Canada Stocks Rise as Energy Shares Offset Plunge in Gold Prices

Canadian stocks rose as advances in energy and technology shares offset a plunge in gold prices following the U.S. Federal Reserve’s decision to cut stimulus. CGI Group Inc. jumped 2.5 percent after Desjardins Securities Inc. raised its rating on the information-technology company. Detour Gold Corp. and Torex Gold Resources Inc. fell more than 3.8 percent as gold dropped below $1,200 an ounce to a three-year low. Martinrea International Inc. plunged 21 percent after BMO Capital Markets downgraded the shares. The Standard & Poor’s/TSX Composite Index (SPTSX) increased 57.47 points, or 0.4 percent, to 13,392.20 at 4 p.m. in Toronto. The benchmark equity gauge has risen 2 percent this week, poised for its first week of gains since Nov. 15. “There seems to be some euphoria from yesterday spilling over into Toronto, since it wasn’t up as much as the U.S.,” Barry Schwartz, a fund manager with Baskin Financial Services Inc., said in a phone interview from Toronto. His firm manages C$600 million ($560.1 million). “People seem to be rotating out of anything to do with precious metals.” The S&P 500 rallied 1.7 percent yesterday after the U.S. central bank said it will cut its monthly bond purchases to $75 billion from $85 billion starting in January. The Fed is taking its first step toward unwinding the monetary stimulus that Chairman Ben S. Bernanke put in place to help the economy recover from one of its worst recessions. Gold Tumbles Gold prices fell 3.4 percent to $1,193.60, the lowest settlement price since August 2010. The price of the precious metal is poised for the first annual drop in 13 years. Producers of raw materials in the S&P/TSX fell 0.4 percent. The S&P/TSX Gold Index dropped 1.8 percent for its third day of losses. Detour plunged 10 percent to C$4.03 and Torex decreased 3.8 percent to C$1.01. B2Gold Corp. declined 3.2 percent to C$2.12. Sherritt International Corp. jumped 8.6 percent, the biggest gain since Oct. 2011, to C$3.28. Royal Bank of Canada analyst Patrick Morton said that Sherritt, an oil producer with a stake in the nickel metals business, may benefit from a rebound in nickel prices amid Indonesia’s planned ban on mineral-ore shipments. HudBay Minerals Inc. climbed 4.8 percent to C$7.92 after Haywood Securities Inc. analysts put a buy rating on the stock, with a target price of C$9.50. CGI rose 2.5 percent to C$37.99 after Desjardins analyst Maher Yaghi upgraded the shares to buy from hold and raised CGI’s target price to C$43 a share. Martinrea plunged 21 percent, the biggest drop since 1998, to C$7.48 after BMO analyst Peter Sklar downgraded the metal manufacturer to underperform from market perform, citing litigation costs and expectations fourth-quarter earnings may fall short of previous forecasts.

Source : bloomberg.com 

10 Reasons the Gold Bugs Lost Their Shirts

It has been quite the ride for gold: from under $500 an ounce a decade ago, to above $1,900 in 2011, gold gained more than 400 percent. Since its peak of ~$1,921.15 on Sept. 6, 2011, however, the shine is off the yellow metal. Gold plummeted 38 percent, recently breaking below $1,200. Yesterday’s close is within 5 percent of the lows, at $1,241. If a 20 percent drop is described as a bear market, and a 30 percent fall is called a crash -- what do we call gold’s almost 40 percent plummet? This column is not an “I told-you-so” or an exercise in “Goldenfreude” (describing a “delight in gold bugs’ collective pain”). Rather, it is an attempt to learn some investing lessons from the epic rise and horrific fall of gold. As an investor, I am a gold agnostic: When used properly, the metal is a potentially valuable tool in an investment arsenal. There are times when it makes for a profitable part of a portfolio, as in the 2000s. There are periods when it is a speculative and dangerous trade -- such as the 2010s. There have also been decades when it does nothing, earning no return, generating no income, essentially dead weight to a portfolio, as in the 1980s and 1990s. 
In 2013, for the first time in 13 years, gold was negative on the calendar year. It began 2011 at ~$1,405 and ended at ~$1,540. In between, it peaked above ~$1,900, giving back most of the year’s gains. It closed 8.7 percent higher than where it began 2011, after rallying nearly 35 percent earlier in the year. Unless something radically changes in the near future, that may very well be the peak for this secular cycle. Source: Bloomberg Source: Bloomberg Not very long ago, metal analysts were tripping over one another to put ever-higher price targets on gold, with forecasts of $2,500, then $5,000 and even $10,000 an ounce. Individual investors, institutions and foundations were buying the metal as fast as they could, regardless of price. What a difference two years make. The mania for gold, like all manias, is ending badly. Some gold fans may argue that the cycle is not over yet, and they may be correct. However, any asset class that loses almost 40 percent of its value in two years is worthy of further study, a teachable moment of what not to do in a trade. 
Source : bloomberg.com 

Colombia Top Gold Miner Sees Output Rebound After FARC Attacks

Mineros SA (MINEROS), Colombia’s top gold producer, expects output to rise this year after lower prices and rebel attacks hurt profit in 2013, its chief executive officer said. Gold production will increase at the company’s underground La Ye mine and Nicaraguan operations, while its deposits in the valley of Colombia’s Nechi River will be similar to 2013, said CEO Beatriz Uribe. “In production terms, we’re going to be better this year,” Uribe said today in a telephone interview. “But it’s possible that the price of gold could be worse.” A 2.5-month long strike at La Ye, attacks on electricity infrastructure by the Revolutionary Armed Forces of Colombia, or FARC, and the slide in gold prices curbed last year’s profit, Uribe said. “The balance will be less good than 2012,” Uribe said, declining to elaborate. “We’re not talking losses. The company continues to have a very good Ebitda,” referring to earnings before interest, taxes, depreciation and amortization. The company posted profit of 64 billion pesos ($33 million) and Ebitda of 122 billion pesos in the third quarter. Mineros produced 118,401 ounces in 2012, of which 24,295 ounces were from the La Ye mine. Seeking Acquisitions As part of the company’s growth plan, Mineros is looking at gold assets across Latin America where price tags have fallen. In March last year the Medellin, Colombia-based company bought 90 percent of Nicaraguan miner Hemco Nigaragua SA for an undisclosed amount. “We’re interested in buying projects that are already producing,” Uribe said. “The options for this are not very clear in Colombia. We’re eyeing Latin America.” Mineros sees gold prices this year averaging between $1,200 and $1,250 per ounce, Uribe said. Gold rose 0.5 percent to $1,242.5 an ounce at 3:07 p.m. in New York. Gold fell 28 percent last year in the biggest drop since 1981 as the U.S. recovery and surging equities prompted some investors to lose faith in the metal as a store of value. The lower price coupled with the global credit squeeze could cause smaller mining companies to leave Colombia, Uribe said. “Prices are always cyclical,” Uribe said. “As the global economy recovers, gold will cease to be a place of refuge and return to being a commodity.” Plans to introduce environmental licenses for mining exploration in Colombia would create a further complication for companies operating there, Uribe said. In an interview with local newspaper El Tiempo this month, Colombian Environment Minister Luz Sarmiento discussed the possibility of introducing the new licenses. Environmental permits are currently required for 

Barrick Thornton Weighs Return to Gold Hedge

Four years after Barrick Gold Corp. (ABX) stopped hedging bullion sales, its next chairman, John Thornton, says the practice makes sense and is worth considering. Thornton, a former Goldman Sachs Group Inc. president and currently Barrick’s co-chairman, spoke yesterday after the world’s biggest producer of the metal announced he would succeed Chairman Peter Munk next year. Barrick spent at least $5.6 billion in 2009 to get out of fixed-price sales contracts as it bet on rising gold prices. The metal is heading for its first annual drop in 13 years, having declined 27 percent so far in 2013. That slump has helped to erode earnings and prompted gold producers to take at least $26 billion of writedowns this year, “As an outsider, I always thought it made great sense to hedge,” Thornton told reporters at Barrick’s Toronto headquarters. “I can’t understand for the life of me why that wouldn’t be an active topic that you would be carefully following at all times.” Once a strategy used by Barrick and other major gold producers such as AngloGold Ashanti Ltd., hedging fell out of favor in the past decade as companies found themselves locked into lower prices as gold rose. Producers de-hedged 8.16 million ounces in 2009, according to a report from London-based researcher GFMS Ltd. the following year. Ballooning Costs “The smart companies are going to be the ones that use put options or enter into forward contracts for a portion of their current year’s production to guarantee that production, to guarantee that cash flow,” Goldsmith said by phone. Gold for immediate delivery dropped 1.4 percent to $1,226.64 an ounce at 9:07 p.m. in London. Barrick fell 2 percent to C$16.39 at the close in Toronto, extending its decline this year to 53 percent. Barrick has endured 18 months of turmoil. In addition to the gold-price drop that spurred $8.7 billion of writedowns, it fired its chief executive officer last year after a disastrous copper acquisition and revealed ballooning costs at its biggest construction project, the Pascua-Lama mine in the Andes. Current CEO Jamie Sokalsky has sold three Australian mines this year and has put others under review as the company faced criticism from shareholders to cut costs and increase cash flow. New Directors As well as announcing that Munk, 86, will retire at its next annual shareholders meeting, Barrick said yesterday it’s nominating four new independent directors and adopting a new executive-compensation plan. It also said James Gowans will start as chief operating officer in January. Canada’s biggest pension funds wanted new independent board members and said Barrick should consider replacing directors who had been there longer than 20 years and were close to Munk, two investors briefed on the matter said in September. An $11.9 million signing bonus for Thornton starting as co-chairman was described by Canada’s six largest pension fund managers in April as a “troubling precedent.” The independent directors nominated by Barrick are Ned Goodman, CEO of Dundee Corp., a holding company with investments in precious metals and other assets; Nancy Lockhart, a former chief administrative officer of Frum Development Group; David Naylor, a former University of Toronto president; and Ernie Thrasher, founder of Xcoal Energy & Resources LLC, a coal-trading firm. Chinese Partnership Directors Howard Beck and former Canadian Prime Minister Brian Mulroney won’t stand for re-election at the shareholders meeting, Barrick said. “We’re encouraged by the steps the company seems to be taking to enhance the role of independent directors,” said Maxime Chagnon, a spokesman for Caisse de Depot de Placement du Quebec, Canada’s second-biggest pension fund and one of the investors that criticized executive pay at Barrick as excessive. Goodman’s nomination was welcomed by Robert Gill in Toronto who helps manage C$8 billion including Barrick shares at Aston Hill Financial Inc. “He brings instant credibility in a very important circle of Barrick shareholders, the institutional investors who are informed,” Gill said yesterday by phone. Thornton, 59, said yesterday he’s seeking to form a partnership with Chinese companies with a view to possible cooperation on mining projects in the future. Other Minerals Thornton has connections to China, which was where he headed to in 2003 after departing Goldman. He helped establish a business leadership program at Beijing’s Tsinghua University and is a member of China Investment Corp.’s international advisory board. “China will in fact be at the center of just about everything, certainly the world’s economic growth and the world’s commodities,” he said. While Barrick’s priority is to improve its gold operations, it also has the ability to be a “world-leading company” in other minerals, according to Thornton. “That’s the kind of journey that I feel we’re on,” he said. “And when I look out over the next two decades, that’s where I’d like Barrick to go.”
Source : bloomberg.com