The Yield Picture

Any gold mining investor at this stage of the game would be looking at yield. Gold companies with the lowest grades and largest inferred deposits have been able to raise cash very easily for some reason, while higher grade deposits are unable to tap the same excitement in the gold markets.

With a higher gold price, the yield picture should be the focus of investing in gold mines. Further developments in sovereign debt is the strongest indicator of just how the yield picture looks very bright for gold mines, especially those mines with higher grades. A flattened yield curve and possibly negative interest rates or currency adjustments all play into the yield picture.

For GBN.V, it means a cost base that is likely to remain far below the yield on an ounce of gold.

While investors may be disappointed in having to wait for a tailings impoundment license until next year, the company can produce at minimum 45k oz. per year until that time. There is nothing unusual in the process here, and if you read in the Canada Gazette, the Mt. Milligan project for Terrane Metals(a Goldcorp offshoot) is just getting its day in parliament prior to the summer recess.

In the meantime, the yield picture stands to improve substantially. Should gold prices achieve their 40-year inflation adjusted average price of ~$1673U.S. per oz., this makes up greatly for a small beginning, as the mine would be profitable at ~$600/oz. U.S.

The yield picture here is the most salient factor going forwards.

You don't need to go very far to get a close comparison:

http://www.clauderesources.com/mining/index.html

Slope Of Hope

Tim Knight had been analyzing the GDX gold mining etf and betting on a decline. The technicals aren't great on the chart, and you could say that shorting GDX might have been appropriate. The fundamentals of the gold markets would suggest that shorting the gold miners is a bad idea:

http://slopeofhope.com/2010/06/dead-wrong-on-miners.html

As you can see, GDX would have to move against gold, that means a strong advance for the miners:

supersize: http://www.flickr.com/photos/11747277@N07/4721097522/sizes/l/

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The Timing Of The DFO Decision

Looking at the timing of the DFO decision, it comes when there is a brief reprieve on the yields of the discount rate, and the news release by the company of June 15 does the same. After delving into company business for an extended period and going through an environmental review, the decision by the DFO is laughable to say the least. The appropriate response for the DFO decision and the conclusion they arrived at would have been: 'Well, DUH!!!'

What I find even more astonishing is how few people actually got involved and wrote the DFO out of concern.

Possibly the discount rate will have to fill gaps on the way down before going lower, but the float of the Chinese Yuan is intended to allow some breathing room to prevent a further decline in yields. The Chinese are DEFINITELY NOT interested in seeing negative yields on short term treasuries of any sort, but may not be able to avoid negative libor. So floating the Yuan is the answer, as it will take off the downward downward pressure on yields in the U.S.

A collapse of yields on the discount rate or on short term treasuries or perhaps even negative yields will effect the devaluation of currencies against gold.

Its only a matter of time before the markets get it.

supersize: http://www.flickr.com/photos/11747277@N07/4721066766/sizes/l/

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Robust Volume Days

Days of robust volume in GBN.V shares come on declines in the discount rate in the U.S. below the grey dotted line or usually follow yield decline. The discount rate is in blue as an overlay on the GBN.V share price. I remain optimistic we'll see further robust volume days to come:

supersize: http://www.flickr.com/photos/11747277@N07/4721109956/sizes/l/

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-F6