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Kinross Gold Corp., Canarc Resource Corp., Endeavour Silver Corp. and Pan American Silver Corp. Share Market Perspectives
By Jennifer Lee February, 2006
There's no doubt about it, gold and silver are on the rise. Gold futures were sitting at a 25 year high by mid January of this year, with current rates resting at around 553.80 an ounce. Silver is not too far behind this hurdle, reaching a 22 year high at the end of this month, now up to $9.44 an ounce, with talk of it reaching the $10.00 mark in the none too distant future.
2005 was a momentous year for the metals, as currencies fluctuated and gold once again proved itself to be the renowned safe haven that it is, when investors are looking for a stable place to park their money.
In a recent interview with Business Week, James Turk, co-author of the book, "The Coming Collapse of the Dollar and How to Profit From It: Make a Fortune by Investing in Gold and Other Hard Assets," offered some insight to readers, when asked the question of who is interested in buying gold these days. He reported that, "the most significant buyers over the past few years have been individuals. Gold goes to where the wealth is being created. So for example, the European central banks have been disgorging gold from their vaults, and that gold is going to China and India because that's where new wealth is being created. Gold is also going to the Middle East with the rise in energy prices."
The global repositioning of wealth is an important feature when analyzing just why gold is moving in the direction that it is, especially when we are talking about responding to threats of terrorism and international security. Kazuhike Saito, a commodity analyst with Interest Capital Management based in Tokyo recently told Bloomberg reporters that the impending threat of further terrorist attacks "are definitely supporting prices." This is an undeniable aspect of a market response to global political uncertainty. Taking a look at how companies are repositioning themselves to meet the demand, Tracey Thom, Director of Investor Relations and Corporate Communications at Kinross Gold Corp. (NYSE:KGC;TSX:K) commented that, "with the weakening US dollar, it seems like gold prices are further strengthened and maintained at this level." When asked what her predictions were for 2006, Ms. Thom stated, "with the continued weakness in the US dollar, we could see gold continue to rise through the year." In terms of why we saw gold rise to such great heights, she told InvestorIdeas that, "a lot of what happened in 2005 was influenced by the demand increasing by about 5%, where supply was decreasing on a global basis. Demand is out-tracking supply at this point." Thom furthered, "people tend to go back to gold vs. currencies when currencies start to fluctuate the way they have."
Brenda Radies, Vice President of Corporate Relations for Pan American Silver Corp. (TSX:PAA; NASDAQ:PAAS) stated that, "silver and gold tend to trade in tandem, but not always. Because 40% of silver is based on industrial fabrication, silver sometimes follows the base metals. Having said that, both silver and gold are likely to be affected by the US dollar over the next year. We think silver has more price growth potential than gold at this point because the supply and demand fundamentals are better for silver than for gold. In 2005 silver rose 30% while gold rose 18% and we expect to see this outperformance continue."
However, a shift in focus towards junior mining companies could be what we are looking at next and as Brad Cooke, Chairman and Chief Executive Officer of Canarc Resource Corp. (TSX:CCM;OTCBB:CRCUF) states, "when the metals move, institutional investors invest first in the major producers but once that market becomes saturated, then they look to junior exploration companies." Canarc, whose major shareholders include Barrick Gold Corp. (NYSE:ABX, TSX), has seen its share price start to rise in recent months as a result of such investor interest.
As of January 1st, 2006 Jack McClintock, former global Exploration Manager of BHP Billiton became President and Chief Operating Officer of Canarc. Mr. Cooke furthered that the development of Canarc's principal gold project "gives us a platform upon which to build a mid-tier gold producer over the next three years."
With final regulatory approval of the merger between Barrick Gold Corp. (NYSE:ABX, TSX) and Placer Dome (NYSE:PDG, TSX) coming through on January 12th, 2006, Canada is now home to the world's largest gold mining company. The impact of this agreement on the Canadian gold mining market in general is greatly tied to this deal and as Tracey Thom tells Investor Ideas, with three joint ventures in place with Placer Dome, "Gold Corp will soon take (these) on, when Barrick takes complete control of Placer Dome. Gold Corp will offer approximately $1.4 billion for those assets."
On the side of silver, when asked the all encompassing question of whether he saw silver moving this year, Hugh Clarke of Endeavour Silver Corp. (TSX:EDR; TSX:EDR; FSE:EJD; EDRGF:PNK) stated that, "Firstly, silver is a small, illiquid volatile market and historically has been a follower, not a leader. It follows gold but will, from time to time, move on its own. At this moment, we may be in the early stages of this kind of independent price movement."
Clarke furthered, "I do believe the US dollar will resume its long term devaluation which will probably only add fuel to the appreciating prices of both gold and silver." When asked for his view on whether he thought silver will become an Exchange Traded Fund, Clarke responded, "I think its going ahead. It would appear that in the next few months this may become a reality."
In terms of concluding whether or not the global supply of silver could ever meet global demand, Clarke furthered, "The short answer is no. For decades, silver demand has outstripped silver supply in the order of 100-200 million oz. per year. The main source to cover this deficit has come from government inventories. The primary source of silver (72%) comes from mines while the balance (28%) comes from scrap/re-cycling and government supplies. It should be noted that unlike gold/platinum/palladium, the vast majority of silver used in industry is consumed, not re-cycled...never to be seen again. As recently as 1990, visible government supplies were in excess of 2 billion oz. while current estimates put this number at only 200 million oz. The cupboard is bare."
If this is the case, the focus should be shifting back towards junior mining and exploration firms, if Barclays Bank is to stockpile the proposed 130 million ounces of silver, required if silver is to become an ETF.
Jon Nadler, Investment Products Analyst with Kitco Bullion Dealers and regular contributor to MarketWatch, recently gave an interview with Investor Ideas, offering his insight on gold and silver, as they presently stand. When asked where he currently sees silver in relation to gold at present, Jon replied that, "during bull market periods in precious metals, it usually takes fewer and fewer ounces of silver to purchase an ounce of gold. Generally, in such periods, the price performance of silver outshines that of gold (in the 1980 bull market silver's performance was three times better than that of gold). We expect great feats from silver in coming months and years." However he did offer as a reminder that in addition to this, silver's "fate is inexorably tied to copper production, as well as a continuing strong demand from Asian countries."
Offering some comment on what is helping to contribute towards gold's current demand, Mr. Nadler explained, "Underlying these basic market-shaping numbers is a rise in global political tensions (Iran comes to mind), a developing 'house-of-cards' scenario in US real-estate prices, and the growing triple threat created by the government, trade, and consumer deficits in the USA." All of this in addition to a basic supply and demand imbalance, have many experts agreeing that the increase in the demand for gold, comes from a series of commonly agreed upon causes.
Mr. Nadler offered the final comment that, "as the quest for preserving capital takes precedence over the evermore elusive quest for "sure-fire" double-digit gains in the 'conventional' investment asset classes - gold appears to be the vehicle of preference for this journey."
But with increasing speculation over whether silver will become an Exchange Traded Fund (ETF), everyone is waiting to see what the outcome will be once the Securities Exchange Commission has finished reviewing the matter. If silver were to begin trading as an Exchange Traded Fund (ETF), this movement could trigger an increase in the price, if it is approved.
However, if this were to occur, some analysts are saying that during the anticipatory period the price is expected to build but once the ETF hits the markets, the price could begin to show signs of a retreat after achieving gains.
Jennifer Lee Jennifer Lee has a degree in English Literature from the University of British Columbia. She holds a publishing certificate from Simon Fraser University and has worked at both Vancouver and Western Living magazines, where she began her career as an editorial intern. She has worked as an editor in countries such as Zimbabwe and South Africa, producing books, newsletters and editing various quarterly magazines on a variety of international development related topics. In South Africa, she worked to help produce a bi-weekly newsletter for the Institute for Security Studies on crime and corruption headlines which appeared in all national and provincial papers. Prior to working in southern Africa, she wrote articles for DMR Consulting Group, on mergers and acquisitions taking place in the market during 2001. She now produces a quarterly publication at the University of British Columbia.
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©Copyright InvestorIdeas 2006
About the author:
Jennifer Lee has a degree in English Literature from the University of British Columbia. She holds a publishing certificate from Simon Fraser University and has worked at both Vancouver and Western Living magazines, where she began her career as an editorial intern. She now produces a quarterly publication at the University of British Columbia.
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