong equity markets, peaking bond market, good commodity consumption figures, no inventory and a rising gold price etc are all coming into place.
We haven't wavered in our steadfast views and the portfolio results prove it.
Stay with me or join in now to the massive wealth creation of the next decade.
Contact me 
Nickel is bottoming and reversing.
Nickel is fascinating to watch. Nickel pig iron made from laterites in Indonesia and the Philippines has provided the stainless steel market with contained nickel units (one unit = 1% = 10kgs per tonne) at a discount and iron units for free. The rapidly growing 200 series of nickel alloys prefer nickel pig iron. Why bother with expensive and expensively refined pure nickel metal?
All this may now be changing and should lead to a recovery in nickel prices. Reduced nickel pig iron supplies and already reduced stainless steel inventories have kept the market weak. However, restocking seems to be underway and just might bring about a sharp rally in nickel price. The share market seems to think so. Look at all this:
Guess what I have been doing here.
The leading second liners in the Resources Sector include IGO, OZL, S32 and WSA. I have been buying these last two along with the big three RIO, BHP and FMG.
WA produces around 70% of Australia's gold output of around 280t with the Yilgarn around Kalgoorlie providing about half of WA's 180tpa. From this it is clear that Kalgoorlie missed much of the 2003-2010 Gold Boom but is now making its mark.
I hope you are now fully aware of the importance of the Zuleika Shear Gold Camp. The Gold Camp concept is unfamiliar to the Australian gold industry nowadays. I understand it as multi company operations along a structure of numerous mines.
This hasn't really happened in Australia since the 19th Century when we had Bendigo, Ballarat, Charters Towers and maybe Hill End. Most major WA mines have been single mines with single companies so the Zukeika Shear is of MAJOR significance.
Zuleika Shear at Kundana fits this Gold Camp concept well. Northern Star has the East Kundana JV (Hornet, Raleigh, Rubicon and Pegasus) and its wholly owned Millenium while Evolution has Frogs Legs, White Foil and the Phoenix acquisition. Torian (TNR.ASX) has many of the bits in between.
Note the difference between the narrow high grade K2 Shear deposits associated with black shales (including Pegasus-1.2moz @ 11g/t, Rubicon, Hornet, Frogs Legs -1.3mt @ 6g/t, Millenium etc) and those in dissipated lower grade deposits in more porous rocks closer to the Kunanalling Shear, being Castle Hill and White Foil.
Long Section of Kundana portion of Zuleika Shear
(This is from NST's outstanding good website – see Our Assets/Kundana and entry to this brilliant interactive 3D model at the bottom of the page)
You should also be aware of Northern Star's latest comment on EKJV – Rubicon- Hornet-Pegasus join at depth with over 2km in strike. 3moz endowment to 600m (1.5moz mined) and extension probably to 1800m with another2-3moz at ~10g/t. 200kozpa probably going to 300mozpa. (No wonder 37.5% JV partner TBR jumped 40% to A$5.60. How about TBR's 140koz in the vault (@A$1600/oz =A$225m = A$4.50/share) and growing 100ozpa at A$600/oz AISC managed by NST so A$100mpa pretax (~A$2/share = A$1.40 A/tax EPS PER <3x)) with mine life of at least ten years– is anything cheaper under the sun?). Forget the idiosyncratic management issues, just enjoy the ride. We have!
Is there a better gold mine region in the world today? >3moz @ ~10g/t!
Northern Star is the pick of them all but the market hasn't fully grasped this yet. NST told me It seems many major IB analysts have made recommendations with even contacting the company let alone having visited the mines.
Evolution has also hit the jackpot with the acquisition of La Mancha and Phoenix. And most think Lake Cowal is the most important because of its low grade open cut long life.
Have a look at these:--
Historic Gold Production
Growth in Contained Gold in Resources
Two magnificent companies in NST and EVN with TBR and RND as carried partners and one tiddler along for the ride- TNR.ASX. Can it get any better?
While clients have done well in NST, EVN and TBR (and of course BLK, DRM, GOR, OGC, MML, SBM and RSG – we also flagged DCN a year ago and watched it do spectacular things) Paradigm has also done capital raisings in four small golds:-
AUC Ausgold – Doing a Gold Road on the Katanning Trend east of Perth and near Boddington
SWJ Stonewall Mining- An outstanding small cap in Sth African goldfields off the Witswatersrand
CYL Catalyst Metals - finding another Bendigo - 32moz potential – impressive shallow high grades
AHK Ark Mines – Feeding 30koz deposits into tolling mills to give
All are extremely cheap. Lots more coming.
The Australian domiciled companies with operations in Australia have consolidated recent strong gains whilst the Australian domiciled companies with offshore production have played catch up with recent good performances by RSG, TRY and PRU.
And gold itself is looking exciting too. Doesn't this look good!
And the Wave 3 in the Philadelphia Gold Index is truly underway now to new highs in a 15 year + bull market. This is truly spectacular. Time frame is 1984-2016 here.
And the short term as shown by the GDX ETF shows the downward sloping wedge and the upturn on massive volume
Please note the time frame from the 2008 highs, the GFC lows, the 2011 irregular rally to new highs and the nearly five years of tortured decline. Almost eight years of bear market (2008-2016) following eleven years (2000-2011) of rising US$ gold prices so expect +15 years of bull market to come yet!
Getting a bit pedantic here but resources/commodities really peaked in 2007/08 and only gold, copper, tin and iron ore amongst the major commodities and gold stocks made new highs in 2011. For most things resources, 2011 was a not a happy time and was just a relief rally in the decline from 2007/08.
Keep in mind that the US$ gold price peaked on 21 Jan 1980 and the ASX Gold Index peaked over seven years later in mid-1987 so don't get caught up mixing gold price and gold stocks.
Trying to put it all into perspective
Very long term DOW-Jones. Does this look like Crash Scenario? Maybe just hold on to your hats because we may have lift off very soon!
China Is looking good The Hysteria was just hysteria
China risk is declining rapidly as the country moves away from SOEs and a more entrepreneurial China takes over.
That 8-10% pa growth in personal disposable income coupled with the highly fragmented nature of most of its industries means that rationalisation, aggregation and consolidation will continue to add to economic growth for decades.
Here in Australia the Dongfang Modern IPO has been spectacular! What can you say? A$90m earnings was 20% above Prospectus forecasts, paid a higher A$0.05 dividend and is up 148% on the A$1.00 IPO issue price. Will it rise another 4% this month to hit A$1,000m market cap on 11x EPS?
We still hold almost all our stock here at Paradigm.
We also supported Patersons' JC international China IPO. Up 30% on the issue price and on 5x EPS.
I have another with Living Cities property development in the western city region of Chengdu. Join in for the ride. About 1.5x pessimistic case EPS FY17.
All these show opportunities of growing in an inconceivably large economy that is continuing to boom. Even the bearish IMF has recently upgraded its outlook for China from 6.3 to 6.5% for 2016. Does anyone really listen to these Euro-bureaucrat turkeys?
India Ready to move up again after 12 month correction
FTSE UK coming up to something special
DAX Germany looking good.
No Crashes here!!
Just the major ongoing BULL Market as 3500 million people in Asia want improve their lives.
OIL SECTOR Strong bounce suggesting much more
Big Oil in the US suggests the worst is over as well.
So things in Resourcesland are looking well, BRILLIANT, and so you expect further Equities Explosions as the Gold rally encourages short covering in so many areas and will lead into our Global Boom.
THE A$ - SO MUCH MORE UPSIDE TO COME
- THE POLITICAL PRESSURE DEVELOPING WILL BE EXTRAORDINARY
Barry Dawes
BSc F AusIMM MSAA
When the ASX 300 Gold Index is rebalanced from June 2016 let's try to ensure that it is an index that reflects the Australian gold industry, not just a motley collection of non representative ASX 300 companies.
An apology is due over the ASX Gold Index share of All Ords Turnover shown in last month's Dawes Points. The graph was wrong. The numerator was rising strongly but incorrect denominator data was used. Share of turnover is around 4% now (and not the 14%!). Here is the updated version.
The conclusion is the same but not as enthusiastic as I thought the strong rises in NCM, NST and EVN on big volume were making it seem.
The Index has moved up but it still has a long way to go to the upside.
I still expect the Gold Index here to be close to 6000 by year end.
Gold will be higher again soon and gold stocks will outperform. Are you on board?
The many other projects being developed by our tenacious local resources sector managers are there too in copper, lead and zinc and others and also in the new materials lithium and graphite that feed into the global technology markets. The magnitude of the major iron ore, LNG and coal projects crowded most of these projects out but the underlying demand for most of their resources remains robust.
The China Steel Industry naturally gets most of the attention for the Resources Sector and the `falling demand from China' theme has been seen in the sliding iron ore price since 2011 and more recently with the industrial metals. The major companies BHP and RIO have suffered in their share prices. Global Crude Steel Production was down 2.8% in 2015 to 1623mt and consumption in China was down almost 5% but China exports were running over 100mtpa into growing markets in Asia and Africa so China crude steel production has held up well. But note that China's GDP and consumption does not include utilisation of Chinese steel and manufacturing items applied to Chinese construction projects in so many other parts of the world.
Interestingly the historic volatility in monthly annualised Crude Steel Production in China is narrowing and the impact of Christmas/China Spring Festival over December/February seems to be steadying. Also the rate of change suggests an upturn in output is now coming.
Demand for imported Iron ore into China, far from declining, is still rising and recorded a massive 1,133mpta import rate in December to take imports to a new record of 957mt, up 2.2%.
Domestic iron ore production (all magnetite) fell a reported 130mt in 2015 (now operating at about 45% capacity) and did what we all thought it would but just came a couple of years later. Iron ore production in China is, like so many industries there, highly fragmented with numerous small operators. Total iron ore demand was down reflecting lower crude steel output but the imports were at those new highs.
The impact on Australian iron ore producers was just a lot more exports (up 7% to 767mt and likely to be up a further 13% in 2016 to 860mt) for the low cost majors and shutdowns for all the rest. An estimated >250mt of global iron ore supply has been shut down or deferred in this recent low iron ore price environment.
It is clear that steel mills in China have had quite low iron ore inventories and with the increased reliance on imported iron ore these inventory ratios suggest inventory rebuilding is likely in 2016.
Whilst much has been made of the conversion of China's economic thrust from investment to consumption-related focus there remains the US$1,000bn currently being spent on the One Belt One Road Project. China's strategic horizon has always been westward looking. Adding the 2,000million inhabitants of Asia to China's own 1,400m gives a 3,400m consumer market and adding Europe gives China access to 4,500m. This project is massive and will link China to Singapore, India and Myanmar, The Gulf region and most of the`Stans then Europe. Highways, fast trains and shipping channels and it is already underway. The Asia Infrastructure Bank is already set up.
How much steel and copper will be required. Can we even conceive the amount of raw materials required for this? The Chevron-Shell-Exxon Gorgon 15.6Mtpa LNG project in WA has cost about US50bn and been Bechtel's (and the world's!) largest single project to date so US$1,000bn on far less challenging projects will use a lot of steel and copper.
Be aware of these infrastructure developments. The impact could be massive.
The current improvement in iron ore prices should be seen in this light and the usual market cycle should be expected. Some mills will rebuild inventory, the Dalian iron ore futures market with its huge turnover should see more short covering, more mills will rebuild inventory and when higher steel demand comes through there will be strong buying. How much higher will iron ore prices rise? Don't know but I am sure it will be more than we expect.
Iron Ore Price basis 61% Fe
Source: IRESS
BHP, RIO and FMG will clearly benefit. All these stocks should be bought. Keep in mind balance sheet matters are always the key issue at times of low prices but as prices and cashflows improve the market focus goes from fear to greed.
These US$ price charts are suggesting major lows have been achieved for all three.
BHP RIO
FMG
Iron ore and steel will be leading the way here but copper and the industrial metals won't be far behind.
Consumption has been robust with many metals having record consumption figures. Additional supply has been significant but not as much as much commentary would suggest.
The big picture gives record consumption levels for almost all metals over the past six years.
Importantly, the inventory levels on LME have been in reasonably consistent downtrend for about four years and whilst LME inventories aren't all inventories, they are a good proxy for readily available metal. It has been fascinating to watch the daily decline in almost every metal and then the sudden appearance of 20,000t or 50,000t being marked across a white line in a warehouse over one or two days. Clearly no mine, smelter or end user has 50,000t of metal just sitting around (50,000t is a big for any lead, zinc, copper or nickel mine/smelter/refiner!).
The composite now shows just 1.80% of annual consumption is available on LME. Less than one week.
The individual metals tell the story as well.
What happens when purchasing managers decide to build inventory again rather than reducing?
What happens when real end use demand picks up?
Demand will be well in excess of consumption.
Copper might just be telling us something now. A rally to US$2.70/lb is likely.
The 10% move in the week ending 4 March was telling us that shortcovering is coming. The strong moves in the big resources stocks are reinforcing the view that the inventories of resources stocks held by major money managers are low. Short covering coming here too.
This can be seen here in the Metals and Mining share of All Ords turnover with the past two weeks exceeding 14%.
Quite often market commentaries are all about `the Fed' and its policies and how they will affect the world. I have deliberately avoided comment here because it is clear that it is rare for any two commentators to draw the same conclusions on what has actually been said. So often, however, the commentary has been that the Fed policies on raising interest rates will slow a fragile economy.
What if this interpretation is just wrong?
What if rises in Fed interest rates are helpful for the economy?
It is clear that Bernanke policies of QE to push trillions of cash into the banks did not produce inflationary pressures because the banks just kept the money. They had a zero cost of funds, it improved their own balance sheets and they then lent it back to the Fed to make a risk free margin. Nice work. For hundreds of billions.
The raising of the Fed Funds Rate means that US banks now actually have to lend the money to some other parties to make a margin. Lending it to businesses and consumers.
US Fed data shows the Excess Reserves held by Financial Institutions reached over US$2.5tn post the 2008 GFC after being far less than US$20bn for decades. These reserves are now plummeting as banks begin aggressive lending again. Pumping another US$1-2tn into the economy might now be inflationary.
This is the data.
An implication here is that it should boost the volume and the circulation of money that could become inflationary. Credit to Stewart Thomson of Gracelands here.
The US Banking Index suggests technical support has been achieved and will now move higher.
You know my views on the global bond markets but I consider that bonds would certainly fall in this environment. Sale of bonds to central banks will add to liquidity and the exit of funds to equities and commodities.
So the macro is bullish, the financial markets are bullish, the demand and inventory data are bullish and so many of our micro factors for resources sector corporates are bullish.
But most people are still fearing the Worst and have built up huge reserves of cash – A$1779bn here in Australia.
The Best is now coming.
The 146% in 15 months for the Dawes 2015 Gold Stock Portfolio is a start. The 47% gain in two months for the Dawes Points 2016 Gold Stock Portfolio is also good.
What do you think my 2016 Nano Cap Gold Stock Portfolio is now? What will it be in a year?
What do you think the next few years Total Return will be with the Dawes Points Big Cap Resources Portfolio? Can you imagine the Dawes Points Nano Cap Resources Portfolio?
The ASX 300 Small Resources Index is now trending above 3% market share. Action here at last.
Join up and take the ride!
And don't forget this for A$ bears. If gold stocks rise, then so will the A$ against the US$. For 20 years from 1993 to 2013 this relationship generated an R2 of 0.92! It is catching up again.
Barry Dawes
BSc FAus IMM MSEG MSAA
I own BHP and a lot of gold and small resources stocks.
7 March 2016
Edition #46 
Following the share of market turnover of the ASX S&P 300 Gold Index has been a very useful task with this indicator giving us a great deal of confidence in the Dawes Points views.
So have a look at this! The Gold Sector made up 14% of ASX AllOrds turnover in the past 2 weeks and the 5 week moving average hit 12.6% while the 12 week is 7.5%. Astonishing!
I was happy that the downtrend had broken but the moving averages of the last peak in the sector have just been left behind.
There is a massive need to BUY! The market is drastically underweight.
The Index is only just starting to move and this break above 3000 should get close to 6000 in 2016.
And the Dawes Points Gold Index corrections chart is suggesting a massive rally is about to unfold.
The driver is primarily that gold stocks are still very cheap against the A$ gold price.
The Australian stocks are leading their North American counterparts but a high volume break out also occurred last week.
And I hope you recall this very long term graphic of the Barron's Gold Mining Index back to 1940.
And the North American stocks are trading at less than 25% of previous 25 year history. (plus graphic)
Gold stocks will outperform gold and probably almost everything else for the next few years.
The portfolio gives everyone a mix of size, liquidity, dividends, growth and risk so I am very happy to reinforce the selections.
Newcrest has more gold resources than anyone else and improvements will allow resumption of dividends. Northern Star is just brilliant and Oceania Gold has some excellent leverage. Evolution has acquired a massive swag of gold resources over the past couple of years and will be a big player in the Zuleika Shear zone.
These stocks will be the dividend paying cornerstones of every pension fund for the next decade.
Blackham will continue to please everyone for quite a while and my target of A$1 in my research report in early 2015 stands firm. This is a potentially very long mine life play.
Doray, Saracen, MetalsX and Gold Road among the developers are flying.
Tribune is outstanding and the market place will soon cotton on to the significance of Pegasus and the East Kundana JV. Its 140koz of gold bullion in the vaults currently worth over A$4.00 per share is an added golden bonus.
The offshore players of Medusa and Resolute are just too cheap.
The smaller growth players look very exciting and will be happy to talk to anyone about them.
There are of course many other attractive gold stocks out there( like Dacian Gold and Perseus) and they will be covered soon but let's just stay focussed for now.
And the Australian Gold Sector is leading the world out of this miserable pricing time. Gold stocks, gold, metals companies, industrial metals, technology metals, then oil, oil and gas companies and the bulk commodity producers will follow.
So participate in the gold sector now with a good portfolio approach and let's have some real fun.
I own NST, NCM, GOR, DRM, MLX, CGN, TYX, TBR, BLK, TNR, MML, RSG, GEE
8 February 2016
Edition #45
Similar but still nascent changes seem to be underway in ASX Small Resources and also in the XMM, with prices still falling but volumes and market share increasing. All good tentative signs.
The Dawes Points 3 December 2014 untraded gold stock portfolio provided a 73.6% return for 13 months to 31 December plus almost 2% in dividends.
Here is the proof.
Great gains by overweighted leaders Northern Star and Evolution together with half weighted emerging companies Blackham, Saracen and Gold Road gave the portfolio most of the performance and it outperformed the ASX Gold Index by about 20 % points in value and about 0.5% in yield.
It is easy to say that the local gold sector has done well because of the weaker A$ 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 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$248/oz low in 2000.
My reading of this indicates we are near the lows in these major North American gold stocks and if the market is completing the Wave 2 correction then the upside should be strong and should follow what we have already seen in the Australian Gold Production Sector above.
The market is currently all about sentiment and the sentiment has not yet turned favourably towards gold but that change cannot be too far away now and the response could be rapid.
This strong view for North American gold stocks is supported by the very long term graphic for the Barron's Gold Mining Index which goes back to 1940.
An excellent long term uptrend is matching support of 2000 and is also about the same as highs in 1969!
Readers will probably be also familiar with the XAU vs the S&P500 whereby gold stocks there have fallen 90% against the S&P500.
We can look again at the S&P500 against all commodities (CRB Index) and extreme is the only word that can apply!
And market sentiment shows it very well.
Finally, four major indices that don't look as if they are about to crash.
Markets are always difficult to assess but true value always wins.
You can contact me at 
The XGD is barely above the levels of 2003 and PERs and yields are now very attractive for this sector. Also the buybacks of so many Australian gold mines from the likes of Barrick and Newmont is actually giving domestic companies a more significant share of Australian gold production again.
The A$ 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 
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.
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.
More speculative plays are
I own DRM, NST,MLX, RSG, TBR, GOR, BLK, MML, TNR, TYX and PNR. STO, BHP, DFM, BPT.
Edition #43 
You can draw some very interesting conclusions here about sector rotation.
So when looking at Dongfang Modern here is what you find.
First of all I hope you expect that the Due Diligence carried out on this company is of a high standard. The Legals were overseen by Piper Alderman and the accounts were reviewed by PKF Lawyers. The accounts have been audited since 2009 by PKF Hong Kong so the data is reliable. The cash on the balance sheet is actually there!
I have made mention previously that this has to be the most impressive set of accounts I have seen in my +30 years.
This company was set up in 2005 and in 2008 the current Chairman injected about US$6m to acquire an 89% holding.
This was the last capital injection to the company. No more equity and no debt at all.
The plan was to acquire as many plantations as possible and by 2012 it was 9 plantations over 4500 hectares and by end 2015 it will be 19 plantations over 9,000 hectares.
That initial investment of US$6m in 2008 has probably provided the highest multiyear IRR ever recorded. After A$57m (A$ equivalent) earnings in 2014 DFM's June 2015 Interim showed Retained Earnings of A$216m. All done without additional equity capital and without debt.
These numbers are attractive and make interesting reading. 2015 and pre 2015 are PKF numbers and the forecasts post 2015 are Dawes Points alone.
The company is now probably the largest citrus grower/harvester in China with about 1.3% market share by revenue in a very fragmented industry. So many industries in China seem to be highly fragmented and the aggregation and consolidation process there has probably twenty years more to run. These are important business drivers and help to show another side of China.
Paradigm carried out major financial due diligence and modelling and made a site visit to several of the plantations.
Detailed forecasts were made based on all available published information and then some conservative assumptions were made.
Growing and harvesting citrus produce isn't all that far from something like coal mining.
You have a resource (trees) that should give a certain grade (harvest) with output of net fruit (grade) and at an expected recovery (yield). The selling price is the market price so revenue is saleable output time's price. Costs are roughly fixed so improved yields and productivity improvements can increase volume without fixed costs rising. Dongfang is hoping improve yields by about 4-5% pa for the next few years. So output should rise and costs rise less so.
Output will also rise as additional plantations are acquired.
Prices have been rising over the past few years too because demand has been stronger than supply and supply growth.
Dongfang's operating margin has been over 40% for the past few years and it expects to will stay high.
A study of future earnings for the next decade based on increasing tree volume through plantation acquisition, rising labour cost (which they are doing), modestly improving harvest yields and marginally higher product prices gave some quite astounding numbers.
Dongfang was #2 by sales revenue in 2014 with 1.2% market share after AIM listed Asiatic Citrus but the increased output to 230,000tpa in 2015 by Dongfang coupled with a couple of operational issues for Asiatic Citrus should now make DFM #1 with about 1.3% market share.
Market leader with 1.3% market share reinforces this fragmented industry concept.
Dongfang would like to go to 4-5% market share over the next several years so that implies organic and acquisitional growth
The numbers for Dongfang as assessed from public information by Dawes Points look like this with historic data in RMB and converted to A$ at historic rates or using the IPO Prospectus forecast of RMB 5:A$1.00.
This Valuation Matrix shows DFM's P&L and Balance Sheet in one and also gives a valuation target for DFM.
Note three years earnings history, the current year estimate and three years forecast for EBITDA on a product basis (note the very low D&A levels) and no interest cost.
Forecasts are deliberately conservative on prices, output, acquisition growth and costs but still show earnings rising steadily rather than surging.
The staff levels are low (only about 100 people) so administration expense is low and all harvesting is by contractors so EBITDA for each product is net cash. Note no tax is payable on earnings from agricultural food production and that almost all earnings have been reinvested, with capex mostly into acquisition of additional plantations.
The balance sheet is cash-rich without debt and EBITDA against estimates of sector assets gives a Return on Investment (on book value) of 30% overall and almost 100% for tangerines.
If we put each product division on 5x EBITDA, and add the cash, the appraised value for DFM is over A$500m and A$1.47/share compared to the IPO price of A$1.00.
Note that the forecasts have used 5:1 on the exchange rate, well above the current level, so A$ earnings would be higher with today's 4.62:1.
I expect over time that the market will give a much higher rating after DFM delivers on its plans.
Dongfang Modern is one of the largest China operations listed on ASX and shouldn't be the last.
If you came into the IPO, (and thanks for your help), you probably only came in in a modest contribution.
If you haven't, the hard work has been done so you should now be able to come in at lower entry risk to share the gains.
Barry Dawes
19 October 2015
I own DFM and Paradigm was the lead manager of the DFM IPO.
Edition #42 
This index has bounced from the bottom.
Try to keep in mind the time frames in these markets we have been following.
Commodities last bottomed in Dec Qtr 1998 and rallied for almost the next 10 years into 2008. The GFC gave a big selloff followed by a rally into 2011 with new highs for some metals but not for most. The recent lows give almost 7 years of decline.
Seventeen years up and down cycle of sorts. I would expect at least another 10 years upward from here!!
The US economy seems to be strengthening (no Greater Depression there yet!!) with basic indicators such as housing and auto sales very robust, China is still doing 7% GDP growth and the Shanghai stock market seems to bottoming out OK despite the hysteria. India is off to double digit growth and all those 3,300m people in Asia are doing OK.
So much in fact that the LME metals decided to have a major surge last Friday in London.
So after all the media focus on Glencore and how its impending demise was going to bring everything down it seems that maybe things aren't so bad after all.
For oil, US crude production has begun what I consider will be a sharp decline of about 800,000bopd. It is already down 400,000bopd from the highs. The high decline rates accompanying shale oil wells are still applying and the number of new wells has dropped sharply. Significantly higher productivity per well including through the use of multiple fraccs and increased charges of proppants is helping but a gross US$50/bbl is not enough for profitable operation and the drilling of the next well. Those days of +100% IRRs on US$100 oil seem far away today.
Global oil demand has been rising with the lower oil prices and the market still needs about 1.5mmbopd new supply each year.
No wonder WTI has jumped up through US$50/bbl again.
The ISIS battles and aggravation in the Middle East are getting very close to the internal workings of Saudi Arabia. Oil purchases for inventory security are likely to increase despite the current high levels. I have always considered the last fall in oil prices as a correction in the bull market.
After almost five years of declining market interest in ASX gold stocks the trend has now clearly changed so the graphic above should show continuing relative strength as an underweight market plays catch up. Obviously initially in the leaders, NCM, NST, EVN, SBM and OGC but the smaller plays will provide exceptional returns as even modest new capital inflows to the sector just won't find enough stock.
My 30 stock ASX gold stock universe still shows an unweighted PER average of
The ASX Gold Index should now show a major increase in market share of the All Ordinaries turnover.
I will reiterate my views on the gold mining sector in Australia where I see new focus around Kalgoorlie and in particular the Strzelecki and Zuleika Shears. These gold bearing `structures' are proving to be strong continuity narrow high grade deposits that have low costs and are delivering handsome cashflows to the owners. The strike length of the Shears is tens of kilometres.
You need to know what NST is doing here and why EVN and Zinjin are so keenly interested.
From Northern Star:-
Kundana – A Corridor of Riches
And watch this too:-
A little company called Cascade/Torian is very active here too on tenements that stretch along over 40 km of strike. And its share price is up almost 100% since June.
You will need to get to know this map as well.
Discoveries here have been brought into production very quickly and local excess mill capacity means rapid cash returns and very high IRRs. As an example, Barrick found the indications of the 1.2moz 11g/t Pegasus deposit in mid 2013 prior to its sale of the East Kunduna JV interest to NST in March 2014. NST had subsequently proved a 750koz resource by Dec 2014 and began mining in Feb 2015 after upgrading it to 1.1moz @ 10.6g/t. It is now 1.2moz. Most of the 220kozpa EKJV output will come from Pegasus. I like NST, TBR and TNR here.
Also ask me about a Nov 2015 A$4.2m high quality gold mining IPO I am doing in this region. Might just be the first ASX gold IPO since 2013.
And while we are talking extensive mineralisation along strike have a look at our favourite Blackham Resources (BLK.ASX).
This is a good analogy to the Strzelecki Shear projects and BLK owns 55km @ 100%.
Oh yes, and BLK is fully funded to restarting gold production at Matilda through the Wiluna mill. Up to 100,000ozpa by July 2016 at costs under A$1000/oz AISC. That's A$60mpa net cashflow (EBITDA) for a company with a market cap of just A$45m. My numbers say PER
Blackhams abridged 25km of strike along the Wiluna Structure
The ASX gold index closed on Friday at 2819 which is a 72% gain from the low in November 2014.
Some very important technical issues actions suggest much more is to come and that something very special is about to happen.
Long term 
My view has been that Disbelief was 2000-2011 and Pessimism was 2011-2014. We are now finally into that Optimism Leg that should last at least as long as Disbelief (~10 years (say)).
This next leg will be driven by earnings and dividends and then by production growth and then by the US$ Gold price.
So there you have it.
I called the low in ASX Gold Sector in