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PDAC Attendees Not Concerned About US Rate Hikes

Commentaries & Views

Although the miner correction continued all throughout the Prospectors and Developers Association of Canada (PDAC) conference earlier this week, the 24,000 plus attendees were not about to let this nasty sell-off spoil their mood.

While the gold price sold off further towards the issuance of the February Non-Farms Payrolls report (NFP) this Friday, I witnessed a very jovial crowd which was very eager to put more money to work in the sector.

Talk of further rate hikes and dollar strength was less of an issue compared with the large sums of capital from all over the world which continues to pour into the sector via joint ventures, private placements, bought deal flow-though shares, and on-going global miner purchases of large percentages of micro-cap and small-cap juniors.

As the majors continue to invest into these exploration juniors, it is becoming more and more evident they need to step up their plans to replace dwindling reserves. Many of the CEOs which I spoke with mentioned the multiple confidentiality agreement meetings they had scheduled with global miners during the conference.

On March 6, the second day of PDAC, we had two big stories released by majors investing into the junior sector. The first was the Agnico-Eagle (AEM) C$22.86 million investment in which they agreed to purchase 38.1 million shares (15%) of GoldQuest Mining Corp. "This investment is consistent with our approach of positioning ourselves in early-staged opportunities in districts with long-term geological potential,” says Sean Boyd, Agnico Eagle's vice chairman and chief executive officer.

The second was global major miner Newmont (NEM) completing a structured 2 phase deal with Yukon explorer Goldstrike Resources. Newmont's total investment to complete Phases 1 and 2, including the financing, cash payments and exploration expenditures, will be a minimum of ~C$53,000,000. Newmont has now become the fourth major global miner to take a position in the Yukon’s White Gold jurisdiction, joining Kinross (KGC), Goldcorp (GG), and the aforementioned Agnico-Eagle.

Another significant announcement on March 6 was the Osisko Mining (OSK.TO) news release in which they acquired, though staking, a significant land position in the Lebel-sur Quévillon area of the Abibiti Greenstone Belt of Quebec, located approximately 110 kilometers west of their flagship Windfall Lake project. This district continues to heat up with multiple junior exploration company financings and land staking.

Precious metals sector update: Looking ahead in the miner sector, I believe this correction will be over very shortly. I am looking for the $20 level of very strong support in the major miner exchange traded fund GDX to hold on a weekly basis as the market has priced in a more than 90% chance of another 0.25% rate hike next week on March 15th.

The past performance of the miners after the last two rate hikes tells me the bottom will be in very soon. Less than one month after the first rate hike in nearly a decade on December 16th, 2015, the miners blasted 179% in six months. After the second hike last year on December 14th, the GDX went up 37% for an unprecedented eight consecutive weeks while the junior miner exchange traded fund GDXJ went up over 55%.

I believe this is a nice buying opportunity to begin scaling into your favorite miners as we are getting into very over-sold territory in the miner sector here, so watch for a reversal between now and the end of next week.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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