Monthly Gold Chart

One of the things that keeps providing returns is the gold price advance. Higher average gold prices are the primary fundamental impacting on profitability in the gold mining sector. A secondary fundamental would be the decline of interest rates below inflation and chronically low interest rates.

On the eve of options expiry, Japan announced a lower policy rate. Canada announced no change on their policy rate, but short term treasuries have been below the policy rate by about 20 basis points for weeks, they will be obliged to lower the policy rate eventually. Very highly likely that the policy rate for treasuries must be cut drastically in the ensuing weeks in the Eurozone.

The fundamental most ignored is the short term treasury rate. This can result in negative nominal rates, as it had during the depression, though likely this would put downward pressure on equity prices. Though gold was confiscated four years before, and the dollar devalued along with it, this did not prevent from negative nominal interest rates during the depression.

We have recovered the breakout from the 12-year price trend:

supersize: http://www.flickr.com/photos/11747277@N07/6288356843/sizes/l/in/photostream/

stockcharts.com

GBN vs. Gold

One chart that lends credence to the idea that the stock is trading ~1P/E of forward earnings, is the GBN.V vs. Gold chart. If this chart is to be believed, then its saying that a 10X ROI is entirely possible should the share price in GBN obtain its previous levels vs. gold as it had in 1994 and 1996.

One very confusing aspect now is that we are closing on November, when anyone arbitraging in the share prices of gold mining stocks will be obliged to settle their accounts. It was a given that this occurred last year, the gold price is so much higher than before, yet no share price movement. The sole gold mining stock that stood out is Newmont, which announced a gold price-based dividend, declaring that the company had broken with the past.

There have been years where this did NOT occur, where low share prices persisted indefinitely.

stockcharts.com

Q1 Fiscal 2012

The Q1 Fiscal 2012 is the most anxiety producing report ever, since it was long overdue. There are a number of things to be taken away from this report, even though some very crucial information is still not forthcoming, such as grades and tonnages during Q2.

The amount that the company invested in properties in the La Ronge gold belt was not made available to the shareholders. Should the company not have made these investments and paid Sprott according to its payment schedule, then there would have been funds available to satisfy paying a dividend in the amount of 1/2¢ per share per month. (using the outstanding shares, not the fully diluted.) This same investment expense and the Sprott loan are no longer impacting the bottom line for Q2.

Now that the company is sitting on substantially all of the available prospective ground in the La Ronge gold belt, they have a perceived development deficit. I think the way the company is managed, they will see tackling this in haste as a priority, rather than paying dividends. They can very easily lose control of the project that they've spent a lifetime building in a hostile takeover because of the low share price, however.

The company is half-owned by smaller shareholders and a couple of large holdings by an insider and Sprott. These people are seeking a return on their investment and, its safe to assume, have a shorter time horizon than their own lifespan. But let's say the company sees the light and pays dividends that outcompete the rest of the gold mining sector. (1/3 operations and development -1/3 stockpiling doré bars and gub'mint, 1/3 dividends)

These small shareholders will take their investment and place it all in their RRSPs or self-directed accounts and re-invest the dividends over the long term.

The company would be better off not taking on gimmicky loan agreements with Sprott that do not ultimately benefit the shareholders, penalizes them and enriches Sprott. The only way paying anyone in doré can be a benefit is first to stockpile, then send them to the mint for refining before tallying them at the Central Bank, whereupon the tax bureau will consider taxes paid.

For Q2, the company stated that they produced ~4500oz. in August. The mill was under-utilized during July, so by now they should be turning over ~500tpd with the addition of Alimak zone ore. The company could very well have produced ~13500oz. at the end of this week with an average realized price of ~$1750/oz.

So the company can pay 1¢ per share per month dividend out of cash flow(or 3¢ per share for Q2), while showing a profit, paying all expenses and not impairing the development of the project in the least.

BNN.CA

Don Coxe discusses the markets on BNN.ca, eventually making the point that the Eurozone wil resort to dialing down policy interest rates. Note that Japan has lowered this last week. The pullback in gold will happen eventually, but for the moment, interest rates are the salient factor behind the gold price.

http://watch.bnn.ca/#clip557114

http://watch.bnn.ca/#clip557116

Newmont

"Ever since introducing a price-linked dividend policy back in the spring, Newmont Mining Corp. has been a market darling and has outperformed its rival senior gold producers. The positive sentiment continued this week as another analyst initiated coverage with a favourable report.

TD Securities analyst Greg Barnes rated Newmont a buy with a price target of US$85 a share. He made it very clear why he is finally picking up coverage of the stock: with a gold-linked dividend and a major production growth plan in place, Newmont is a far more exciting story than it was a few years ago.

“Newmont has made a clear break from a past characterized by flat production and declining reserves,” Mr. Barnes wrote."

http://business.financialpost.com/2011/10/26/newmonts-clear-break-from-the-past/

All Is Not Black

Just below the following link, you have the title: 'All Is Not Black' which describes an article from Forbes detailing the savings of Americans. If Canadians are in any way the same, they will likely be savers in the same proportion with the advantage of having so many gold prospects to invest in. This is where the opportunity lies for GBN.V, that Canadians will likely want to invest in a dividend paying property and put their shares in their tax shelter:

http://www.nowandfutures.com/forecast.html#recession

Gold Forecast

Gold prices have risen during declines of interest rates below inflation, or negative real interest rates. The following charts show how this is true:

http://www.nowandfutures.com/forecast.html#predict_gold