Precious Metals

Strikes in South Africa’s gold sector continued to dominate headlines this week as the bullion price gained on hints of monetary stimulus from China and austerity measures in Spain.

Gold crept up more than 1 percent on Thursday, snapping three days of consecutive losses, as the precious metal reacted to events in Europe and China. 

Gains in the bullion price, which hit $1,780 by mid-day, came as Spain announced new measures to cut spending in next year’s budget and raise taxes. Despite the austerity program, there is a feeling that Spain’s program will move the country closer to asking its neighbors for bailout money, and that has led to a bullish move for precious metals including gold.

Bullion’s upward tack was also bolstered by news that China’s central bank “had injected a record amount of cash this week,” Reuters reported, thereby paving the way for additional stimulus measures that would support the price of gold.

Spot gold was up $25.80 to $1,779.50 an ounce at last quote, matching a six and a half month high reached on September 19th. Gold for December delivery also gained on Thursday to $1,780.70 per ounce, up $26.90.

Reuters said the latest round of quantitative easing by the US Federal Reserve, announced earlier this month, is putting bullion “on track to end September with its largest quarterly gain in more than two years, of 11 percent.”

Little impact on gold price from South African strikes

Bullion watchers are eyeing the strikes in South Africa’s gold mining sector carefully for signs that the unrest will make a dent in production large enough to raise the price.

Strikes at platinum miners Lonmin Plc (LSE:LMI) and Anglo American Platinum (OTC Pink:AGPPY) have now spread to gold miners including the world’s third largest gold producer AngloGold Ashanti, forced to shut down its Kopanang mine, and Gold Fields (NYSE:GFI), world number four, which is dealing with work stoppages at its KDC and Beatrix mines.

But according to Kitco’s Alex Letourneau, writing in today’s news edition, the strikes are unlikely to have much impact on gold prices say analysts interviewed. That is because the yellow metal’s price is “being underpinned by other factors” most notably demand.

The article quotes Frank Lesh, a trader at FuturePath Trading:

“Any kind of supply disruption is always going to be supportive for gold prices. On the other hand, the gold market is more about demand than it is about supply and this is really sort of minor in the long term because there is enough gold out there to go around. It’s important, but marginally so.”

Company news

On Tuesday AngloGold Ashanti (NYSE:AU) said it was forced to close all its South African operations after workers at the West Wits and the balance of the Vaal River Region mines joined employees at the Kopanang mine who walked off the job September 20th.  The company’s mines in South Africa employ about 35,000 people and account for about a third of its total gold production.

Chinese company Zhongrun Resources Investment Corp has agreed to pay A$85 million for a 42 percent stake in Australian gold miner Noble Mineral Resources Ltd. Zhongrun is a billion-dollar company with stakes in several Toronto and London-listed mining companies, according to Reuters, which added that Noble said it plans to use the capital to raise production at its Bibiani mine in Ghana to 150,000 gold ounces per year. The stake purchase is the latest in a string of buys of African and Australian gold miners by Chinese companies. These included a $227.5 million investment by major Chinese gold producer Shandong Gold in Focus Minerals (ASX:FML) in return for a 51 percent stake; and a takeover of Norton Gold Fields (ASX:NGF) by Zijin Mining Group.

China also featured in gold news earlier this week with state-run Citic Group and Venezuela agreeing to develop the Las Cristinas gold mine. The mine has been a bone of contention for years, with Crystallex (TSX:KRY) suing Venezula for $3.2 billion over the government’s move in 2007 to withdraw its contract without compensation. It contains 16 million ounces of gold, or 500 tons of the yellow metal, albeit low-grade with an average of 1.13 grams per ton.

Former Goldcorp (NYSE:GG,TSX:G) chair Rob McEwen, who now heads McEwen Mining (NYSE:MUX,TSX:MUX), announced that the company’s El Gallo Phase I project in Mexico has poured its first gold. The mine is forecast to produce 6,000 ounces of gold per year and 5.2 million ounces of silver for combined production of 135,000 ounces of gold and gold equivalent per year.

American gold giant Newmont Mining is culling jobs at its Australasia operations, citing rising costs in relation to gold prices. Newmont said in a statement the job losses will be at four mines and regional headquarters in Australia as well as at Newmont Waihi Gold mine in New Zealand where about 20 staff and contractors will be cut.

Junior company news

Toronto-listed Calvista Gold(TSX:CVZ) saw its stock jump 23 percent on Wednesday on announcing an upgraded resource estimate for its Callejón Blanco and Buenavista prospects in Colombia. A company press release states the deposits host over 450,000 ounces of gold graded 3.49 grams per tonne and over 2 million ounces of silver at 15.77 g/t.

Atacama Pacific Gold (TSXV:ATM) upped the resources at its Cerro Maricunga gold project by 65 percent, the Chile-focused precious metals explorer announced on Wednesday. The mine now hosts 2.667 million measured and indicated ounces graded 0.51 grams per tonne, and another 1.8 million ounces inferred.

“The release of our second resource estimate confirms that the Cerro Maricunga property hosts

one of the largest oxide gold deposits in the world not owned by a gold producer”, said President and CEO Carl Hansen. Atacama has seen its stock rise 35 cents since the announcement, with ATM closing at $3.75 a share on Thursday, a 7.14 percent lift on the day.

Queenston Mining (TSX:QMI) also had positive news to share, with a doubling of gold resources at its Upper Beaver project in northeastern Ontario, Canada. Indicated gold now stands at 1.46 million ounces and 56 million pounds of copper, which translates to an increase of 123 percent and 48 percent respectively. An additional 0.71 million ounces of gold and 32 million pounds of copper are in the inferred category.


Securities Disclosure: I, Andrew Topf, hold an equity position in Goldcorp. 


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