Monthly Digger - May 2010

[Gold Majestic]

http://finance.yahoo.com/news/Chesapeake-Announces-Positive-iw-3191897601.html?x=0&.v=1

 

The PEA indicates a large tonnage open pit mining operation using conventional mining and milling methods to produce a sulphide concentrate followed by pressure oxidation to be feasible using current and projected future economic conditions. Highlights of the PEA using base case prices of $900 per ounce gold, $14 per ounce silver and $1.00 per pound zinc are as follows. All costs are quoted in US dollars and reference to "gold equivalent" refers to gold plus the gold equivalent of silver only, at gold to silver ratio of 1:64.3.

 

- Base case ultimate pit mining 852 million tonnes of ore containing 17.4 million ounces gold, 463 million ounces silver and 3 billion lbs of zinc with a life of mine (LOM) strip ratio of 1.75 to 1

 

- 27 year LOM production at 90,000 tonnes per day of ore throughput

 

- Annual average gold equivalent production during the first seven years of full operation averages 963,200 ounces at a direct cash cost of $326 per ounce excluding zinc credits, $267 per ounce including zinc credits

 

- LOM average annual gold equivalent production of 772,700 ounces at a direct cash cost of $419 per ounce excluding zinc credits, $366 per ounce including zinc credits

 

- Estimated initial capital cost of $3.19 billion including $493 million in contingency costs and working capital

 

- Unleveraged pre-tax internal rate of return ("IRR") of 13.0% and a net present value ("NPV") of $1.2 billion at an 8% discount rate, including zinc recovery

 

- Payback period of 5.7 years and an undiscounted cumulative LOM net cash flow of $11.0 billion, on a pre-tax basis and including zinc recovery.

 

The PEA is based upon a new NI 43-101 compliant in-pit mineral resource estimate by Independent Mining Consultants of Tucson, Arizona ("IMC") at a gold price of $900 per ounce and a cut-off grade of 0.40 g/t gold equivalent......

 

.......After two years of comprehensive work, management is very pleased with the results of the PEA. As a result, the Company plans to rapidly advance Metates towards pre-feasibility which is estimated to cost about $3.0 million and take approximately 12-15 months to complete. Chesapeake believes the project economics can be improved by further work and trade-off studies investigating alternative zinc recovery methods, access road alignments and independent power sources. Excellent potential exists to expand the current gold resource at Metates as the deposit remains open along trend in both strike directions. As such, a significant tonnage of material within the existing pit design that has not been drill-tested is presently classed as waste rock.

 

Chesapeake currently has 38,309,797 shares outstanding and approximately C$12.0 million in cash and liquid investments.

 

Thanks for posting that Chiefy. I've been out of the loop, and it's the excellent news I've correctly anticipated here for Chesapeake Gold. My take on the announcement may over lap a bit, but suffice to say, the study is very positive and supports continuation of development.

 

Chesapeake plans to rapidly advance Metates toward prefeasibility.

 

I continue to believe as discussed here before that a price of $30 plus is a valid price target as long as Gold prices remain steady. Higher gold prices will of course lead to a much higher price for this highly leveraged investment. And of course I continue to expect an eventual takeover of Chesapeake Gold (much like many of the others I've recommended here that were eventually taken over) by a senior. In the short term, the Gold price will be an important influence on CKG stock price.

[Gold Majestic]

On China:

 

China’s Shanghai Comp fell over a percent to a new 7-month low.

 

Whenever Chinese stocks go down, people like to assume the Chinese economy is imploding. That simply isn’t the case.

 

After peaking in 4th Qtr '07, China’s Shanghai Comp (made up mostly of exporters) hit a low in 4th Qtr '08 and hit another lower high in July of '09. Chinese GDP didn’t fall below 10% until the second half of '08, when demand from the rest of the world collapsed as the financial system imploded.

 

Fast forward to the present, and we can see that China’s economy is the strongest major economy on the planet. Demand is firm for Chinese goods both internally and overseas. Demand is so firm in fact that the PBOC is worried about overheating, a property bubble, and inflation (the latter two are also in large part due to the Yuan’s peg to the Dollar).

 

So why have Chinese stocks been in a downtrend ever since mid-'09 despite the rest of the world’s equity markets hitting new 52-week highs as recent as a couple weeks ago? Chinese investors expect an eventual revaluation of the Yuan, which would be a negative for the profitability of the exporters that dominate the Shanghai Comp. Additionally, the increase in the stamp tax several months ago also clearly hurt China’s equity market. Given all the buzz about China revaluing sometime over the next several months, it makes sense the Chinese have been sellers of Chinese stocks.

 

But let's not forget to connect the dots here. Should China’s domestic economy remain strong, one would expect demand for basic materials and commodities to also remain strong, especially after a revaluation of the Yuan when those materials become cheaper for Chinese consumers to buy. And since those basic materials have to be shipped on dry bulk carriers, the strength in the Baltic Dry Index (which isn’t affected by investor opinions) appears to confirm that not only is China’s economy not collapsing, but demand may actually be increasing at the moment. Anyone still wondering why the PBOC keeps taking the baby step of hiking reserve requirements?

 

Eventually, the PBOC will have to revalue the Yuan if it is serious about controlling inflation. The only question is when.

[Gold Majestic]

On European matters:

 

The European major equity indices were down 2 to 3% after Greek bond spreads and spreads of the other PIIGS began to blow out again. The slide in PIIGS sovereign debt also weighed on the Euro once again and sunk it to a fresh new 52-week low against the US Peso.

 

Is it that investors don't believe the Germans (which have an election this weekend) will ultimately fork over their portion of the bailout funds, and with contagion spreading quickly to the other PIIGS, it might not even matter if they did anyway? Basically, we’re now waiting on the ECB to pull out all the stops to begin some variety of a QE program, given that the EU seems unwilling to let Greece and the other PIIGS default or be kicked to the curb from the EU. A QE program much like the Fed’s MBS, Agency debt, and Treasury monetization program back in '09, where the ECB will commit to monetizing EU member nation debt on a weekly basis, with a specific commitment to buy PIIGS debt or launder it like Greece’s as well. When such an announcement comes, Gold should explode in all currencies.

 

Of course, contrary to what the misinformed TA groupies continue to believe, Gold in the rest of the world’s paper fiat is not only higher across the board hitting new all-time highs in Euros, Pounds, and Yen, it has also notably made new highs for the year in CAD and AUD as well.

 

Yes, Gold continues ignoring all the various currency gyrations and becoming the safe-haven asset that it always has been. Even with today’s across the board selling, the metal didn’t come in much, and it’s only a matter of time before the ECB is forced to panic and introduce its own version of QE. I suspect the ECB may also extend its Greek debt laundering program to the other PIIGS as well.

 

Given that the sovereign debt issues of the PIIGS continue to spiral out of control overshadowing the more serious US sovereign debt problems, it seems pretty clear that an ECB monetization program is really the only choice that the EU has if the EU is to remain a viable entity at this point. And on the announcement of that monetization program, the Euro is probably going to rally, but Gold will rally even more and finally accelerate up to new all-time highs in Dollars, where it already is in Euros, Yen, and Pounds.

 

The first part of this recognition is simply the end of the market’s focus on the EU and an end to the Euro’s crash. With the markets becoming more and more panicky every day, the focus on the EU has to climax soon. Due to the debt levels of the PIIGS, it’s “Default or Debase” for the EU region just like it is for the US.

 

Sooner than later, Gold will rally in anticipation of the ECB’s panic. If a $140 Billion bailout package for Greece didn’t temporarily calm the markets, then it will be rough sledding going forward. And leaves the only option for the ECB, running its printing presses.

 

Today's intraday recovery in the Gold equities was certainly encouraging, but Gold needs to rally here. Given the problems in Europe, perhaps rational minds will prevail.

[oryx]

Thanks for posting that Chiefy. I've been out of the loop, and it's the excellent news I've correctly anticipated here for Chesapeake Gold. My take on the announcement may over lap a bit, but suffice to say, the study is very positive and supports continuation of development.

 

Chesapeake plans to rapidly advance Metates toward prefeasibility which is estimated to cost about $3-million and take approximately 12 to 15 months to complete.

 

The study includes an update of the resources which now total 17.2 Million ozs of Gold and 467 Million ozs of Silver for 24.4 Million ozs of Gold Equivalent, plus 3.4 Billion pounds of Zinc. The deposit remains open along the trend which suggest that the resource will expand further.

 

The study indicates a throughput of 90,000 tonnes per yer producing 963,200 ozs of Gold Equivalent and 128 Million pounds of Zinc per year for the first 8 years of operation (772,700 ozs of Gold Equivalent and 90 Million pounds of Zinc per year on average over the 27 years life of mine).

 

The all-in capital costs are at $3.9 Billion or an attractive $160 per oz of Gold Equivalent. For the first 8 years of the project, cash operating costs per oz of Gold Equivalent are estimated at $326 / oz without any Zinc contribution and $267 / oz including all Zinc credits.

 

The lower costs in the initial years are due to the existence of a higher grade starter pit with a very low strip ratio of 0.83 tonne of waste per tonne of ore. So the all-in cost per oz will be at a very low $427 per oz (CapEx and cash operating).

 

Using US $810 / oz of Gold and $14 / oz Silver which are the current long term 5-year average prices, the pre-tax internal rate of return is slightly above 10% which is good for a 27 years life of mine project. It is usually very hard to get much higher than that for a project that last a quarter of a century and possibly more. This lower IRR is due to the discounting mecanism that gives little value to the Gold that is produced in distant years. Since the long term Gold and Silver price will continue to climb, it makes more sense to use the higher IRR at $1,000 per oz Gold which is closer to 16% pre-tax.

 

The net present value of the project discounted at 5% is a whopping US$2.5 Billion or over 6 times the current market value of Cheaspeake Gold. Over the life of mine of the project, net cash flow should be more than $13 Billion at US$1,000 gold.

 

In the "How's it working out for you?" category, clearly anyone who took advantage of the mindless and clueless TA selling is sitting on a very long term winner.

 

I continue to believe as discussed here before that a price of $30 plus is a valid price target as long as Gold prices remain steady. Higher gold prices will of course lead to a much higher price for this highly leveraged investment. And of course I continue to expect an eventual takeover of Chesapeake Gold (much like many of the others I've recommended here that were eventually taken over) by a senior. In the short term, the Gold price will be an important influence on CKG stock price.

 

 

Nice summary GM. Byron Capital put out quite a good note on CKG, that made the same points.

[dharma]

http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html?ref=global

this is a graphic representation of european debt-mind boggling

 

do your own dd, investing in juniors is treacherous

Fire River Gold Announces 3.7 Opt (128 G/T) Gold Over 16.7 Ft (5.1 M), Nixon Fork Gold Mine, Alaska

 

* 3.7 opt (128 g/t) gold over 16.7 ft (5.1 m) in hole N07U048

o including 6.7 opt (231 g/t) gold over 1.6 ft (0.5 m)

o including 7.7 opt (264 g/t) gold over 4.9 ft (1.5 m)

* 2.2 opt (77 g/t) gold over 4.6 ft (1.4 m) in hole N07U047

* Results pending for 76 additional underground holes

* Results pending for 7 additional surface holes

i bought some, looks promising

 

xau/hui hourly divergences

i am looking for a bottom here. i have cycles coming in the 6th-10th for a bottom.

1168support

1183 has good resistance

dharma

1153 support

 

jim rickards interview on cnbs- gold to 5k

http://www.zerohedge.com/article/jim-rickards-tells-cnbcs-joe-kernen-gold-going-5000

[Gold Majestic]

Nice summary GM. Byron Capital put out quite a good note on CKG, that made the same points.

 

Thanks for that. I just read where Byron Capital has a "short-term" target of C$15.00. (Very, very low in my opinion.)

 

Imagine when Gold hits $1,400 and much higher . . .

 

Although somewhat late to the party (Sept '09), John Kaisure of www.kaiserbottomfish.com fame has done his homework and chosen Chesapeake as his #2 Best Pick with a more reasonable (conservative) $20-$30 target.

 

Where To Stash Your Cash

John Kaiser

Ounces in the Ground, Part ll; Six rankings on six projects help you decide

http://www.miningmarkets.ca/issues/story.aspx?aid=1000343990&type=Print%20Archives

 

And Chesapeake Gold now among the top 10 holdings of US Global Investors fund.

http://www.usfunds.com/our-funds/our-mutual-funds/world-precious-minerals-fund/composition/

[Gold Majestic]

ECB Must Resist Quantitative-Easing Siren Call

http://online.wsj.com/article/SB10001424052748703866704575224570772586324.html

 

See, I told you the Wall Street Journal reads CapitalStool.com!

They just picked up on the commentary posted here yesterday.

 

What’s somewhat hilarious is that the article’s authors thinks any QE by the ECB would be a disaster for the Euro, but have absolutely no problem with "Chopper Ben" already having done it.

 

In fact, the Barley and Nixon duo say the QE by the US is “different” because it was done in the name of fighting “deflation.”

 

And that unlike the U.S. Fed's and Bank of England's quantitative-easing programs (which were presented as "monetary-policy operations" designed to ward off deflation) any ECB step down this path would be an unambiguous exercise in debt monetization.

 

Well, sorry WSJ, but there is absolutely NO DIFFERENCE between the ECB monetizing and the Fed monetizing. NONE. Printing money is printing money, period.

 

But if you have ever wondered why Gold is not already at $2,000 US Pesos, your wonderment would be replaced with recognition as to why. That articles like WSJ's duo above mirror the market consensus herd’s state of ignorance. Evidently, it takes much time and patience to change deeply held and prized ignorant opinions, especially when the hoard doesn't believe in or have the capacity for understanding basic fundamental precepts. Ignorance is bliss as they say. And despite all the consistent facts and evidence to the contrary, the omnipotence of the Fed and the preeminence of the US Dollar are still deeply held views by the herd.

 

Yes, that will change in time, just as it did for equities and housing, which up until the last several years were believed by most to only go “up." Or more recently in Oct '08 when it was "the end of the world" as the hoard was selling at the bottom, and no one it seemed could fathom a dramatic rally in Oil, Gold, the equity markets based on all the fundamentals for such.

 

But for now, Gold still remains forced to do battle with this kind of "heads in the hole" psychology every day. It will change . . .

[Gold Majestic]

Contarian Indicator Department:

 

It doesn't get any better than this. Just a little while ago this morning, Hee Haw said that they've been getting emails and phone calls asking if/how one could short the Euro.

[dharma]

good to have you back gm

dharma

[Charmin]

Despite the recent pullback in world markets - it seems like some of the gold stocks are tightly held. Maybe Bearvest can answer this question - does he see the GDX pulling back to the uptrend area around 46?

 

http://www.StockSharePublishing.com/ChartLib/GDX_05_05_21_48_1273110524.png

[Gold Majestic]

good to have you back gm

dharma

 

Thank you for the welcome back, dharma. My wife and I had an enjoyable time putzin around the Western parts of the country.

[Gold Majestic]

Well I guess for tomorrow it's "All Eyes On The ECB" for the obvious reasons. Got Gold?

[Surfer Dood Doo]

hi gm nice your back. gave u a welcome back at your site already. havnt been following since you left so i missed whats going on in ECB? what does that (all eyes on the ecb) do with gold? i know the euro been getting smashed and you explained gold stocks mining euros and all. but i take it as good for gold tomorow? tnx much chuck

[Gold Majestic]

Hey Chuck. Thanks for the welcome back.

 

I too am attempting to get caught up on current market fundamentals myself as I've been blissfully out of touch traveling around for a few weeks.

 

As for your question, "whats going on in ECB?" Well as you know, the ECB is the European Central Bank in Germany led by its President Trichet that administers the monetary policy for the 16 European Union members in the Eurozone. It's the equivalent of the Federal Reserve Bank headed up by Chairman Benny Bernanke aka "Chopper Ben" that administers monetary policy in the US.

 

"All Eyes on the ECB" is like saying "All Eyes on the Fed" when they're about to announce monetary policy at their various FOMC meeting dates. They (Chopper & Company) have been (very predictably) talking tough and then cooing like doves each time as they're bedded down in Hotel California ("can check out anytime but never leave" as the lyrics go.) In other words, the market consensus hoard (aka ignoramuses, imho) that have thrown fundamentals under the bus in favor of a "don't think cuz charts tell all" mind-set have proven time and again "five beers short of a six-pack" in figuring out what's going on in the markets. They (the hoard) have been getting it wrong, wrong, wrong and giving the few, the proud, the mar . . . urppp . . . (actually I've come to realize, the very, very few) that actually read/think/relate/connect dots, etc.?, the opportunity to reap huge profits from these bungling idjits.

 

Anyway, getting side-tracked here, the potentially big news that could affect the markets tomorrow morning (Stocks, Currencies, Gold, Commodities, Bonds, the usual stuff) is the ECB's announcement of monetary policy to deal with the on-going mayhem that has been rocking the ship and completely overshadowing the much bigger problems faced by the Fed in this country. (More rioting going on in reaction to the austerity measures, etc.)

 

I'm sure you've been observing the crashing Zero, uh . . I mean Euro and the on-again, off-again, on-again crisis in Europe concerning the solvency of governments of countries such as the PIIGS (Portugal, Ireland, Italy, Greece, Spain, not to mention the many others).

 

The potentially big news (with stocks and commodities appearing to be dangling on the edge of another slide tomorrow if the situation in the EU worsens) at tomorrow’s ECB meeting, could be that Trichet will announce their intention to "Monkey See, Monkey Do" the Fed, to follow the leader in the running of the printing presses to paper nirvana.

 

I say potentially big news because who is to say when the ECB will cry uncle being that Trichet is up a creek without a paddle in the Ozark mountain wilderness with a shotgun held to the back of his head being slimed in his ear to "squeal like a PIIG(S)," while a banjo is heard playing in the distance, "twang, twang, twang, twang, twang, twang, twang, twang, twang, twang . . . twang" as he stands butt naked staring at the sign in his face hanging on the tree, "DEFAULT OR DEBASE!"

 

Certainly, one could say the US faces a similar predicament.

 

Chuck, I say it could happen tomorrow because . . . because, wait a second, can you hear that?

 

Zeeeeeeeeeiiiiiipppppp! . . ."Squeal! . . . Squeal, SQUEAL!!!"

 

Of course, I've been on vacation and out of the loop so I could be wrong on the timing of such.

 

However, if, the big IF, the ECB does move, then I would expect the Zero, urr I mean Euro (and the rest of the Foreign Fiat for that matter) to rally on the news, with Gold rallying even more so. And consequently, I would expect the Equities and Commodities would rally as well, while Bonds and the US Peso would get thrown off the bridge or at least the sidewalk, . . . maybe.

 

After all, it could be said that the crashing Euro has already discounted such a potential announcement. And the market consensus geniuses are calling into Hee Haw to learn how to short the Euro, way after the fact that is. And then you have that "charts tell all" numb nuts like the chart groupies hero, Prechter, making his "this is it" appearance on Hee Haw.

 

What else can a contrary contrarian ask for, for heaven sakes Chuck? By the way, can you please pass me that beer, there is one left in that six-pack after all.

 

Gulp, . . . yeah well goobers, tomorrow morning's ECB announcement before the US open, COULD be the catalyst that COULD propel Gold/Gold Stocks higher, heh, heh, heh.

 

But then again the consensus expects didley squat, and I've been out of the loop for awhile. And Trichet could wait longer for the EU and Euro to really fall apart.

 

Wonder how the Chinese and the other sovereign creditors would react to such an announcement of more QE? Actually, that's a rhetorical question so you don't have to answer. I imagine they'd say "Wao Yu Hai Ding, . . Sum Ting Wong" translated means "white devils currency not worth the paper it printed on and we holding da bag!"

 

Catching up on some more reading I see that the ECB’s Weber said today that the current crisis required, "previously unthinkable measures.” Someone want to translate? Is that a subtle hint or a slap you right in the face wake up call? And on Sunday I see where Trichet when asked about monetizing EU government bonds, said, "At this stage, we have absolutely no decision on the purchase of government bonds." Wait a sec Cochise . . . we don't have to speak Apache here, that's the SAM EXACT language with respect to changing collateral rules just before the ECB actually changed them too. heh heh . .

 

Anyway, hope that answers your questions Chuck. But then again, what do I know as I haven't looked at any charts lately.

[oryx]

Thanks for that. I just read where Byron Capital has a "short-term" target of C$15.00. (Very, very low in my opinion.)

 

Imagine when Gold hits $1,400 and much higher . . .

 

Although somewhat late to the party (Sept '09), John Kaisure of www.kaiserbottomfish.com fame has done his homework and chosen Chesapeake as his #2 Best Pick with a more reasonable (conservative) $20-$30 target.

 

Where To Stash Your Cash

John Kaiser

Ounces in the Ground, Part ll; Six rankings on six projects help you decide

http://www.miningmarkets.ca/issues/story.aspx?aid=1000343990&type=Print%20Archives

 

And Chesapeake Gold now among the top 10 holdings of US Global Investors fund.

http://www.usfunds.com/our-funds/our-mutual-funds/world-precious-minerals-fund/composition/

 

I have met Frank Holmes who runs the USG fund, he has a good record.

 

CKG just needs to be tucked away, and dusted off once gold is a 100 or so higher.

 

Some of the loose holders who anticipated a run in the stock once the PEA was out, have been shaken out.

 

The warrants are way cheap imo, but trade by appointment