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Oreninc Index Down As Deal Flow Reduces

Commentaries & Views

Last Week: 57.30

This week: 50.37

Silver Spruce Resources (TSXV:SSE) received assays from due diligence reverse circulation (RC) drilling samples at its Cocula project in Jalisco, Mexico.

The Oreninc Index more fell in the week ending August 16th, 2019 to 50.37 from 57.30 as the number of deals fell. This followed an updated index score of 50.69 the week ending 2 August when Oreninc was offline for technical reasons during which time gold broke through US$1,500/oz!

Mixed signals out of the US White House about China have seen volatility become the norm in many markets in recent times, producing wild swings in the Dow Jones and many commodities. Markets reacted positively to US authorities saying the implementation of additional 10% tariffs on Chinese imports would be postponed until December following earlier statements by US president Donald Trump that he would impose an additional 10% tariff on $300 billion worth of Chinese imports from September 1st. If implemented, this tariff would mean all Chinese exports would be subject to tariffs of at least 10%. Chinese authorities said the additional 10% tariff violates a consensus reached between the leaders of both countries in Osaka, Japan and that it would retaliate in kind.

In Hong Kong, democracy protests against increasing control by China continue and have resulted in violent confrontations with riot police and the closure of its international airport for a couple of days.

The move higher in gold follows the US Federal Reserve making a much expected 25 basis point cut to interest rates a couple of weeks ago although it initially lost almost $30/oz as a result of dovish remarks by chairman Jerome Powell which suggested the US economy is not as weak as some might think. Powell’s comments drew the ire of president Trump who wanted a cut of at least 50 basis points, and the following day gold added $40/oz. The positive feeling around gold also saw it shrug-off the latest US Labor Department jobs report which showed the addition of 165,000 positions in July and the unemployment rate falling again to 3.6%.

Gold has consolidated about US$1,500/oz as the ten-year US treasury dived below 2% to its lowest since September 2016, while the thirty-year treasury yield fell under 2% for the first time ever. The spread between the US two-year and ten-year treasuries temporarily fell to a negative 1 basis point. This yield curve inversion—where the long-term interest rates fall below the short-term rate —has often been the harbinger of economic downturn and recession. Gold has been in bull mode for the past couple of weeks hitting a six-year high in the US dollar as well as all-time highs in Sterling and over 20 other currencies including the Canadian Dollar, the Australian Dollar and India’s Rupee.

Adding grist to the mill, the World Gold Council recently published its second quarter gold trends report which showed central banks bought 224.4 tonnes of gold in the quarter taking purchases for the first semester to 374.1t, the largest net first half increase in its 19-year quarterly data series. Holdings of gold-backed ETFs also grew to a six-year high of 2,548t.

New UK prime minister Boris Johnson is finding that his bluster and optimism, effective from the sidelines, will not cut the mustard in the top decision-makers position. Johnson refuses to talk with the European Union (EU) until it drops what is known as the backstop position to keep the frontier between the Republic of Ireland and Northern Ireland border free. The EU basically said find, this is non-negotiable. US politicians are now expressing their views given the US was the guarantor of the Good Friday peace agreement 20 years ago, one provision of which was an open border.

Johnson is facing hostility on all sides and also saw his majority cut to a single seat after the anti-Brexit Liberal Democrats won a by-election in Wales. Unsurprisingly, the UK pound has fallen to a two-year low against the US dollar. With the UK seemingly heading towards a no deal exit from the EU, a cross-party alliance of MP’s who are opposed to this outcome may seek to raise a motion of no confidence in the prime minister.

On to the money: total fund raises almost doubled to C$68.4 million, a two-week high, which included three brokered financings for $43.5 million, a two-week high and three bought-deal financings for $43.5 million, also a two-week high. The average offer size increased to $3.1 million, a two-week high, while the number of financings increased to 22.

Gold closed up strongly at US$1,5513/oz from $1,496/oz a week ago after hitting a mid-week high of $1,523/oz. The yellow metal is up 18.01% so far this year. The US dollar index resumed its growth as it closed up at 98.14 from 97.49 last week. The Van Eck managed GDXJ saw some profit-taking as it closed down at US$39.22 from $41.84 a week ago. The index is now up 29.78% so far in 2019. The US Global Go Gold ETF closed down at US$16.16 from $16.68 a week ago. It is up 41.63% so far in 2019. The HUI Arca Gold BUGS Index closed down at 213.65 from 219.59 last week. The SPDR GLD ETF saw its inventory increase to 843.41 tonnes from 839.85 tonnes a week ago, although pulling back from its mid-week high of 847.77 tonnes.

In other commodities, silver consolidated above the US$17/oz level as it closed up at $17.11/oz from $16.97/oz a week ago after hitting a mid-week high of $17.26/oz. Copper continues to be suppressed by the trade war although it gained a cent to close at US$2.59/lb from $2.58/lb a week ago. Oil continues to suffer as well as WTI closed up a smidge at US$54.87 a barrel from $54.50 a barrel a week ago.

The Dow Jones Industrial Average continued to take hits as it closed down at 25,886 from 26,287 a week ago. Canada’s S&P/TSX Composite Index also closed down at 16,149 from 16,341 the previous week. The S&P/TSX Venture Composite Index closed down at 570.43 from 592.82 last week.

Summary

  • Number of financings decreased to 27.

  • One brokered financing was announced this week for $40.0m, a four-week low in terms of the number of brokered deals but a three-week high in terms of the dollar amount.

  • One bought-deal financing was announced this week for $40.0m, a two-week high.

  • Total dollars jumped to $68.4m, a five-week high.

  • Average offer down to $3.3m, a two-week low.

Financing Highlights

Filo Mining (TSXV:FIL) opened a $40 million offering underwritten by a syndicate led by BMO Capital Markets on a bought deal basis. 

  • 7.3 million shares @ C$2.75 for $20 million. A Lundin family-related trust will purchase $5 million.

  • Concurrently, a Lundin family-related trust will complete a $20 million private placement on the same terms.

  • The offering is expected to close on or about August 30th.

  • Proceeds will be used for exploration and development of the Filo del Sol copper project.

Major Financing Openings

  • Filo Mining (TSXV:FIL) opened a $40 million offering underwritten by a syndicate led by BMO Capital Markets on a bought deal basis. 

  • Platinum Group Metals (TSX:PTM) opened a $13.82 million offering on a best efforts basis. 

  • Talisker Resources (CSE:TSK) opened a $6 million offering on a best efforts basis.    

  • Kootenay Silver (TSXV:KTN) opened a $5 million offering on a strategic deal basis.  Each unit includes half a warrant that expires in three years.

Major Financing Closings

  • Silvercrest Metals (TSXV:SIL) closed a $25.31 million offering underwritten by a syndicate led by National Bank Financial on a bought deal basis.

  • Rio2 (TSXV:RIO) closed a $25 million offering underwritten by a syndicate led by Cormark Securities on a bought deal basis. Each unit includes half a warrant that expires in three years.

  • Impact Silver (TSXV:IPT) closed a $4.95 million offering on a best efforts basis. Each unit includes a warrant that expires in three years.

  • Defiance Silver (TSXV:DEF) closed a $3.32 million offering on a best efforts basis.

Company News

Silver Spruce Resources (TSXV:SSE) received assays from due diligence reverse circulation (RC) drilling samples at its Cocula project in Jalisco, Mexico.

  • The RC samples were selected to confirm the grades reported previously by Timmins

  • The sampling confirmed high-grade gold mineralization at Cocula

  • In 2008, Timmins drilled 27 RC holes for 1,974m and confirmed the continuity of the Cocula breccia along 800m of strike.

  • Channel sampling by Timmins across the outcrop of the Cocula breccia returned 136m @ 2.39g/t Au, 19g/t Ag, 1.07% Pb & 0.12% Zn.

Analysis

The high grades of gold sampled at surface are encouraging and bode well as the company continues with its due diligence process under its six-month right of first refusal, before committing to an acquisition.

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.