Precious Metals

Gold prices contracted for the biggest one-day decline this month after the Federal Reserve failed to commit to more aggressive monetary stimulus. Prices declined about 3.4 percent over the week, with spot market gold prices trading in the range of $1,566.60 per troy ounce.

Gold prices contracted for the biggest one-day decline this month after the Federal Reserve disappointed expectations of more aggressive monetary stimulus. On Wednesday, Operation Twist was expanded, enabling the Fed to sell short-term debt securities in order to buy longer-term ones, reducing long-term borrowing costs by $267 billion. Originally scheduled to expire at the end of June, the program is now projected to run until the end of the year.

The markets had been anticipating further monetary easing to maintain pressure on long-term interest rates and thereby keep the opportunity cost of holding gold relatively low. Increased monetary easing would also enhance demand for gold as an alternative asset class to store value by placing downside pressure on the dollar.

Prices declined about 3.4 percent over the week, with spot market gold prices trading in the range of $1,566.60 per troy ounce.

Company news

Yamana Gold (TSX:YRI,LSE:YAU,NYSE:AUY) announced that it will pay $395 million for Extorre Gold Mines (TSX:XG,AMEX:XG), the owner of a gold and silver property in Argentina that has run into developmental challenges. At the equivalent of $4.26 per share, Yamana’s bid was a 54 percent premium to Extorre’s average share price over the last 20 days and 18 percent higher than the 60-day average.

As recently as March, Extorre shares were trading in the range of $7.81, just before the expropriation of the partly nationalized energy company YPF from Spain’s Repsol by Argentina’s current president, Cristina Fernández de Kirchner.

Yamana Gold has operational exposure to projects and mines in South American countries including Chile, Brazil, Colombia, and Argentina. The company operates an open-pit gold mine in Northern Argentina called Gualcamayo. Yamana also announced an 18 percent increase in its annual dividend as it and other gold companies compete to attract investment interest.

San Gold (TSX:SGR,OTCQX:SGRCF) is increasing its exposure to Ontario gold properties by entering into an agreement to buy three mineral properties from exploration junior Opawica Explorations (TSXV:OPW) for about 10 million shares. The properties are the Whitesides-Carscallen property and the Golden property, both located in the West Timmins gold camp, as well as the Atikwa Lake gold property, located in the Rainy River gold district of Northwest Ontario. The transaction is expected to close by the end of August. San Gold also owns and operates the Hinge, 007, and Rice Lake mines near Bissett, Manitoba.

Mining trends emerge

These merger and acquisitions provide two key insights for investors on current trends in the mining industry. The first observation is that well-capitalized companies with a projected positive cash flow can obtain attractive strategic resources at a time when junior exploration and development companies are having financing challenges due to weakening commodity markets.  The second highlight is that some companies are looking for concentration of exposure in relatively lower-risk jurisdictions, while other top producers may see greater opportunities in areas that might be considered of higher geopolitical risk.

These observations enable companies currently operating in certain jurisdictions to potentially place a very different risk premium or discount on the value of the resource compared to the market. While politics and commodity prices can be volatile over the short term, critical considerations such as size and grade of the resource do not change.

Junior company news

Grande Portage Resources (TSXV:GPG) commenced drilling at the Herbert Glacier gold discovery in Alaska.

Teryl Resources (TSXV:TRC,OTCBB:TRYLF) will commence gold exploration work programs this month on its Westridge Claims in Fairbanks, Alaska.

Orsa Ventures (TSXV:ORN) completed a geophysical survey at its Ashby property. Data from the survey indicates a large porphyry copper-gold system. The company also has an option agreement with Bridgeport Ventures to earn up to 51 percent interest in the property.


Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.



S&P 5003979.56+49.48


Heating Oil3.76+0.02
Natural Gas7.67-0.07