by John Embry, Chief Investment Strategist of Sprott Asset Management
“We are on the cusp of a parabolic move in the price of gold underwritten by physical shortages. Central banks can no longer supply the amount needed to balance supply and demand while mine production continues to stagnate at best.”
OceanaGold released their half year production numbers, exploration results, MD&A as well as Q2 Financial Report this morning. We also provide you with a link to their conference call HERE.
The second quarter was not as strong as we anticipated, much due to weather conditions. Macreas operations (open-pit and underground) were out of action for more than a week. A production of 67,541 oz at a cash cost of $564/oz in the second quarter compared to 65,041oz and $551/oz in the first quarter. Half year until June 30 (H1), a total of 132,388 oz were produced at cash cost of $557/oz. The company still keeps the guidance for 2010 maintained at 270,000-290,000 oz at a cash cost of $455-$495/oz. This tells the shareholders that second half of 2010 will be much better, and the key to the increased performance will be the head grade fed into Macreas mill. According to the mine plan they were suppose to mine lower grade ore during the first and second quarter moving into higher grades second half of 2010. Macreas produced 117,500 oz in H1 2009 compared to 85,700 in H1 2010. First half of 2009 the grade was 1.59 grams/ton, for 2010 the grade was 1.23 grams/ton, so grades first half of 2009 were 29% above 2010. With the recovery rate at over 84% (81% in 2009), the higher grade will push up production and cut cash cost. We believe that OceanaGold will reach our target of 285,000 ounce for the full year and we are particularly impressed by the improvements in recoveries to 84%, but after the first 6 months we choose to adjust our expectation upwards for depreciation and therefore total cash cost. This will mean somewhat lower expected net earnings and net earnings per share during 2010 and 2011. This will be included in our next research report.
Oceana’s exploration plans going forward • To expand the open-pit area at Macreas, further drilling will commence • In the north tenements of the 28 km line of strike at Macreas, sampling and trenching is ongoing to identify new drilltargets. Drilling planned to commence during Q3 • Drilling is ongoing throughout the year to increase resources and reserves at Frasers underground mine and to convert resources to reserves • At Reefton, 1200 grab samples are planned to identify prospective targets • New drill programs targeting potential underground targets at Reefton (recently announced increase in the Reefton exploration budget)
“If you research history there have been 30 occasions of hyper-inflation,” he says. “All the numbers that take place 100% of the time in the other 30 occasions are here.”
Known as “Trader Vic,” Victor Sperandeo is a trader, index developer and financial commentator based in Dallas, Texas. He has over 40 years experience trading both independently and for the likes of George Soros and Leon Cooperman. Mr. Sperandeo was featured in the best-selling The New Market Wizards and Super Traders, has been profiled in Barron’s, The Wall Street Journal and Stocks & Commodities, and has appeared on CNBC, CNN, Fox and other networks.
Last week, the price of gold again broke below its new base at $1,200, and the U.S. stock market was again under strong pressure, due to a confluence of fears, most of which point to a deflationary double-dip. The fears were fanned by disappointment in the just-released early quarterly results, by the latest CPI reports that show inflation continuing to moderate, and by yet another poll revealing faltering consumer confidence.
The market is also spooked, no doubt, by notes from the latest Fed Beige Book that make it clear that the Fed is (finally) beginning to understand the entrenched and endemic nature of this crisis. While the notes are written in shamanic double-speak, the point is unambiguous – members of the Fed don’t expect the economy to get back on track until 2015 or 2016. (more…)