first majestic silver

Perseus Mining Has Agreed To Acquire A 15% Interest In Orca Gold

CEO & Chief Investment Officer @ U.S. Global Investors
February 8, 2022

Strengths

  • The best performing precious metal for the week was platinum, up 1.45% as hedge funds boosted their bullish futures positions to an 11-week high. Nornickel, the world's largest producer of palladium and high-grade nickel and a major producer of platinum and copper, announced that the Global Palladium Fund, a metals distributor founded by Nornickel, has launched the GPF Physical Electric Vehicle Metals Exchange Traded Commodity (ETC). The Global Palladium Fund Physical Electric Vehicle ETC is being launched with $10 million of seed capital and listing initially on Borsa Italiana.
  • SSR Mining’s fourth quarter production of 211,000 ounces of silver was up 13% from the previous quarter and 11% better than forecast. Estimated costs of $960 an ounce were 5% better than last quarter and 9% better than consensus. Full-year production of 794,000 ounces silver was at the high end of guidance, while 2021 costs of $982 an ounce were below the low end of revised guidance of $1,000 an ounce.
  • Gold extended its gains as the dollar weakened after U.S. Federal Reserve officials played down prospects of aggressive rate hikes coming imminently. The dollar ticked lower amid the positive risk sentiment. Gold regained the psychologically important $1,800 an ounce mark, just above the level it averaged last year.

Weaknesses

  • The worst performing precious metal for the week was palladium, down 3.57%, as hedge funds boosted their bearish futures positions to an 11-week low. AngloGold Ashanti Ltd. saw a drop in full-year earnings, hit by rising costs and lower gold sales, after it suspended activities at a key mine in Ghana following an underground incident. Headline earnings per share in the 12 months through December are likely to decline 36% to 42% year-on-year, the Johannesburg-based gold miner said. AngloGold expects total basic earnings per share will be down 32% to 39%, it said in a statement. The company’s earnings were eroded by lower gold sales, higher operating costs and an increase in sales costs due to lower grades. This was also worsened by “inflationary pressures and the continued impact of the Covid-19 pandemic on costs,” it said.
  • According to Stifel, with inflationary cost pressures being reflected in higher 2022 cost guidance for most, if not all, mining companies, they have reviewed their operating and capital cost assumptions for several companies under coverage. For those companies for which adjustments were made, the net impact has been higher costs translating to a lower NAV per share, and in some cases a lower target price.
  • Gold shipments from Europe’s key refining hub fell to 97.2 tons last month from 129.0 tons in November, according to the Swiss Federal Customs Administration. Shipments to China fell 63% to 14.5 tons. Sales to India slid 27% to 28.3 tons.

Opportunities

  • Anglo American Platinum Ltd. said that it sold its 50% interest in the Kroondal and Marikana Pool-and-share Agreements to Sibanye-Stillwater Ltd. for one rand ($0.06). The South African miner said the conditional transaction will extend the project's life-of-mine, and that Sibanye will take over all closure costs and rehabilitation liabilities. "By enabling Kroondal to mine through the boundary at Sibanye-Stillwater's Rustenburg operations, we will extract our attributable share of the Kroondal reserves more quickly and efficiently than under the previous mine plan, unlocking greater value for Anglo American Platinum and Sibanye-Stillwater," the company said.
  • Perseus Mining announced it has acquired a 15% interest in Orca Gold, which owns 31.5% of Montage Gold. Perseus noted it has engaged in exclusive discussions with Orca to buy the company. In the press release, it stated, “Orca potentially provides Perseus with exposure to two highly prospective assets with significant resource bases and is consistent with Perseus’ strategy of building a platform of long life, highly profitable African gold assets.”
  • A senior gold-mining executive sees the potential for a record year of mergers and acquisitions as companies turn to deals to prop up production at a time of rising bullion prices. An M&A cycle that kicked off with Barrick Gold’s 2018 takeover of Randgold followed by Newmont Corp.’s purchase of Goldcorp is only just beginning, said David Garofalo, the former Goldcorp boss who now oversees Gold Royalty Corp. In the past decade and a half, the industry has been focused on strengthening balance sheets and paying dividends, resulting in a depletion of reserves. To avoid that turning into a production slump, companies will scoop up more single-asset players, Garofalo said in an interview Monday. At the same time, the prospect of accelerating inflation and higher interest rates will drag money out of equity markets and into safe havens, with gold potentially reaching $3,000 an ounce as soon as this year from about $1,800 now, he said.

Threats

  • From explosives experts to truck drivers, labor shortages are becoming an increasing challenge for mine operators across Western Australia after the state abandoned plans to end Covid-related border controls. The state’s resources industry, which is a crucial source of revenue for Australia, relies on flying in workers to remote sites. Many of the workers come from other states and it has become increasingly difficult for them to travel given border restrictions enforcing quarantine on arrival in Western Australia, which is more than three times the size of Texas and comprises of barren Outback.
  • Resource Capital Funds (RCF), a 5.2% shareholder of IAMGOLD, has commenced an activist campaign, including the release of a critical letter sent to IAMGOLD’s Board and the nomination of at least three new directors. Impact: RCF’s actions seek to assert changes which could institute a framework for IAMGOLD’s turnaround and improve upon the company’s current and historical challenges. In their view, IAMGOLD’s asset base does not clearly outline a value proposition based upon current published technical information, and fundamental upside in a turnaround would be contingent upon the execution of the Cote Gold project development, an improvement or divestiture of IAMGOLD’s operating asset base, and elevated gold prices being sustained. RCF maintains a reputation of being an established technical mining private equity group, although public equities’ shareholder activism is atypical for the group.
  • Diesel margins are surging around the world, as reported by Bloomberg, amid low stockpiles and supply pressures. Heavy industries, like gold mining, farming and rolling military gear in Eastern Europe, are all vulnerable to the shortages. Traders are also factoring in higher prices for forward prices too as the bottlenecks to production could tighten.

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Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. Under his guidance, the company’s funds have received numerous awards and honors including more than two dozen Lipper Fund Awards and certificates. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of “The Goldwatcher: Demystifying Gold Investing.” Mr. Holmes is engaged in a number of international philanthropies. He is a member of the President’s Circle and on the investment committee of the International Crisis Group, which works to resolve conflict around the world. He is also an advisor to the William J. Clinton Foundation on sustainable development in countries with resource-based economies. Mr. Holmes is a native of Toronto and is a graduate of the University of Western Ontario with a bachelor’s degree in economics. He is a former president and chairman of the Toronto Society of the Investment Dealers Association. Mr. Holmes is a much-sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Times and other publications.  Visit the U.S. Global Investors website at http://www.usfunds.com.  You can contact Frank at: [email protected].


China is the world’s biggest gold producer with more than 355 tons annually. Australia is second.
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