Preferred stocks
Premier Golds ASX.NST, ASX.EVN, ASX.TBR, ASX.RND, ASX.SAR, ASX.DCN, ASX.WGX, ASX.RRL, ASX.SBM, ASX.RSG, ASX.GOR.
Secondary Golds ASX.BLK, ASX.KIN, ASX.PNR, ASX.AUC, ASX.EGA, ASX.TNR.
Other resources ASX.MLX, ASX.MUS, ASX.FND, ASX.AMN, ASX.SFX, ASX.HRR.
Australian mining Industry, please take another bow! What a performance there at Kalgoorlie this year.
For the Gold Sector, another year of production and resource growth and some outstanding brownfields `discoveries' in WA's goldfields.
And a year of some big operating cashflows rolling through that is boosting exploration, operating capex and paying some big cash dividends.
Other sectors like iron ore and copper are also doing well.
Diggers and Dealers is skilfully timed to catch the end of the Northern Hemisphere summer and the seasonal run in the gold price and the ASX Gold Index.
Ridiculous as it may sound, the world gold price usually manages to kick up on the Friday before Diggers to get the faithful aroused but gold decided to wait until the middle of the Gala Dinner after the conference closed on Wednesday to put on US$15 and set the XGD firing. More gains (almost US$30) to test US$1300 came over the next couple of days.
As an unabashed bull of most things and almost everything gold Dawes Points considers the timing is pretty much on schedule. Gold has shown clear seasonal strength after the Northern Hemisphere Summer and into the following February.
Source: Seasonax
And gold is just about ready to move much higher. It may take a couple of weeks to back and fill and to whipsaw aggressive traders but a move through US$1,300 with appropriate retesting and consolidating should send it much higher later in 2017.
If Nth Korea is the issue, the buying pressure could get quite serious although the issue will probably be more bluster than bother. Recall that the Sth Korean KOSPI Index has risen 20% in 2017 and seems to have been anticipating re unification and an end to that abominable repressive regime in the north.
But do not lose track of the bigger picture.
Rising living standards in Asia are driving demand for gold and the gold price. Gold has moved from the West to Asia and a short squeeze is likely to develop.
Should gold break upward here to above US$1300 and begin moving higher then
the 2011-2017 downtrend will have been broken!
Note that the move from US$246 to US$1,032 over 8 years was US$786 and to US$1,923 over 11 years was US$1,677.
These are just numbers but it always astounding how they will recur.
We have two important points to consider here from my perspective.
-
- If the US$1,032 is the intermediate high then there is US$600-700 to come quite quickly to take us to US$1,900-2,000.
The run to from US$1,032 to US$1,923 with that US$891 gain is cream on the cake and could come again later as the next leg to almost US$3,000.
This move would really show me the power of this bull market that is brewing in gold.
- However, if the US$1,923 is the intermediate high then, perversely, gold might `only' get to US$1,923 then have considerable consolidation over a longer period and this market would not be quite as powerful.
Let's just see. And don't be too dismissive. A strong 11 year bull market rising US$1677 is to be respected.
A$ Gold price.
The recent strength in the A$ has been as expected and the A$ gold price has just clung on to its uptrend. It has bounced nicely now and it on its way to the top of the uptrend channel. The first target is up around A$2,000/oz. The next channel projects much higher prices.
So let's come back to the XGD and the seasonal influences.
The 2000-2011 bull market in XGD (note this was at least eleven years) rose 750%.
The very first upleg into 2002 of the 2000-2011 stage of the bull market had a 130% gain before its initial 27% ten month correction ahead of the longer term gains which included 72% over the next nine months.
The very first upleg in the current next stage of the bull market was up almost 230% in 22 months before its ten month correction (which has now finished after a similar 27% decline).
The XGD should be looking to at least test of the 8499 April 2011 high within the next 12 months.
Big call, but higher gold and a still very share price depressed but highly operationally and financially successful Australian gold industry could do it easily.
Note that the ASX.XGD has 27 companies which are almost ALL Australian based companies, not the 52 often foreign and often not gold producers in the XGD in 2011!!
Let's hope S&P doesn't repeat the previous idiocy with choice of stocks in the XGD.
NST has pointed out that there are only 20 mines producing 300kozpa or more in Tier 1 jurisdictions (Australia (8), USA(8) and Canada (4)) (+3 in Ghana) around the world and its Kalgoorlie and Jundee mines would soon add two more to these 20.
These ten Australian large mines should give Australia an extra quality boost and eventually an international premium.
Seasonally the XGD has kicked off after Diggers since the XGD was initiated in 2000. Taking all 17 years we get an average gain of 8%. Taking out the misery years of 2008, 2013 and 2014 gives a 14 year 'adjusted' average gain of 23%.
FY18 with all the current action couldn't possibly be an average year so expect at least 23% in the December Half 2017 and more before June 2018.
Diggers and Dealers 2017
Another brilliant event after a brilliant year.
48 presentations and over 100 booths so a lot to see.
Starting with the Mining Company Awards let's look at these:
Best deal
Gold Road (ASX.GOR and component of Dawes Points 1 Dec 2014, 1 Jan 2016 and 1 July 2017 Portfolios) - Sold 50% of Gruyere 6moz discovery to new JV partner Goldfields for A$350m and is reinvesting into more Yamarna Belt exploration
St Barbara (ASX.SBM and component of Dawes Points 1 July 2017 portfolio + independent acquisition at A$0.21 in Feb 2015) - brilliant recovery to A$3.77 through Gwalia mine producing 265koz @ 10.7g/t and repaying A$347m debt)
Kin Mining (ASX.KIN and component of Dawes Points 1 July 2017 portfolio)
Acquisition and rediscovery of Mertondale (12km strike on Shear) and Cardinia Belts(~4km strike) with open down dip potential.
Fully deserved.
Other stars gave Kalgoorlie its renewed life and Australia is now entering a truly Golden Age as its (mostly) WA gold miners re examine old gold fields and push exploration and mining down to depths the rest of the mining world has considered normal for decades. Don't think 600m. Think more 1500m and as St Barbara is showing at the Gwalia Mine, 2600m and more. And think higher grades. Try 10-15g/t.
Technology is assisting here with 2D and 3D seismic being adopted.
The WA industry is now pushing on strongly after the production decline that essentially left it out of the 2000-2011 bull market in gold.
This graphic may just be too conservative as well.
Kalgoorlie has again become the regional centre of attention.
Kalgoorlie Geological Terranes
To the west of Kalgoorlie, the Coolgardie Domain system incorporating the Zuleika and Kunannalling Shears is prime gold production real estate. This domain extends from Kalgoorlie over 150km to Ora Banda.
This is giving us today's The World's Most Exciting Goldfield with Northern Star and Evolution utilising highly skilled teams to crack the codes to new and extended high grade deposits that have given us Tier 1 mines with >10 years life.
Both these stocks will be rerated as mine lives are bureaucratically confirmed. EKJV partners with NST, Tribune (ASX.TBR) and Rand (ASX.RND) should also more than double in the next year.
The evidence was there in front of us more than a year ago but some people are just a bit slow on the uptake. Note too little ASX.TNR that has a very large footprint in this region.
This is now the fourth largest goldfield for Australia with production of about 420,000ozpa and growing.
Table
Major Australian Gold Mines (current output kozpa)
| Boddington |
800 |
| Big Pit |
700 |
| Cadia |
620 |
| Zuleika |
420 |
| Tanami |
400 |
| Telfer |
366 |
This is a group effort and all players are likely to add to growing gold output over the next five years.
And the resource growth has also been spectacular for NST, TBR and RND as concentrated and committed exploration programmes have been running hard although EVN's Phoenix acquisition is being reappraised after being severely reduced in 2016. Overall resources should be much higher for annual reviews by mid 2018.
NST spent ~A$18m on Zuleika exploration and has added a net 35% to resources to the East Kundana Joint Venture (EKJV) below.
Source: NST
And increased its 100% owned Kundana/Zuleika operations to 1.8moz with much more to come.
Source: NST
NST's 100% operations will be rising to 175kozpa to give an overall net 300kozpa to NST during 2018.
Evolution is also now in full swing with 9 months of Zuleika exploration and its equally talented discovery team, whilst a few years behind NST, is finding extensions to its White Foil mine and also may have found down dip indications at Frog's Leg and recent Innis target drilling has picked up the structure trending to the south east. Zuleika Shear will take 50% of EVN's FY18 exploration budget.
Source: Evolution
The Phoenix acquisition is being reappraised after early disappointment but the results are now coming through.
Keep watching for results from exploration further to the north at Blue Funnel, Emu and Burgundy. All the way up to Agnes at Ora Banda, to the north of the Zuleika Shear.
Blue Funnel has 7km of Zuleika Shear tenements and will be a major exploration focus for EVN.
Emu is providing some Zuleika Shear style grades and intersections along the Kunannalling Shear to show that much more is come from this World's Most Exciting Goldfield.
Source: Evolution
This is just part of a major reassessment of the exploration potential of the Kalgoorlie region.
In just Evolution's Coolgardie Domain drilling the historic records show a very modest % of drilling has exceeded 200m vertical depth.
Source: Evolution
Repeat this over the Yilgarn with an industry generating cash and many new players raising new equity.
And then all of WA and then the rest of Australia.
Source: Evolution
To the North and East of Kalgoorlie we have many more very interesting goldfields:-
St Barbara Mines ASX.SBM - 265kozpa from Gwalia at Leonora –
SBM expects to be mining this to depths beyond 2600mbs
Saracen ASX.SAR - 300kozpa from operations near Laverton (Carosue Dam) and Leinster (Thunderbox)
Carosue Dam is 160-170kozpa. Open at depth.
Thunderbox is 130-140kozpa and also open at depth.
ASX.NST's 300kozpa Jundee Mine
The brilliant NST has repeated Zuleika at Jundee with a truly outstanding effort.
Resources have grown from 500koz on acquisition in July 2014 by 590% to 3.0moz with reserves up 350% to 1.4moz whilst output has exceeded 233kozpa with a 335kozpa rate achieved in June Qtr 2017. Note that gold output over 2008-2010 exceeded 350kozpa (410koz in 2009) on much lower resources and reserves.
Source: NST
NST expects it will exceed 300kozpa here within 24 months through new mining faces and a plant expansion to 1.7mtpa.
A properly funded exploration programme at Jundee might have a major impact here. Note that the upper zone in the green box down to 700m might just be repeated in the next 700m.
Source: NST
The Armada Trend is already showing continuation of mineralisation into the lower zone and the deeper Zodiac discovery of 4.8m @ 21.2g/t is very exciting.
Source: NST
Could NST find another 10moz in the next 700m? Probably.
In another year it might be that Jundee becomes The World's Most Exciting Goldfield.
WestGold ASX.WGX Combining 5 goldfields and 5 mills for >400kozpa
Gold Road ASX.GOR Yamarna Belt Exploration continuing after selling a 50% JV interest in the 6.2moz Gruyere deposit for A$350m to Gold fields Ltd.
Dacian Gold ASX.DCN Completing construction of 2.5mtpa plant for >200kozpa
Regis ASX.RRL Duketon operations giving 350kozpa
B
lackham ASX.BLK Wiluna is still very attractive and BLK is very cheap
Pantoro ASX.PNR Expanding to 100kozpa
Kin Mining ASX.KIN Mertondale and Cardinia Projects near Leonora
Special mentions
Resolute ASX.RSG With >300kozpa RSG is due a serious rerating again.
Metals X ASX.MLX Base Metals with excellent tin, copper and nickel operations
Agrimin ASX.AMN Lake Mackay Sulphate of Potash (SOP) Project Excellent presentation
BHP Nickel West ASX.BHP Nickel sulphates for Nickel-Cobalt-Lithium-Graphite Batteries. Interesting approach to managing your product for a changing market
Kirkland Lake TSX Gold intersection of 15m @1421g/t for the >200ozpa Fosterville operating mine in Victoria
West African Resources ASX.WAF Sanbrado Gold Project Burkina Faso with high grade core zone of 245koz @ 34g/t.
Sheffield Resources ASX.SFX Minsands development project in WA
Mustang Resources ASX.MUS Ruby producer in Mozambique
Egan Street Resources ASX.EGA Redeveloping the Rothsay Gold Project
Finders Resources ASX.FND SX-EW Copper mine in Indonesia on PER <2x from 25ktpa copper metal
Heron Resources ASX.HRR Has Woodlawn Cu-Zn-Pb-Au-Ag resurrection financed (A$240m) and ready for production in FY19.
The Diggers and Dealers Forum does showcase Australia's robust mining industry and the location in Kalgoorlie at the centre of gold mining never fails to impress with the entrepreneurial skills of the WA mining industry.
I own NST TBR TNR EVN MUS BLK PNR AUC GOR HRR or control in portfolios.
Barry Dawes BSc F AusIMM (CP) MSAFAA
+61 2 9222 9111
bdawes@mpsecurities.com.au
Dawes Points #68
14 August 2017
To understand all this you should be aware of how bond pricing works and what might soon be happening in these markets.
A simple assessment points out that rises in interest rates cause falls in the price of bonds and falls in interest rates cause bond prices to rise.
Also increased buying of bonds can increase bond prices to drive down yields (interest rate coupon divided by bond price, e.g., simplistically, 5% pa paid as $2.50 half yearly on a $100 bond so bond buyers bidding up the bond price to $105 will only get $5/$105 = 4.78%,).
Selling down of bonds to $95 gives a higher yield of $5/$95 = 5.26%.
The selling of a bond may reflect the holder’s wish for liquidity and not the overall interest rate environment.
Here also the lower the coupon on the bond the higher the price volatility.
And, the longer the duration of the bond the higher the price volatility.
The world now has a lot of low coupon bonds. So expect high bond price volatility.
Note the fall here in the 10 year bond from 133.21 in mid 2016 to 125.36 has given a capital value 5.3% lower and that bond now has only 9 years to run.
If you bought that bond at the yield to maturity of 1.35% in July 2016 you have already lost in capital the equivalent of 4 years of 1.35%pa income.
Remember last year when you were told the world was seeking income at any price. Sell your 2,3,4,…..5% yielding stocks and buy 1.35%pa 10 year bonds. What a bargain!
With the 30 Year T Bond the stakes become much higher.
A year ago these bonds peaked at 176.06 when yields were just 2.1%. Buyers then are now 29.6 points or 16.8% less wealthy and have lost 8 years of 2.1%pa income in capital losses.
Unlucky.
The long term for bonds looks just awful. Very unlucky if you own these instruments.
A very long term Rising Wedge has been in play for some years.
The deadly rising wedge has uptrends having lows in price rising faster than highs in price and at resolution usually falls sharply.
The US 30 Year T Bond has a 35 year rising wedge life history. Note the sharpness of the fall from that July 2016 high of 176.06 to 146.46 in March 2017. Nine months and 29.6 points is 16.8%. The next fall would be to 140 and then to a target of about 120 - equal to about ~20% capital losses in `risk-free’ investments.
Very unlucky.
Now this is the bond market for the US of A. It is not Italy. Or Spain. Or Greece.
Have a look at these numbers on the US Budget. The numbers from 
Some important things to note.
The deficits are well down on the peak years of >US$1000 over 2009-2012 but even with a recovering economy the deficits are growing again as the interest rate cost rises.
Interest expenses could rise from 6.5% of all other expenditures (6.1% of total Budget expenditures) in FY2016 to 12% by FY2020.
And look at the projected average interest rate of 1.90% for FY2020 and compare it to FY2017 at 1.49%.
Now look at this Projected Maturity Profile from the US Treasury (late 2015 I know but I could not find a more recent version. Why?) which shows <12% was longer than ten years and >65% shorter than five years.
Source: US Department of the Treasury August 2015
You could feel despondent about all this but rather than think about bond markets setting the interest rate level you should see this ~US$100tn globally as a wonderful source of capital.
The capital that has for years been denied to you to develop your project.
Keep in mind that the world should get by with 5% Ten year bonds as it has for most of its history.
The market place and equities and commodities will withstand these falls in bond prices as the capital flows out of this overbought, over-owned and wretched asset class.
It is already.
The US Housing Sector thinks it is wonderful! Bricks and mortar before paper assets.
Housing starts seem to be having a normal summer seasonal breather and should turn up for the Dec Qtr.
Banks just love higher interest rates because they give improved lending margins. And a rising Fed Funds rate forces banks to lend more of their outrageous QE money to the general market place at last at much higher margins.
And hope you noticed that banks last year ended 14 years of underperformance against the S&P500 and are amongst the market leaders now. Clearly higher bond yields aren’t important here either. 
So coming back to other 10 year bond rates look at this graphic with the US 10 year, US 30 Year ($TYX), UK 10 Year, German 10 Year and Japan 10 year included. The `negative interest rate’ hysteria was the top of this bubble!
Just as the US ten year bond has broken a nine year downtrend so have German and Japanese bonds. The UK is just at its downtrend and about to break through as well.
So back to equity markets and what about them?
The markets are speaking. While the bonds are selling off, equities are rising.
The Dow Jones 30 is making new highs and is accompanied by the Dow Utilities and Transports.
Nasdaq is making new highs.
And small caps indices like the Russell 2000 keeping making new highs. Remember when you were told to sell small caps and stay only with the large stocks because the end of the world was coming? More recently it was `FANG stocks were the only things pushing indices higher so watch out’!
So the US recovery is real and it is helping everywhere else and Germany is also leading the world to new highs.
India is next and what a leader this is. Loads of upside.
So much for Brexit bringing down the UK.
This Morgan Stanley Portfolio represents a composite of emerging markets and would include most Asian markets. The performances of Singapore, Thailand, Taiwan, South Korea, Philippines are similar to this proxy.
However, the most important markets are Japan, Hong Kong and Shanghai.
Japan is heading for new highs in this post-2009 rally.
Hong Kong is now ready to move substantially higher after a decade of consolidation.
Shanghai is parallelling the other markets and is now ready to approach and break through 3300.
In Europe as noted, Germany is leading with the UK next but France, Spain and Italy are also moving up constructively.
Closer to home, the New Zealand market has been one of the best performing indices.
What an outstanding run!
Which brings us back to Australia. The perennial underperformer.
But it could now be ready to play catch up.
Look at the ASX:XMM Metals and Mining Index.
The 2011 downtrend is broken and the index is getting ready to fly.
BHP, RIO, FMG and other resources majors are ready to run at last. (Note these are US$ prices in US market.)
Dawes Points has been an unrepentant A$ bull and should we break above about US$0.79 then a bigger rally should ensue.
And note also that the 104 year downtrend from 1913 comes into play at just over US$0.80.
So, what does all this mean?
Well, a major global economic boom is underway. It has taken much longer to develop than has been expected here but in turn it should now last much longer than you could imagine. Resources commodities from iron ore, coking coal, copper, aluminium, zinc, lead, tin, cobalt, gold, silver, palladium, platinum, minerals sands and much more will have higher prices. All will reflect record consumption demand, low inventories, insufficient new resource developments and not enough exploration.
Are you on board?
Make sure you have your portfolio together because big gains are coming.
Contact me to participate.
Barry Dawes BSc F AusIMM (CP) MSAFA
+61 2 9222 9111
This expansion of the global bull market in equities is continuing everywhere and is confirming the unfolding Dawes Points Global Economic Boom that will pressure gold to the upside. Easy money conditions, expanding global economic growth, rising property prices and the global bull market in equities are not conducive to sudden economic collapses. Record consumption levels in resources commodities against rising capacity utilisation rates and NO inventory can only mean a one way long term price move for these raw materials. And it won’t be down.
Improving labour markets and low unemployment in the US are likely to bring about inflationary pressures after many years of dormancy so gold might soon become more attractive to Western investors again.
Global bond markets are recognising these shifts in economic activity and are showing renewed weakness as capital moves out of defensive positions and into the equity markets which are making new highs.
The important 10 year US T Note has already broken down from its 2012 high and has recently had another sharp fall.
The 30 year Treasury Bond had an extreme overbought run into the `negative‘ interest rate scare in 2016 that surely ended 33 years of bull market and is now vulnerable to further falls.
The three other important bond markets we follow - Japan, UK and Germany - have also had sharp rises in yields which implies sharp falls in bond prices in the past few months. Some long term (>10 years) down trends have been broken. That low interest rate party game is now OVER.
The emergence of the block chain cryptocurrencies is fascinating and represents a move away from the disgraceful performances of the current political and bureaucratic classes and their engagement with debt and deficits in fiat currencies. Enforced unnaturally low interest rates are a stealth tax and in several years time many bonds will probably be worthless. The availability to governments worldwide of ultra low cost cash as debt won’t last much longer. Failure to attend to these endless deficits and rising sovereign debt can only end unhappily for bond holders throughout the world. Was ever thus.
The emergence of these crypto currencies in ecommerce and in transaction platforms, especially in emerging countries, is a new class of players signalling a requirement of `hard money’ beyond the control (for now) of expanding government controls. The mania currently underway could well be considered a leading indicator for gold and commodities. A view on these instruments will be presented soon because they are becoming a new asset class and they might be only just starting. No advice here yet but we all ignore them at our own peril.
Concerns over further Fed Funds Rate hikes being bearish for gold simply do not bear true against the empirical evidence which clearly shows US$ gold prices have often actually headed higher.
This graphic encapsulates the rates rises and gold price gains but also shows the testing of the 2011 downtrend and the `Good Bye Kiss’ on the 2013 downtrend. A break upwards through US$1300 could well be very strong.
This US$ Gold Price Seasonal Graphic highlights the weakness shown over the past 30 years into June ahead of stronger prices in the December Half. The average is only around 4% so from US$1210 that is only about US$50 but the stakes are much higher in 2017 than most of the past 17 years of the bull market from 2000. Mid year weakness highlighted.
Source: Dimitri Speck
This longer term chart shows the significance of the 2011 downtrend. Three times hit. The fourth test often gives the break through.
This graphic shows major support for gold in this US$200 trading channel of the past four years between US$1100 and US$1300. These types of consolidation patterns often result in subsequent strong price moves.
Whilst the action is in gold, and in silver and platinum these white metals are still probing for price bottoming, one precious metal is very firm and may be providing a future direction for all the precious metals. Palladium is primarily a from Russia supply story ( ~40% of mine production and up to 60% of supply) and a switch away from diesel engines (that use platinum for exhaust catalysts) to petrol (uses palladium).
North American gold stocks are also suggesting the extreme volatility of the past 18 months may now be at last ready for resolution in the compressive wedging. An upward break out would be powerful from this pattern.
Gold stocks against gold bullion have had a rough time for twenty years but a change is underway.
The bullish case is even more encouraged by the very poor sentiment towards gold stocks that is apparent in Nth America.
On ASX the turnover in XGD is seasonally softer but market share is holding around 4%.
But valuations are still in the lower levels of the past 15 years.
The lack of interest and the poor sentiment of the past few months are reminiscent of the June Half of 2003. Low market interest in the June Qtr was shaken off by a very robust gain over 2003/04.
Look at these numbers below and the remarkable periods of gain and loss.
And the remarkable levels of gains and loss. What a coincidence!
ASX XGD performances over the two initial periods of each leg of the current bull market in gold.
*Commencement of ASX Gold Index
(Do note that the ASX XGD was only started in August 2000 so these numbers aren’t quite as meaningful although the Nth American XAU did make its bear market bottom about this same time in 2000.)
Here is the graphic with the 2014-2017 rebased to 1000. Remarkable similarities!
So after 22 months of uptrend there was 10 mths of correction in each case.
Where to next? Much higher I expect.
The performance of gold stocks over the past year has certainly been volatile so this table below is very helpful on relative performance and relative strength of a range of selected stocks.
Pleasingly many of the MPS preferred stocks (CDV, NST, TBR, SBM in the seniors and SWJ, PNR, CYL in the smaller stocks) have been good performers but some of our others have been awful.
Relative strength in soft markets is a good sign for a stock but some real bargains exist amongst the poorest performers as value is created.
MPS has coverage of 69 gold stocks so far (there will be many more to come) to allow proper relative assessment of the sector and provide the best overall opportunities for investment.
The MPS Universe of 20 senior ASX gold stocks (excluding Newcrest ASX.NCM) has the following attributes using the current A$ gold price of A$1596/oz:
Let’s see what is in store for us now.
Contact me to participate.
Barry Dawes BSc F AusIMM MSAFAA
+61 2 9222 9111
Source:PSA
These two tenements are well known to Petsec and the potentially >110million barrel Al Meashar discovery was drilled by Petsec’s now-current MENA team.
With these two blocks Petsec now has potential oil production from each in the next six to nine months.
Each block has the potential to produce substantial cashflows for Petsec that would match the company’s current market capitalisation in 2018 and far exceed it in 2019.
Yemen’s geology reflects the abundant and unquestionably high quality source rock that has provided the carbonaceous source to oil formation throughout the Persian Gulf region but it also reflects massive regional tectonic activity that has literally shattered much of the brittle crystalline rocks such as granites and high grade metamorphics. Oil from the source rocks has entered the intensive fracturing joints which have in many cases become very large reservoirs for oil entrapment. The Masila oilfield region has several fractured reservoir fields totalling over 2 billion barrels and many of the post- 2000 oil discoveries in Yemen have been in such reservoirs.
The abundance of high quality source rock indicates a much higher probability of any potential trap being charged with oil.
Consequently these fractured basement reservoirs offer the potential of oil fields with hundreds of millions of barrels of oil. `
Fractured Granites at Surface in Yemen
Source: Oil Search
The Al Meashar discoveries in Block 7 had an 800m oil column down to total well depth(no oil-water contact was encountered so this is still `open’ at depth) with much of this in fractured basement.
Al Meashar Wells 1 and 2 with Reservoir Estimate Targets
Source: PSA
This field is only 14km from Austrian oil company OMV’s Habban oil field that has a 945m oil column in fractured basement and reserves of 170 million barrels in a very similar geological environment.
The An Nagya field is a `conventional’ oil field but it also has potential for fractured basement reservoirs beneath it.
An Nagyah Oilfield with vertical and horizontal wells
Source:PSA
`PSA is following Oil Search, now a major LNG producer out of PNG that in 2000 had also set up a Yemen portfolio and drilling ~50(including 12 exploration) wells. PSA, unlike Oil Search, has acquired 100% of existing or producing fields and infrastructure (as well as the experienced management and technical teams) on very modest outlays and so eliminated most capital expenditure risk.
The parameters set by Oil Search for a Yemen portfolio are otherwise the same:
The link is here:-
Improving prospects for a peaceful resolution in the hostilities allowed the Yemen Government’s national oil company Petro Masila in August 2016 to recommence oil production in the Masila oil fields in the eastern half of Yemen, well away from the disputed regions of the Shiite Houthi rebels near the northwest border with Sunni Saudi Arabia.
Oil production is now around a reported 75,000 barrels per day and is pumped via the 138km Ash Shihr pipeline and allowing resumption of oil exports. Shipping has resumed and an estimated six million barrels have now been lifted since August 2016 without incident.
Petsec’s An Nagyah field has 15 shut in oil wells and 20,000bopd processing capacity that are linked to the major Marib pipeline that runs 438km to the Red Sea but this pipeline is closed and is not considered likely to be reopened before 2019.
However, Petsec considers that it will receive official confirmation of its work plan during the Sept Qtr 2017 that will allow installation of a truck filling gantry (July) and a commencement of trucking convoys to Petro Masila oil fields and gaining access to the Ash Shihr pipeline for export.
The Yemen Government has historically relied on oil revenues for around 60% of its Budget income and in the current environment has encouraged foreign companies to resume oil production.
An Nagyah in Damis Block S-1 has 20,000bopd capacity today and should be able to re open wells to commence at 5,000bopd and steadily build up to 20,000bopd from existing wells and additional infill and appraisal wells. The additional undeveloped resources should ensure the capacity of processing facility is filled.
Damis Block S-1 Reserves
The two Al Meashar wells should provide at least 1,000bopd while production testing. The exploration potential in Block 7 is very high as these unrisked targets show.
Petsec should receive about 63% of the fields oil revenues under the Production Sharing Agreement to cover authorised capital and operating costs and its ~29% of the oil field profit. All sales receipts are received offshore to Petsec’s account. These cashflows should allow the drilling of infill wells and subsequently some exploration wells on structures that have >100m million barrel targets.
I have done considerable due diligence on this company’s operations and consider it an absolutely outstanding opportunity.
There is a large amount of information to absorb to fully understand the opportunity here but I can say that the numbers are very high and the risks are surprisingly low.
The key issues are that:-
1) Yemen is an early stage exploration target with underexplored basins and huge volumes of source rock
2) The MENA staff at Petsec spent over 10 years drilling wells here with Oil Search so they know the people, the local situation and the geological potential.
The stock is A$0.15 and my target of A$1.46 is only notional and only uses the Low Case of 5,000bopd in Yemen.
A perfectly rational high case could be >A$10/share.
The PER for 2018 calendar Year is <1x and operating costs are <US$15/bbl and these would fall to about US$10/bbl once output is linked to a pipeline, probably in 2019.
Looking at it dispassionately , it is clear that once production begins at An Nagyah, Petsec will be generating a lot of cash from low cost operations and should become something of a super stock. Next to no capex is required and the two Blocks have accessible reserves ready for production and have very substantial upside.
The oilfields and basins in Yemen are only in the early stages of exploration when large structures are being tested and, given the undoubted high quality of the Arabian Peninsula source rocks, it will certainly mean large oilfields are to be found. The Hunt Jannah Block (to the west) and the Masila fields (to the east) are each over 2bn bbls.
The existing fields are significant and in the experience of most operators in this basin it seems that they simply become much larger than initially thought.
The Petsec MENA team led by Maki Petkovski have actually been the operators here in Yemen for many years through Oil Search so they know the geology, drilled many of the wells and most importantly, know the bureaucrats, local businessmen and politicians who make things happen in Yemen.
The Yemen assets are almost beyond comparison with petroleum exploration prospects in Australia or in the very mature shallow Gulf of Mexico basins so the opportunities brought into Petsec are practically without peer for any ASX-listed company.
Risk is in the eye of the beholder and whilst the entire Middle East is unstable and hostilities continue in the north west of Yemen the operations of Petsec should be able to work within a supportive community and government umbrella to resume output and apply risk capital, probably through farmins, to drill some of the indisputably attractive exploration/development targets.
Petsec has acquired these magnificent assets and should production resume at An Nagyah as planned and Al Meashar deliver even modest reserves the upside is very high.
Oil prices are currently softer on oversupply concerns but underlying demand has been rising faster than most forecasts so the medium term outlook incorporating increasing imports to China and India should not be negative for oil prices.
MPS Research Report Low Case Earnings Forecasts for PSA at A$0.15.
The link to the Research Report is here:-
The growth in gold production with a A$1,700 gold price will be wonderfully profitable for existing producers and will also allow numerous smaller players to bring profitable new mines on stream and often to just deliver ore to existing nearby mills so requiring only small pre mining capital expenditure.
The 
Source: Bain Matrix of Australian Gold Producers Jan 1989.
And to reflect this, the ASX Gold Index of the time (established in about 1986 and backdated) rose from 400 in mid 1985 to its peak at 4413 in 1987. 1,000% in just 18 months!
Source: Bain Matrix of Australian Gold Producers Jan 1989
The performance of the ASX:XGD was strong over 2000-2011 but Australian gold production declined 27% during that boom that was strongly influenced by companies with African gold projects.
This boom will be more about the growth in Australian gold production and the +226% first leg up from late 2014 was just the beginning.
The performance of the gold sector in 2017 has been volatile and the ASX:XGD is up only 7.3%. It has produced some very mixed results with some strong performances and some awful declines.
It is clear that the larger producers and the dividend payers have outperformed in the ASX:XGD.
SBM, NST, EVN and WGX are the senior players and did well with CDV and NST’s EKJV partners TBR and RND also performing. CDV has been outstanding and seems destined for even better things. NCM is OK but is acting like the big North American gold companies.
In the smaller players, KIN with some outstanding drill results performed strongly and SWJ has been a MPS favourite as has PNR. WGP is starting to hit its straps and CYL is an emerging star. Many more new gold players are emerging and will be added to the MPS lists.
Amongst the awful performers in 2017 there has certainly been some value created in SLR, BLK, PRU and DRM amongst the bigger stocks and AHK, HAV and TNR seem extremely cheap.
Gold stocks are still improving their market share with some weeks in April 2017 exceeding 5% again. Dawes Points considers that this can only rise further.
In terms of technical performance the ASX:XGD is showing signs of moving higher.
But some individual stocks are looking very strong and seem ready for a robust breakout very soon.
ASX:NST (Northern Star) is one of my preferred plays and a break above A$5.00 should see a big move.
ASX:SBM (St Barbara) is showing the same pattern.
As does ASX:EVN (Evolution).
ASX:CDV (Cardinal) looks very powerful.
As does ASX:WGX.
And late bloomer ASX:EGS.
ASX:BLK (Blackham) seems to have been most unfairly treated after reporting that unusually heavy rains had reduced mining and processing activities. Observers commenting on the history of Wiluna might like to read this from my Feb 2015 Report on BLK. The Biox plant ran successfully at about 80-100kozpa for almost nine years and the time under Apex was clearly a matter of poor management as the mine output was well under the mill capacity and the ore was under the mine reserve grade.
Gold production for BLK in FY18 should be 90-100koz and the expansion to >200kozpa should be done without resort to additional equity. At 80kozpa with cash costs ~A$1200 and a A$1700 gold price this is A$40m cashflow and at 200kozpa this is A$100m cashflow. Market cap is only A$106m.
At A$0.31 this is very cheap.
This Elliot Wave interpretation is also of great significance showing the strength into Sept 2011 and the subsequent shallow retracement.
US$ Gold is pushing up against the downtrend line for a third test. A break here could be just as powerful as the earlier moves in gold.
The flow of gold into China and India is absorbing all mine production and the flow is one way. Nothing is coming back. This is the main driver. The gold held by the Bank of England has declined.
And the flow is one way only.
At the same time this flow of gold is taking place it seems that the US$ is softening as shown by the US$ Index and reinforced by the above-noted weakness against the major currencies Euro, Yen, Swiss Franc, Rupee and Sterling
Both of these look very constructive.
The royalty companies are leading:-
Franco-Nevada
And Royal Gold:-
Top North American-listed performers include:-
Agnico Eagle Mines:-
And Kinross Gold Corp:-
Randgold:-
The really big US companies Barrick and Newmont have tended to perform with the various indices but both seem capable of strong moves soon.
Barrack Gold Corp
Newmont Mining Corp
The US$ Gold Price action seems constructive and its strength is matched by gold in many other currencies so that the world will be looking at a bull market for gold in all currencies.
The gold stocks are also proving some good leading indicators with key stocks providing outperformance while the general market and the smaller stocks have been soft and engendering a mood of pessimism. These market sentiment characteristics generally provide a sound base for an upward move in any market.
Contact me to participate.
Barry Dawes
+61 2 9222 9111
Whatever the position here it is clear that with the A$ gold price back up around A$1,700/oz and with the generally strong (despite some abnormally heavy rainfall) March Qtr reports out there some gold stocks that are just brilliant value at current levels.
The tables below also show the high volatility but also it is pleasing to see market outperformance by some stocks in 2017. In particular, two stocks referred to in Dawes Points in 2017, CDV (+104%) and SWJ (+68%) have provided some of the best performances and Dawes Points-preferred stocks NST and TBR/RND developing the Zuleika Shear gold fields, low cost SBM, WGX, GOR and PNR have also shone through.
Site visit was made in February this year to CDV's Namdini Project in Ghana where the 4moz deposit has had drilling indicating depth extension from 350m to 550m and potential additional mineralisation along strike. Market cap is around A$200m so with 6moz or more we could be looking at A$35-40/ inferred oz. The key feature here is the mineralising fluids passing through metamorphosed sediments, volcanics and intrusives to give 30-50m intersections. Gold recoveries are straight forward and the strip ratio is low. Gold Fields has bought 6.4% on market plus a further 7% through listed options.
A site visit to Stonewall's (SWJ:ASX) projects at Pilgrim's Rest in Eastern Transvaal provided further evidence of a major gold field here with 7moz already extracted from 43 mines over a strike length of 60km. SWJ has released 905koz @ 11.1g/t at Rietfontien and 1.0moz @ 6.6g/t at the Beta Mine but these are just the start. Gold production is scheduled for 2018 from upgraded existing facilities. Substantial upside possible here.
NST's Zuleika Shear activities have been outstanding with the high grade Rubicon-Hornet-Pegasus and Raleigh mines in the EKJV producing excellent production results but more importantly, exploration drilling at all these mines will result in a significant resource upgrade.
NST will have the new 100% 50kozpa Millennium mine producing development ore by in the Sept Qtr. NST also has a very active exploration programme along the Zuleika Shear with seven rigs drilling out a resource at the very exciting Paradigm project (107m @3.1g/t and 197m @2.4g/t) .
This goldfield will just get better! Don't forget ASX:TNR which is very well positioned here too.
Special mention is also made of HAV and ABU since 1 July 2016.
Dawes Points has had a couple of false starts with suggestions of gold stocks moving higher in a new upleg but with the recent pullbacks it now seems clear that time frames are longer than expected so short term rapid gains are not yet with us.
However, investors should note that many ASX Small Caps are being hammered so it is not just gold stocks!
ASX XEC S&P Emerging Companies Index 2002 -2017
This also suggests these stocks are now in coming into strong support levels and trading on good volumes.
Nevertheless the outlook is unchanged.
Gold demand from China and India continues unabated and is absorbing new mine production and Western inventories.
The Fear Trade of banking collapses, Middle East problems, North Korea and debasement of currencies are also there but are not as relevant just now.
The Bank of England recently released details of gold it holds on behalf central banks and commercial banks.
I am not really sure what it actually means but it could be reinforcing the transfer of gold from the West to the East. Almost 2,000t was removed from 2013 ……
…with another 800t exitting the SPDR Gold ETF over much the same period...
Substantial tonnages of gold have moved East and have been tightening the market in the West.
The underlying strength in the US$ gold is being reflected in the gold price in other currencies and most are a few % stronger against the US$.
Gold in US$ is just looking brilliant and a sustained break above US$1270 and more importantly above US$1300 should see a very strong move.
The internal strength of US$ gold with the 2011 high interpreted as an `irregular' B Wave and the 2011 downtrend ready to be broken is very encouraging. The next upmove if it happens will be a Wave 3 which is typically very strong.
As noted, the trend though the various currencies is in line with this and A$ gold is already moving up. A$ gold has averaged around A$1,550 for the past six years and A$1,600 for the past two. The move back up through A$1,700 is suggesting much more to come.
Note two important currencies where gold prices look to break much higher.
And most importantly in Indian Rupees, the currency of the biggest buyer of gold!
India has the biggest demand for gold and gold is rising again in Rupees despite that currency rising against the US$.
India achieved 108mtpa in March after finally exceeding the magic 100mtpa in January and will very soon pass Japan to become the world's second largest steel producer.
China can not only be expected to have robust steel production but should see at least 5% growth in 2017 as this seasonal turning point has occurred at such a high output level.
Investors seeking a play in this Asia-MENA infrastructure play should look at recent listing JC International (ASX:JCI) Calendar 2016 EPS A$0.16, Cal 2017 (E) A$0.18 and PER 4.5x.
Iron ore prices, particularly sub-60% Fe ores, have been weak but as the low grade China port stockpiles are run down at these attractive prices it can be expected that iron ore prices will be firmer into the Dec Half of 2017.
Higher grade iron ore products such as magnetite are in strong demand and the South Australia potential mega projects Iron Road ASX:IRD, Magnetite Mines ASX:MGT, Carpentaria ASX:ASX and Havilah ASX:HAV deserve further attention.
The US economy appears to be gaining strength through housing, manufacturing and employment but it is interesting to see on the aggregate consumption side how the US Transportation Sector has increased its share of total primary energy by 30% since 1990 from 25% to around 33% today and the underlying growth in consumption has a robustness about it.
It has been notable over the past couple of years that consumption of transportation fuels has shown double digit growth in many major economies. The underlying demand for oil is probably far stronger that the market place appreciates. Global consumption is now just over 95 MMbopd (~35bn bbls pa) and growing at 1.2-1.3MMbopd so it is going to be difficult to maintain output in the next few years. Keep in mind Australia's largest oilfield was Kingfish in the Bass Strait with all of about 1.1bn bbls and Bass Strait itself has produced over 4bn bbls.
Whilst Peak Oil is no longer fashionable it must be recognised that most conventional reservoirs outside of the Middle East are in decline and the exploration and development outlook for near term new non-OPEC oil supply is at the lowest level since the 1940s.
The graphic below shows that in the past five years less than 6bn bbls per year has been found.
Demand is still rising but supply is struggling to keep up.
All these numbers, together with the aggregate figures given on consumption of the industrial metals suggests that the overall global production to reserves equation is increasing. Higher prices are inevitable.
So many markets are making new highs from the US, Europe, India and ASEAN and reflect strong underlying economic conditions.
It is interesting that the North Korea issue is not rating highly on the market's radar.
Most importantly, the Sth Korean KOSPI Index is hitting new record highs!
What do they know that we don't? Is reunification now about to happen?
There is no FEAR trade here!
Someone needs to turn on the lights!
Barry Dawes
BSc F Aus IMM (CP) MSAFAA
I own JCI NST, BLK, SWJ, TBR, TNR, CDV
Call me if you would like to:-
Sub-Sahara Africa has slowed in recent years but recent higher copper, gold and oil prices have provided new boosts and growth numbers should surprise many.
Population growth has also been important. These regions make up a growing 58% of the world's population.
So seeing 3,300m Asians joining via the One Belt One Road concept with another 1,200m in Europe and indirectly, 900m in Africa, makes concentrating on 330m people in the US somewhat misplaced.
Be aware of the influence of these countries in the Asian Century.
IMF data 2015
So coming back to steel.
The global steel industry is a fundamental indicator of industrial activity and the World Steel Association monthly data gives some of the best near-real time evidence of the world economy. The Feb 2017 figures have provided a 4.1% YoY gain but this is actually an annualised rate of 7.8% higher adjusting for the 29 days in Feb 2016.
Looking the annualised China vs USA crude steel graphic it is clear China has maintained crude steel production at about 800mtpa for the past three years while the US has remained around 80mtpa.
Looking more closely at the data, the obvious seasonal influences of Christmas (China is the fourth(?) largest Christian country) and the moving feast Spring Festival (Chinese New Year) soon after can result in long holiday periods and produce some remarkable seasonal variations but the smoothing 12 month and six month moving averages provide some key forecasting indicators.
The six month moving averages allowed Dawes Points to call an upturn in China crude steel production early in 2016 and, after closely watching depleted steel mill steel and iron ore inventories, forecast a strong rise in iron ore prices to above US$80/t in 2016.
This same data series is suggesting a good year for steel in China in 2017 with the latest data showing crude steel production for Jan and Feb to be 7.6% higher than 2016.
The blue short term indicator is suggesting a seasonal bottoming but the red 12 mth moving average is well up and rising.
The bigger picture says Non-OECD consumption is the key to global raw material demand and this graphic speaks volumes.
Over 70% of steel is consumed outside of the OECD.
The US produces about 80mtpa of steel from mostly electric arc furnaces (EAFs - 55% of capacity) that use steel scrap rather than virgin iron ore (in blast furnaces) and imports about 40mtpa. An infrastructure programme might restart maybe 10mtpa of shut capacity but imports may have to rise by another 30-40mtpa.
China has been the biggest growth story in steel production with the massive rise (just using the data from the graphic above) from 300mtpa in 2005 to the current 800mtpa with almost 95% coming from blast furnace iron.
However, after a long period of promises, India finally exceeded 100mtpa in Jan 2017 and should grow more from here and play another important role. Interestingly, over 50% of Indian crude steel comes from EAFs and with steel scrap reasonably tight India will be forced to increase the share for blast furnaces. And iron ore.
Japan and Rep of Korea have 23 and 30% EAF share.
Iron ore demand can only increase and that for seaborne trade in iron ore to rise even faster.
The Dawes Points forecast for US$95/t in 2017 has already been exceeded so after this more recent softness expect to see US$100 achieved later this year. Demand is strong and supply is growing but not growing fast enough. Marginal demand gives marginal prices. Cost of production is irrelevant. BHP, RIO and FMG will just print money.
Keep Magnetite in mind. Several new Australian iron ore projects are being developed as the next wave of iron ore capacity with three substantial developments planning to export through ports in South Australia. Each will be developing a low cost mining operation from very different ores compared to the hard Pilbara types and will have magnetic separation as a key factor. Magnetite concentrates are a mining product not an ore and can pick up a US$20 premium over 62% Pilbara hematites. ASX:MGT in particular deserves attention.
Shipments of goods are rising and are reflected in the Transports that are also making new highs.
The Dow Jones 30 Industrials (DJIA) is making new highs showing that output and shipments are up and new employees and capex opportunities are being taken onboard as cashflows and earnings rise.
Note that the DJIA is near the top of the lower trend channel but there remains massive space for this index to reach the upper uptrends of the next two channels. I see no real overextending here.
The S&P 500 is doing its job OK but the performance of the Russell 2000 Small Caps Index is providing that important BREADTH to the market to show all sectors are firing.
Key indicators of economic expansion highlighted in Dawes Points include US housing starts (and the massive inventory shortage) and the Philadelphia Housing Index hitting new 11 year highs, the relative strength of the US Banking Sector and the peaking of the global bond markets.
All are flashing US economic boom!
The performances of cyclicals such as Boeing and Caterpillar with new basic industry stalwarts Microsoft and Amazon on fire means the indices have much further upside.
The theme for a few years now has been that the US equities are leading with Germany possibly even slightly ahead.
The UK after Brexit is showing great life and strength and now has a powerful upward breakout that has very far to run yet.
The entire Asian opportunity is also developing with India probably even leading the US.
Japan is running its own game but the equity market is rising and heading for the 1990 highs again.
China as represented by the Shanghai Composite is steadily rising after the baseless hysteria in 2015 and was so strong it did not even pull back to its long term uptrend.
Hong Kong is parallelling Shanghai but is probably just a bit ahead of the Mainland.
The patterns for other Asian markets strikingly similar with South Korea now providing something very special with its very recent upward break out.
Even staid Singapore is on the move.
Taiwan is charting its own course but is now looking for a break out surge.
Thailand seems ready to fly now.
Even the Philippines looks ready to go.
Here in Australia we are suffering from appalling politics so the All Ords has underperformed overall but the Gold Sector and Resources generally have provided some spark and strength.
The data consistently provided in Dawes Points these past few years is that the structure of the resources industry of:
The picture is strengthened by the resilience of the A$ and recall that just over US$0.80 is a test of the 104 year (1913-2017) downtrend again.
US Gold stocks are in good shape:-
And the GDX ETF is ready to move much higher.
The ASX:XGD is now well placed for a break out move. This outcome could be quite robust.
Call me if you would like to:-
The sector is doing well and is awaiting the coming pick up in the gold price that will push valuations higher to test 2016 highs and the XGD.ASX to move above 6000.
The cash builds and operating earnings are very likely to provide reported earnings improvements throughout the Gold Sector and with resulting higher tax payments by the sector we can expect more and higher franked dividends. NST, EVN, RRL and RSG are leading. Note RRL already has a 57% payout ratio for its interim dividend. As industry capex flattens and more debt is repaid most gold producing stocks will be providing >60% payout ratios.
Dividend flows will also push sector valuations higher and the point is reiterated that gold stocks will be better dividend payers than bank stocks.
There is much to like about these gold companies and their managements who are already industry experienced technicians and who are now starting to learn about corporate future strategies rather than just survival.
The operating ratios on ore yields, productivity and gold recoveries continue to improve and the competition amongst Australian industry players is healthy and beneficial.
The geological assessments seem to be entering a new stage with sub pit discoveries, down plunge extensions and intersections along new splays featuring in almost every quarterly. There is nothing like large positive cashflows to assist management give the geology department funding for resource extension and new target testing.
The Zuleika Shear near and west of Kalgoorlie continues to impress with Northern Star kicking goals everywhere there (watch here and watch for mid year resource upgrades) and Evolution finding tantalizing evidence of additional sub parallel shears east of the important high grade K2 Structure for Frog's Legs. Resource and production upgrades are coming here to what is currently the most exciting goldfield on the world.
St Barbara, Saracen and Ramelius are also adding ounces with their efforts in WA. US-based Newmont is doing well in the Tanami and NST is upscaling its interests there.
Newcrest now has operations running at full capacity and Westgold out of MetalsEx is hitting 300kozpa. Smaller companies like Blackham and Pantoro are growing very nicely.
The strength in copper (note the recent breakout in price and also it is outperforming gold) will be very good for Newcrest, OceanaGold and Evolution with their gold/copper operations that are already reporting negative gold production costs through copper by-product revenues.
Site visits last month to Stonewall's elephant(just how big is this going to be?) in South Africa and Cardinal's growing Namdini resource in Ghana (far longer intersections (25-50m) than most Birimian gold mines in Ghana/Cote D'ivoire) confirm excellent potential for their shareholders.
As noted, there is much to like in all these stocks and choosing the best plays is challenging.
The performance since 1 Jan 2017 of some these stocks has been impressive with @DawesPoints favourites recovering well after the broad decline in the Dec Half of 2016.
Westgold did best of the ASX Gold Index group with late comers Resolute and Ramelius starring and low cost St Barbara also performing. Regis did well and Northern Star is still very cheap.
Beadell is consolidating and might just be offering something special there in Brazil. A$51m in a recent equity raising supports this. Let's watch Beadell and the conceptual continental drift link to the gold deposits across the Atlantic in Ghana and Cote d'Ivoire. Most intriguing.
Source: Beadell Ltd
Amongst the non XGD gold stocks, Cardinal, Blackham, Pantoro and Gascoyne have done well and Torian will have the outstanding potential in its Zuleika Shear projects recognised soon. Tyranna is also continuing to build resources on its Sth Australian tenements and getting better every quarter.
Note again the Dec Half 2016 relative strength of Westgold, Resolute, Ramelius and Silverlake in the XGD and Cardinal, Blackham, Stonewall and Ark Mines in the Non-XGD.
Stocks that outperform in down markets often have superior strength in the next upleg.
Australian gold production is good and stock performance has been strong. In contrast, companies with overseas operations having high cost mines, poor operating regimes and debt have meant that many of the stocks have continued to underperform. However, the leverage in these is high and will come with a rising US$ gold price but care needs to be taken on stock selection so choose well.
Only Perseus, Beadell and Oceanagold seem attractive here. Resolute was a later addition to the XGD so did not make this index series.
Most visible public commentary from the bigger brokers and investment banks today is suggesting ASX gold stocks are currently fully valued and most public valuations seem to be pitched within 10% of current prices with very few outliers. The `consensus' is that these are fully valued and so are `sells'. This lack of conviction for a higher future gold price seems strange.
Similar comments are being made about BHP, RIO and FMG. All `fully valued' by the major brokers and investment banks despite the now-excellent balance sheets, strong cash flows and surging dividends at the start of a decade long bull market in the main commodities of iron ore, copper, coking coal and oil.
Aren't US investment banks wonderful!
This is in strong contrast to Dawes Points. My commodity and stock price targets are far beyond current prices and much higher for much longer.
With firm prices expected for iron ore (the Dawes Points US$95 mid year target came four months early), copper and oil over the next few years, more appropriate end 2018 targets are BHP A$36, RIO A$90 and FMG A$11.
The Dawes Points 2016 July General Resources portfolio is up 33.5% vs XMM 30.4%.
The gold market action is being supported by a strong move in silver where a break through US$18 is suggesting all metals are moving. The `Good Bye Kiss' test for silver has already been successful and silver can now rally further to US$21 and higher than that should bring rapid follow through.
Palladium and platinum are looking very positive and copper has already broken out in what should be a very strong move.
Palladium looks very strong. >70% production from Russia. Platinum has >70% from Sth Africa
Copper – Short term is very strong. Long term is >US$5/lb.
All these moves have been clearly signalled in Dawes Points for quite some time and they all indicate tight markets where demand is robust and supply is restrained. LME inventories are still critically low.
Negative sentiment expressed through the futures markets has affected prices but this has only made metals cheaper for the natural buyer.
When the sentiment turns there will substantial short covering and then natural buying will propel most metals prices much higher.
Silver and copper are giving important BUY signals against gold. Trend breaks and Good Bye Kisses abound.
General commodities are bottoming and a big rally is developing.
Seasonal influences may influence prices in the short term but the power will soon be unstoppable.
Gold demand is still, in my view, mostly about the relentless demand from Asia and the Middle East (with the notable addition of 900m people from Africa hopping on board too) that is tightening the market in the West. This firm Asian demand is absorbing loose gold from weak hands and the usual superficial issues of global debt, US$ value, bond prices, banking system collapses and inflation are coming but aren't quite with us yet.
This growth in share of Global GDP and hence growing wealth is important to appreciate in understanding demand for gold. China is huge, India is the key market but ASEAN is wealthier than India. Africa is rising and better commodity prices for gold, copper and oil will boost growth further.
Share of Global Wealth (39%) or Global population (58%). Shares are rising in both.
The period since the 1990s is of great importance in economic history as it brings in the rising living standards of great populations of this world for the first time.
Firstly the 400m in ASEAN (expanded to 650-700m with the inclusion of Vietnam and Myanmar) then almost 1400m in China, and now India (1300m) and with Africa with its 900m and growing GDP bringing it together.
Whether you look at population or GDP the numbers are still growing for people who want higher living standards.
In the US itself the economy continues to improve and higher Fed Funds Rate levels are inevitable and bullish for gold. And negative for T Bonds and the US$.
The US economy seems very robust with housing leading but still playing catch up with a large inventory deficit of as much as 4 years demand. Housing sector stocks are breaking to new 11 year highs.
And these new generation basic industries- Microsoft and Amazon - are in strong uptrends.
And the US banking sector is loving it.
US inflation picking up again and circulation of money is gaining - Federal Reserve Bank of St Louis
President Trump's actions are interesting and unpredictable but so are the responses from the broad cabal of vested interests relying on receipt of public sector funding that is financed through the bond markets at today's low interest rates as discussed here previously. This public sector largesse on cheap money is coming to an end. This cabal of related interests is fighting a tough rearguard action though.
As to the impact of US politics on the gold market it is difficult to say. What way and how will the US T-Bond market be affected and hence what will be the direction of the US$? The expected oversold bounce rally in US T-Bonds has not yet eventuated so it may just be a matter of further weakness ahead in both US bonds and currency.
A near term rally here to test the US$1360 level for gold will probably bring a pull back for a month or so but then, going forward, gold might be very strong in the Dec Half of 2017.
Here, moves above US$1360 then US$1400 should give probabilities of US$1550 being tested, then US$1750 and then reaching the old high of US$1923 from Sept 2011.
Above that, who knows, but once any of these levels are breached it could be quite a quick move.
The battle between buyers and sellers has been robust and drawn out for the past four years but the character of the market is suggesting a quick resolution might apply once US$1360 is exceeded as noted above.
Gold has been fighting in this tight US$250-300 range for almost four years. Resolution and defeat for one side of the market should mean a strong move in favour of the other. I favour the longs!
The gold stocks are looking very firm and here on ASX and the North American XAU is moving higher after a good pullback.
whilst GDX, the Van Eyk ETF, is under heavy accumulation.
GDX ETF - under accumulation
Gold stocks will be outperforming gold for quite some time yet.
This is all good news for gold share owners and for owners of all resources shares.
The Road Map for the next few years is becoming increasingly clear and the global reluctance to invest in the Resources Sector is being tested daily.
The opportunities are enormous and the cash on the sidelines in Australia was A$1870bn at last available data in Sept Qtr 2016*.
Don't miss out.
Call or email me to join in this vast wealth making wave ascending beneath us.
The long term US$ Gold Price graph here clearly shows 10-12 years (was 1999 or 2001 the real low?) in the first upleg that rose from US$246 to US$1923 (US$1677/oz or 680%) and after the 4 year correction back to US$1045 has again moved higher and has been regaining price.
It is moving up again and is currently flirting with US$1200 but much higher levels are very likely and very soon.
Gold, however, is still now very much oversold medium term and market sentiment had become very negative again so a decent rally is now highly probable.
I also like to view gold from an Elliot Wave Theory point of view to better understand market sentiment. Elliot Wave Theory is an art, not a science, and each practitioner has its own interpretation and many are very experienced and successful. Some are not so good and I don't regard myself as a true practitioner however I have found that it is probably more useful to just follow the market sentiment aspects of the waves.
To put this in perspective, it is again worth repeating the well known comments from legendary fund manager Sir John Templeton.
`Bull markets start in Pessimism, rise in Scepticism, mature in Optimism and die in Euphoria.'
This sets out the three legs in a typical market that represent
This makes gold's move in 2011 against general commodities, in a deflationary environment and often with a rising US$, very powerful.
The Wave 1 Disbelief to US$1032 was encouraging but the Pessimism was deferred for a couple of years until after a new high at US$1923 that was 90% higher than US$1032! This was a strong move but was never accompanied by Optimism nor Euphoria. Gold stocks peaked in April 2011, nearly six months before gold in September, and many smaller gold stocks hardly rallied at all after 2008 so these highs in September were not `confirmed' by the broader gold markets. As stated above, no `Euphoria'!
The Pessimism leg saw gold decline 62% to its 2015 low which was actually still 3% above the Wave 1 high in 2008.
So if Wave 2 ended at US$1045 then we are now in the Optimism upleg and have just finished the first correction . 
The gold market a truly fascinating arena where so many players have vastly different game plans and each participant has its own perception on it all. Some players are very big and are constantly at the interface between buyers and sellers and others can be small and are coming and going on a whim to buy physical or futures. Is gold just insurance or is it going to be the last asset standing when all the world's debt leads to a deflationary asset implosion. Or a hyperinflationary inferno as politicians debase their currencies?
Or is gold just really jewellery that stands the test of time?
It is probably all of the above, and a lot more, and it will just depend on how everyone in the market place views it at any one time. And viva la difference!
Whatever the true drivers of gold the market is telling us that it is in a bull market. I have pointed out several times over the past few years that this is a very powerful bull market for gold and I consider it is still in the early stages of a multi decade advance.
The Big Picture is still best provided by the Barrons Gold Mining Index extending back over 75 years to 1939. This is the longest time series I know of for a fair market for gold instruments, especially since gold was fixed under the Gold Standard until 1971.
The low in early 2016 in North American Gold Stocks was extraordinary in a long term perspective with this Index picking up the 1939 uptrend and essentially matching the 1969 highs, the 1982 lows and those in 2000.
The index coming back in 2016 to almost the same low level was not with gold at US$246/oz but at US$1060/oz so certainly suggests an oversold position, on an industry that was producing substantially more gold even if it had paid too much for new capacity, acquisitions and operating costs. And had too much debt.
This is a very powerful market trend as well and supports technical targets far above current levels.
This 2016 US$1045 low was clearly Pessimism writ large and would have technically provided a Wave 2 low in US Gold Stocks. Note as pointed out above that bullion did not confirm these 16 year lows. Gold's 2015 bottom was at a level 325% higher than the 2000 period lows.
The wave count on the US XAU Philadelphia Gold Index maps the last 16 years very well and heralds the major Wave 3 upleg underway now.
The market sentiment really did ring the bell for us again in December 2016.
So. The next market leg should be up from here and if all the components of supply and demand continue their onward march - no significant increase in gold mine production (outside of Australia – see below), no significant increase in scrap supply (all Aunt Mary's jewellery has already been sold off) central banks are still buying, Asian demand keeps rising and ETF holdings may increase or decline.
The deficit should still be running and as already pointed out there is a vastly reduced inventory of tradable gold available in the markets.
So Wave 3 should be just as powerful as Wave 1 with its `Irregular b'.
The battle royal between the bulls and the shorters should be fun to watch and if you are on board with the bulls it will be a great ride.
We can start by looking the at Van Eck Gold Stock ETF GDX. Massive volume over the past year as institutional investors recognise the earnings, cashflows and dividends from the sector.
Interestingly, gold and gold stocks have tended to track each other closely over the past six months but this graphic is suggesting to me that gold stocks might be ready to outperform bullion from here.
The bigger picture can again be seen in the US T Bond market.
The 35 year Bull market in bonds is now over for the world. Overpriced, risky issuers and over owned. Currently ready for a rally but the longer term position is not looking good for bond holders or issuers.
And Gold is starting to look very good against the 30 year T Bond index and looks like it will head much higher soon even if bonds also rally from their oversold positions. Interesting!
As noted in 
The ASX XGD Index is up an amazing 30% from the 3345 low in mid December. The low that Dawes Points #59 called at the beginning of December was about 10 days premature but the XGD is still up 13% from that entry point and the 2 Dec 2016 portfolio is up 6.3% to date since then.
The longer term is still for strong action after the 226% rise from the Nov 2014 low. We didn't quite get the 6000 level I was targeting but a 226% call from 1 Dec 2014 isn't too bad.
The market correction chart shows an extreme 41% pull back from the 2016 high but that is now only 25%.
Gold stocks are regaining market positioning now with over 4% market share with some recent weeks actually showing >6% market share of All Ordinaries turnover.
And against the A$ gold price the XGD is still cheap.
The Australian Gold Sector operations are doing really well and my projections on Australian gold production are being again upgraded so that we just might see a new high above 1997's 314 tonnes in gold production by 2020. 
The gold industry was badly affected by the decline in the market for gold stocks and exploration expenditures fell over 50% from A$850mpa in mid 2012 to just A$425mpa in mid 2014. It has since climbed over 50% from the lows to almost A$650mpa.
The readjustment of the cost structure has also probably meant that far better value has been achieved for each exploration A$ spent.
Exploration has added to resources for companies like NST, EVN, BLK, SAR and GOR and many discoveries have been made at brownfields and greenfields sites. They might not be front page news but many are of great geological and economic value.
Performances by ASX Gold Stocks
The strong run up in ASX Gold Stocks from Dec 2014 brought about that 226% increase in the XGD to the high in July 2016. The rising market helped most gold stocks but it is interesting to see the performances of stocks after the July highs.
Some have been late starters but some othes have values that were holding up despite the 41% XGD fall.
The leaders NCM, EVN, NST, RRL and OGC have done well but within the XGD stocks SLR, RMS and RSG have shown excellent relative strength and have outperformed.
Amongst the other gold stocks followed and not in the XGD and doing well are CDV, SWJ, PNR and AHK.
This relative strength continued into 2017 with excellent performances by SLR, RMS, RSG, BDL, DCN, SAR and PRU. Amongst the smaller stocks, PNR, BLK and AUC outperformed.
Whether it is new growth stories or bouncing from oversold positions, there are good returns to be made.
The Big Picture also has to bring in the A$.
A declining bond market, rising commodity prices, a global economic boom and rising inflationary pressures means a stronger A$. Export revenues are already picking up and will surge further.
Gold stock investors should not be concerned about a rising A$ because the A$ gold price will be rising so much faster.
This graphic provided a remarkable R2 correlation of 0.92 for the 20 years to 2013 and so where the US gold stocks go so goes the A$. The volatility of the past few years has reduced this to 0.62 but both the A$ and the XAU are rising strongly again.
And this little gem of the A$/US$ with the 100 year downtrend of the A$ against the US$ brings us a great philosophical challenge. What will Australia be like with its currency again above parity with the US$? What sort of world will be out there? Global Economic Boom perhaps?
The volatility in the US$/A$ rate is great but the downtrend is now only US$0.80 and not at the US$0.95 of 2008 and US$0.90 of 2011. The A$ is bouncing back to above AUS$0.75 and so US$0.80 won't seem too far away.
The evidence is still very strong for substantial gains to be made in gold and gold stocks.
Try to think in big picture terms and gold is the ultimate asset in all scenarios.
The really Big Picture is the US$100tn value in the global bond markets seeking a safer home. The flow from bonds to equities is becoming clearer each week and the next step is to access and tap the A$1870bn in deposits in Australian banking institutions to flow into the economy again and into the Australia equities market.
This flow of capital funds is fundamental to the performance of most of the global markets. US$100tn of bonds and about US$70tn of bank deposits will provide funds for equities, commodities and gold for many years.
Resources commodities are doing well and whether it is gold, silver, copper, oil, LNG, iron ore, coking coal, platinum, lithium, cobalt, uranium, Australian East Coast gas or zinc the pressures are building.
The stars are aligned, the investment opportunities abound and the decision is yours.
This basic resources sector strategy has been consistently and firmly underpinned in these Dawes Points over the past four years and the world is delivering.
Contact me. Call me. Don't miss out.