Category Archives: General

Exhausted world stuck in permanent stagnation warns IMF

By Ambrose Evans-Pritchard, Apr 7, 2015
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The global economy is acutely vulnerable to a fresh recession with debt ratios at record highs. The authorities have already used up most of their ammunition

The global economy is caught in a low-growth trap as innovation withers and the population ages across the Northern Hemisphere. It will not regain its lost dynamism in the foreseeable future, the International Monetary Fund has warned.

The IMF said the world as a whole has seen a “persistent reduction” in its growth rate since the Great Recession and shows no sign of returning to normal, marking a fundamental break in historical patterns.

This exposes the global economic system to a host of pathologies that may be hard to combat, and leaves it acutely vulnerable to a fresh recession. It is unclear what the authorities could do next to fight off a slump given that debt ratios are already at record highs and central banks are running out of ammunition.

“Lower potential growth will make it more difficult to reduce high public and private debt ratios,” the IMF said in an advance chapter from next week’s World Economic Outlook. “It is also likely to be associated with low equilibrium real interest rates, meaning that monetary policy in advanced economies may again be confronted with the problem of the zero lower bound if adverse growth shocks materialise.”

The developing world is likely to limp on with average growth of just 1.6pc from 2015 to 2020, too little to make a dent on the edifice of public debt left from the Great Recession.

The Fund said global bourses have charged ahead of reality, soaring to new highs despite a 25pc slump in levels of business investment since 2008. There has been a chronic lack of spending on the sorts of equipment and computer software that drive gains in competitiveness. “This development is worrying, because business investment is essential for supporting the economy’s future productive capacity,” it said.

“In some countries, weak business investment has contrasted with the ebullience of stock markets, suggesting a possible disconnect between financial and economic risk taking,” it said.

The great hope is that booming asset prices will trigger a surge of investment, allowing economic fundamentals to catch up with markets. But it is far from certain that this will happen unless governments change policy and launch a blitz of spending on infrastructure and research to unlock frozen capital and set off a virtuous circle.

While the IMF has supported quantitative easing in the past, the implicit message is that this form of stimulus chiefly has the effect of boosting asset prices and has proved a very blunt tool for the real economy, at least in the manner currently conducted. It cannot fully counter the effects of fiscal austerity.

The IMF says Europe and the US began to falter at the turn of the century. Total factor productivity growth – the primary driver of wealth-creation – slid from 0.9pc to 0.5pc even before the collapse of the financial system in 2008.

The emerging world has since succumbed to the same malaise as it runs into structural barriers and exhausts the low-hanging fruit from easy catch-up growth, forcing the IMF to downgrade its global growth forecasts repeatedly since 2011.

Productivity in these countries has almost halved from 4.25pc to 2.25pc since the Lehman Brothers crisis and is likely to fall further as they hit the “technology frontier”, where the middle income trap lies in wait for any that fail to adapt in time. Many need root-and-branch reforms of their product and labour markets, and an assault on excess regulation.

The report almost seemed to describe a spent world where the great leap forward from the computer age and the internet is already over and little more can be squeezed out of universities as the “marginal return to additional education” keeps falling.

Casting a shadow over all else is the demographic crunch. The working-age population will be shrinking at a rate of 0.2pc a year in Germany and Japan by 2020, with Korea close behind, and China following on hard. Almost the whole of Eastern Europe faces an ageing crisis.

Whether the world really is nearing the end of its growth miracle is a hotly disputed theme. Ben Bernanke, the former chairman of the US Federal Reserve, insisted in a recent inaugural blog for the Brookings Institution that the US economy would right itself naturally as so often before.

He reminded pessimists that leading economists fretted about the end of growth in much the same way during the Great Depression. Harvard’s Alvin Hansen – the leading American Keynesian of his age – coined today’s vogue term “secular stagnation” in 1938, arguing even then that population growth was slowing and the big advances in technology were mostly finished.

He lived long enough to witness three decades of spectacular global progress after 1945.

Armed Robbers Steal $8.5 Million of Gold From McEwen Mexico Mine

Bloomberg, April 8, 2015

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Armed robbers walked away with an estimated 7,000 ounces of gold, worth $8.5 million at current prices, from a Canadian-owned mine in western Mexico.

The gold was contained in an estimated 900 kilograms (1,984 pounds) of gold-bearing concentrate, a partially processed form of ore, stolen from the refinery at McEwen Mining Inc.’s El Gallo 1 mine in Mexico’s Sinaloa state on Tuesday, the company said in a statement. While McEwen is insured, its policy won’t be enough to cover the entire expected loss, the Toronto-based miner said.

“The crime is being vigorously investigated by the Mexican authorities,” McEwen Mining said in the statement. “No employees were seriously injured and there was no material damage to any of the company’s facilities.”

 Mining and processing activities weren’t impacted and continue uninterrupted.

This isn’t the first violent incident affecting Canadian mining companies in Mexico this year. Last month, four Goldcorp Inc. workers in the troubled Guerrero state went missingin an apparent kidnapping, while contractors and an employee of Torex Gold Resources in the same region were kidnapped in February.

Source

Dollar Drop Signals World’s Best Forecaster to Start Buying

Bloomberg, Apr 7, 2015

It’s time for investors who bailed on the dollar in the past few weeks to get back in, says the most-accurate currencies forecaster.

The greenback has tumbled 3.6 percent versus the euro since touching a 12-year high last month amid speculation the Federal Reserve will delay raising interest rates — in part because the dollar’s strength is hurting U.S. economic growth. That concern is overblown, according to ING Groep NV, which topped Bloomberg’s rankings of foreign-exchange analysts for the second quarter in a row.

“The market is now pricing in a very subdued pace of the tightening cycle — we disagree,” Petr Krpata, a foreign-exchange strategist at ING in London, said on April 1 by phone. “We just see the latest correction as a perfect opportunity to get into the trade again.”

Even with the recent reversal, the dollar has rallied against all of its major peers since mid-2014 as the Fed’s plans to raise interest rates attracted cash to the U.S., at the same time that central banks from Europe to Japan boosted their stimulus. That momentum halted when Fed officials cut their forecasts for rate increases last month and alluded to the currency’s drag on exports.

Export Effect

ING sees the Fed raising rates this year even after an April 3 report showed the U.S. added the fewest jobs last month since December 2013. That makes buying the dollar versus the euro the best play in currency markets, according to the Amsterdam-based bank, among the first to say the currency pair will achieve parity this year for the first time in more than a decade.

“The stronger dollar doesn’t necessarily have to change the U.S. economic prospect,” said Krpata, who helps compile ING’s forecasts along with London-based head of currency strategy, Chris Turner.

Exports account for only 14 percent of the American economy, according to World Bank data. That’s the least among Group of 10 nations, and compares with 30 percent for Canada, 46 percent for Germany, and over 80 percent for the Netherlands and Belgium.

ING forecasts the dollar, which rallied 0.7 percent to $1.0848 per euro at 8:14 a.m. in New York, will strengthen to parity by mid-year and reach 95 cents by Dec. 31. That’s more bullish than the median year-end estimate of $1.05 in a Bloomberg survey of 69 strategists and economists. It reached $1.0458 on March 16, the strongest since January 2003.

ECB Stimulus

While monetary authorities worldwide have slashed borrowing costs this year to revive growth, an unprecedented bond-purchasing program by the European Central Bank, amplified by negative interest rates, has made the single currency a prime selling target for investors.

ING topped Bloomberg’s rankings of foreign-exchange analysts for the four quarters ended March 31, after also leading the previous period.

The best forecasters in Bloomberg’s rankings were identified by averaging individual scores on margin of error, timing and directional accuracy across 13 currency pairs during the past four quarters.

Banks had to be ranked in at least eight of the pairs to qualify for the overall placing, with 60 succeeding. ING’s score of 60.98 compares with No. 2 Credit Suisse Group AG’s 60.71.

Rally ‘Done’

Saxo Bank A/S took third place, with a score of 60.58, and was the best forecaster for the euro-dollar pair after being the most bullish on the greenback at the beginning of the year.

Now, Saxo strategists say the rally may be exhausted following nine straight months of gains.

“Most of the move is done,” John Hardy, head of foreign-exchange strategy at Saxo Bank in Hellerup, Denmark, said in a April 4 telephone interview. “There could be some more in it, but increasingly it’s going to become a two-way trade.”

Credit Suisse is in ING’s camp and predicts the dollar will reach parity with the euro by the end of this year. The Zurich-based bank sees the Fed raising rates in June even as the job market cools.

“You need to see a lot of more these negative signs before the whole story changes,” Alvise Marino, an emerging-markets currency strategist at Credit Suisse in New York, said in a phone interview. The dollar will climb as “the main trading partners of the U.S. are all easing.”

Source

Gold Canyon – Just how cheap is it?

Gecko Research, Apr 7, 2015

The Importance of a Good Management

Since the bear market for gold started in 2011, we have seen valuations in the gold companies come down significantly. Not only that, we have also witnessed a lot of value completely vanish in the companies themselves, and in many cases, never to return again. The way we see it, the cause of the destruction of value within the companies, is due to two major reasons besides the obvious, the price of gold. The first one is the poor quality of management. The second reason is that the companies’ flagship property never had enough quality to make it in the first place.

Is it really that simple? Of course we are simplifying a bit, but this is the way we see things. We are also of the opinion that just as a bad management can destroy a decent or even good project, a great management can make a so-so property work enough to eventually become a mine.

It makes sense to remind ourselves of what a venture company is supposed to do. They are supposed to be ventures, where a team develops a project using its competencies and then passes on the baton to someone else who has different set of competencies to keep moving it forward. A generative company is not necessarily good at exploring and exploration is a totally different business than being a miner. Therefore, projects might change hands many times before getting into production.

Managements, being human beings, are afraid of losing their jobs. They stay on despite having outlived their use since they are comfortable with a regular salary and life-style. What we do know is that the management of Gold Canyon is not like this, we have found that they really work in the shareholders’ best interest. They will move on when the time comes and handover the project to those who can take it further. We think that time has come.

As a reminder to our readers, management of Gold Canyon has no management contracts with change of control payouts (aka golden parachute payments), a rarity in a business where this is how it should be.

Some Reflections on the Price of GCU

* At the peak almost to the day four years ago, GCU hit its all-time-high around $4.25
* End of July 2014, (~8 months ago) GCU hit 42 cents
* December 9th, 2014, GCU made a low at 9 cents
* Six weeks ago on Feb 26th, we added GCU to our portfolio at 17 cents

When we are writing this article, the price of Gold Canyon is C$0.21 which gives the company a market capitalization of $33 Million. How can one determine if that is cheap or perhaps even expensive? In all honesty, to compare to the >4 dollar share price in 2011 does not make much sense today, but we feel the same when comparing to the low set in December as well and we see a lot of upside in Gold Canyon. Let us point to why.

Making Our Point – How Deficits and Book Value Can Add a Lot of Value

Most investors use a company’s book value and deficit at the end of their analysis work, to assess tax liabilities. Mostly, this is how it should be. Book value and deficit mostly make no sense if a project is uneconomical or is too far from production. But there is an interesting twist that must be considered.

Book value and deficit have values by themselves, independent of the projects. For example, assume what would happen if a profit-making company acquires another company with $100 million in deficit and book value combined and no project of value. If the corporate tax is 35%, such an acquiring company would save $35 million in its tax liabilities. So, it makes sense to look at the balance sheet of companies to see if they have value from a mere tax perspective.

Gold Canyon (GCU) has $74 million of asset value, most of which comes from their Canadian project, Springpole. They also have an accumulated deficit of $42 million. While not all of this deficit can be used for tax purposes, given complex tax regulations, and some might have expired, to us it is clear that between $74 million and $116 million is available to be written off for tax purposes for an acquiring company. As we wrote earlier, our thesis to own Gold Canyon in the first place is for GCU being an obvious take-over target.

At the current share price of $0.21, Gold Canyon’s market capitalization is $33 Million. In our opinion, and in a very interesting way, just the balance sheet of Gold Canyon is worth close to its current market capitalization for a profit-making acquiring company. Of course, as we wrote earlier, Springpole is one of the better and rare big Canadian gold projects available.

A Fair Value

Although, GCU has gone up quite a bit since our first recommendation (when the share price was $0.17), given tax benefits Gold Canyon’s balance sheet offers to an acquiring company, you might still be getting the project for almost no value. We cannot stress enough how strongly we feel that someone should take Gold Canyon out, someone with good mining skills to put Springpole into production. No one can dispute the fact that the current management of Gold Canyon has put the company on a silver platter for the right mining company to take the Springpole project to production.

How much are GCU shares worth then? Well, the numbers we are working on internally is no use to publish here, we would be called fools for sure, that is how high our valuation is on GCU. We recognize that the market is what it is right now, but we do not see why the Springpole project would not be worth ~$200 Million to an acquiring company. Add another $30-40 Million or so in built up deficit and book value combined and a fair price for GCU would arrive at ~$1.25/share. We are not naïve enough to think that will happen in today’s environment but anything less than half of that would seriously disappoint us. And remember, if Gold Canyon would get a “Probe-Mines-valuation” (Goldcorp to buy Probe Mines for $526 million) a bid could be reaching our internal numbers.
That answers our initial question pretty well we think, “Gold Canyon – Just how cheap is it?”.

Previous articles on Gold Canyon:
* Gold Canyon is Heating up – Institutional Buying is Evident
(
http://blog.geckoresearch.com/content/7964, March 6, 2015)
* Ripe for a Take-over – Gold Canyon Resources
(
http://blog.geckoresearch.com/content/7814, February 26, 2015)

Team Gecko Research
www.geckoresearch.com

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We are not investment advisors and what we write is our own view only. Please read our disclaimer

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First Mining Finance: Keith Neumeyer’s letter to shareholders

Gecko Research, Apr 7, 2015

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Keith Neumeyer’s letter to shareholders

“When I started down this path two years ago to start this new company, I didn’t think I would have the challenges I did completing this process and getting this company public.

I’ve raised a lot of money for several public companies over my 31 year career and I have to say that this financing was as difficult as my first company funding back in 1991.

Nevertheless, we got it done & April 6th will be First Mining Finance’s first day of trading. Symbol is FF: TSXV, in case you didn’t know.

I want to thank all of you for your support. I know it’s not easy writing cheques for mining companies right now, but over this process, due to the such negative attitudes I continually heard towards this sector, I’m even more certain that my timing is dead on. Surprisingly, I’ve never seen such negativity for any sector in my career. I think the closest comparison would be the Internet Sector in 2000 – 2002.

Mining went through tough times in the early 90’s (92-95) and again 1998 – 2002, but there was never the hate that exists today.

That’s exactly the opportunity & what I’m so excited about.

Without getting into too many details, we are working on some interesting transactions which meet our acquisition strategy. We hope to have news out relatively soon. I’ve actually set a personal goal to complete three transactions within the first six months of trading – we’ll see how well we do – now that I’ve said that, the pressure is on – but I’m used to that.

So, look for lots of news over the coming 12 – 18 months. Should be exciting.”

First Mining (FF.V), 4.4m shares traded and stock surged 22.5% on day 1

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