Of gold prices, takeover targets and Brown’s Bottom

“Let’s get physical”

by James Kwantes

PricewaterhouseCoopers issued a gold price report Thursday – on a day gold dropped about $20 to $1,645/oz – reiterating the bullishness of gold mining executives on the prospects for the barbarous relic in 2013. Here’s the link.

Also Thursday, a Newstrike Capital insider purchased 2 million NES shares at a price of $1.80, according to TSXV marker data. We suspect the person who thought Newstrike shares were a buy under $2 is Lukas Lundin, who already owns a fair chunk of the Mexico-focused explorer, but we’ll have to wait for the filing.

I wrote up Newstrike on Sept. 20 as a likely takeover target, with a follow-up post on Oct. 4. The stock has since fallen, but nothing has changed. Newstrike will likely issue its maiden 43-101 resource estimate on Ana Paula in the Guerrero gold belt early in the new year. Ana Paula is down the road from Goldcorp’s Los Filos mine and Torex Gold’s Morelos project, with great infrastructure and probably 3-million-plus ounces in a high-grade breccia zone and a larger, lower-grade ore body.

Got distracted there, didn’t I?

Takeaways from the PricewaterhouseCoopers report:

- Central bank buying is ramping up (primarily in Southeast Asia but also in South America), which should help underpin prices. It’s a departure from the net selling of the past 20 years, most infamously by Great Britain’s Gordon Brown (Brown’s bottom).

- Rise of streaming: conventional financing in the junior mining space has all but dried up. That paves the way for precious metal streaming companies such as Sandstorm Gold and Silver Wheaton, which offer upfront financing in exchange for future production at favourable (low) prices. Sandstorm Gold and sister company Sandstorm Metals & Energy are WoM’s preferred picks in the space and were the first companies featured when World of Mining launched in August. Sandstorm M&E shares are up about 65% since then; Sandstorm Gold stock is about 11% (fairly sharp correction this week).

- Show me the divvy: It’s no longer enough to jump up and down, shouting, “The metal we produce has risen sixfold in the past decade!” Gold producers are being forced to take better care of their shareholders and dividends are one good way to do it. Another good way is to identify high-grade, near-surface gold deposits with a quick payback in stable countries and buy the companies that own them.

Disclosure: I own shares in Newstrike Capital and both Sandstorm companies. Please read my disclaimer.

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