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April Update: Gold Swings back to $1,200, Interest Rates in Question

Plus: GoldSource Mines, Seabridge Gold, Gold Resource, SilverCrest Mines, Fortuna, Inca One Gold & Timmins Gold



Gold recovered from near fresh multi-year record lows in US-$ terms as funds shorting gold started to cover after piling onto their short holdings over the prior months. The reversal buying was triggered after fears of a near-term rate hike diminished due to ongoing weak US economic news and indications from the Fed that they will defer to later 2015, if at all.


The idea that the FOMC can raise rates significantly is off the table. At most they will push it higher symbolically by some fractions of a %. The vast amount of growing debt burden cannot be carried with interest rates at more normal levels such as last seen at the turn of the millennium. A return to those levels would shoot the yearly debt interest rate payments past $1 trillion, then add to that the American tradition of budget deficits and you have an unstable debt situation.


The biggest threat remains deflationary forces which are spreading globally into historic territory. Seeking shelter, government debt pays negative returns in increasingly more locations -- even at 5 to 10 year maturities!

Negative interest rate policies may by conducive to encouraging capital to move. Usually this means moving into something which carries greater amount of risk. So there is nothing more obvious in a deflationary scenario than to seek shelter with lower risks.


There is a flood of global capital that will have nowhere to hide in an increasingly deflationary world. The turning point for precious metals is coinciding with this event. When the US joins the negative rate environment, it can quickly accelerate the global move of capital.


Can the almighty Fed continue to manipulate the debt bubble from popping? As we get through 2015, there will be greater clarity to the Fed’s predicament should economic growth not revive as hoped but continue to stagnate. The gold price will be reacting to these developments. For now the short-term outlook has gold likely trading around $1,200 while doing very well in foreign currency terms.



GOLDSOURCE MINES announced the start of construction at its Eagle Mountain gold project in Guyana, with phase I set to be a 1,000 tpd open pit gravity plant. The low-cost mine is fully financed and permitted and is expected to start production later this year.


Phase I of the mine has pre-production capital costs of $5.9 million and expected operating costs of $480 per oz. gold. Over four years the company plans to ramp up to a 4,000 tpd operation, with ramp-up paid for through operating cash flow. Over an 8 year mine life Eagle Mountain is expected to produce 168,700 oz. gold.


Based on a mid-2014 PEA, Eagle Mountain has an after-tax IRR of 63% and after-tax NPV (5%) of $45.6 million.


Goldsource has already made a deposit on a 100-tonne-per-hour processing plant, with construction of the plant expected to be complete in Q3 2015. The company is also currently rehabilitating a 10 km access road to the mine site, procuring longer-lead mining equipment, rehabilitating camp facilities, recruiting key operations personnel, and preparing the mine site.



SEABRIDGE GOLD made good on its prediction of a significant expansion in the size of its Deep Kerr deposit, with an updated resource estimate showing a 52% increase in the resource. The deposit, one of several major resources at its KSM project in northern British Columbia, now hosts an inferred resource of 782 million tonnes grading 0.54% Cu and 0.33 g/t Au for 9.3 billion lbs. copper and 8.2 million oz. gold.


Days later Seabridge also released a maiden resource estimate for the Iron Cap Lower Zone, which also forms part of the KSM project. The Lower Zone hosts an estimated 164 million inferred tonnes grading 0.59 g/t gold and 0.27% copper for 3.1 million oz. gold and 961 million lbs. copper.


Both resources were based on and limited by a block cave mining model. Grades and resource estimates were prepared by Resource Modeling Inc., while Seabridge has contracted Golder Associates to do bulk mining studies on Deep Kerr.


Seabridge has more work planned for Deep Kerr and KSM in 2015, which it will pay for with a C$14.2 million bought deal flow-through financing. The company has issued 1.4 million shares at C$10.17 each, a 27.3% premium over the share price when the move was announced on March 10.



FORTUNA SILVER MINES released its 2014 financial numbers, showing sales up 27% to $174 million, adjusted net income up 67% to $15.6 million, and earnings per share up 180% to $0.12. The company achieved the increases over 2013 despite seeing a 20% drop in the silver price and a 10% drop in gold.


The company made up for the price drop by increasing production and reducing costs. Silver production increased 42% to 6.6 million oz. and gold production increased 66% to 35,316 oz., while the all-in sustaining cash cost, net of by-product credits, was 29% lower than 2013, at $14.48 per oz. of silver.


The increased production didn’t drain reserves though, with the company adding 14% to total reserves over the year. Combined reserves for its Caylloma and San Jose mines stand at 6.8 million tonnes containing 41.3 million oz. silver and 251,800 oz. gold.


Fortuna ending the year with $77.3 million in cash and a $40 million untapped credit facility. The company says it will be able to internally finance the 50% increase in production capacity at San Jose that is scheduled to be finished in mid-2016.



After steadily ramping up production, INCA ONE GOLD declared that its Chala One gold processing plant had reached commercial production on February 1st, with pre-commercial production numbers indicate that the plant reached economic viability at the beginning of February.


The company reports that all major and auxiliary processing circuits are fully operational, including ball mill, crushing and leaching circuits, and related facilities. The plant now provides a full suite of services, with weighing, sampling, and metallurgical test facilities on site, along with crushing, grinding and carbon leaching circuits, as well as full material handling and tailings disposal facilities.


Since the beginning of February throughput at the plant has been in excess of 50 tonnes per day, while the company continues to ramp up production towards the 100 tpd capacity. Inca One expects to reach full capacity by the end of the second quarter. The company has also reached its pre-determined targets for legal mill feed, ensuring supply for the fully-operational plant.


The company closed its oversubscribed debenture financing though SC Strategy Consult, with proceeds of $1.6 million. Inca One also announced a $1.5 million convertible loan from Promerita Financial Corp., with the loan bearing a 15% interest rate.



GOLD RESOURCE CORP reported net earnings of $16.2 million, or $0.30 per share, for 2014, up from $0.1 million in 2013, at its Aguila project in Oaxaca Mexico. The earnings came from record production of 35,552 oz. gold and 3.3 million oz. silver, achieved despite mining lower grades. Cash costs were down by 28.3% over 2013, at $449 per gold eq. oz.


The company distributed $6.5 million in dividends and added $12.5 million to its cash position, ending the year with $27.5 million in the bank. For 2015 the company is projecting similar output to 2014.


Gold Resource continues to develop its facilities in Oaxaca, increasing production and advancing the primary decline ramp at its Arista mine, commissioning a dore production facility, and budgeting $9.7 million for exploration this year on its Oaxaca project. At year end the Arista mine contained 1.5 million reserve tonnes grading 7.21 g/t gold for 356,100 oz. gold.


Gold Resource also started its first drill program at its Radar gold property in Nevada. The 2,000-metre, 6- to 8-hole drill program will be targeting gold and mercury-bearing structures.



SILVERCREST MINES also released annual financials, with the numbers reflecting a year of challenges as it transitioned to underground mining at Santa Elena. The company reported a net loss of $1.5 million, or $0.01 per share, for the year compared with earnings of $8.5 million, or $0.08 per share, in 2013. The loss included a $5 million impairment charge relating to Silvercrest’s write-off of some equipment and its Cruz de Mayo project.


Cash flow from operations were $13.8 million, compared with $26 million in 2013, while all-in sustaining cash costs per AgEq oz. rose from $13.05 to $14.35.


With the transition to underground mining and the commissioning of a 3,000 tpd mill complete, the company expects significant improvements in 2015. Company CEO Scott Drever said he expects Santa Elena to be cash flow positive, with an annual production guidance of between 4 and 4.4 million AgEq oz., compared with 2.8 million AgEq oz. produced in 2014.


With the transition to underground mining, investors are ready to reap the benefits from years of development work. The company remains in a very healthy financial position holding $31.3 million in cash at the end of 2014, plus a $15 million undrawn credit facility.


The company released an updated prefeasibility study on its Santa Elena project, showing that after 2014 production the mine still has an 8 year mine life with an after-tax NPV of $119 million using a 5% discount rate.


Silvercrest also released results from a 9,400-metre surface drill program around the Santa Elena mine, showing some mineralized areas beyond the pit boundaries.



TIMMINS GOLD reported annual results, showing earnings of $9.2 million, or $0.06 per share, on revenue of $154 million, compared with $15.3 million in earnings, or $0.11 per share, on $160 million in revenue the year before.


The company increased annual gold production up by 368 oz. to a record 120,023 oz. gold. Cash cost per oz. on a by-product basis was $790 compared with $717 the year before. For 2015 Timmins Gold is projecting production of roughly 120,000 oz. gold at a cash cost of between $800 and $850 per oz. gold.


The company ended the year with $26.9 million in cash and equivalents. As part of its merger with Newstrike Capital the company had announced a C$10 million financing, but in March announced it would not be following through on that financing due to market conditions. The merger with Newstrike is to be voted on by Timmins Gold shareholders on April 29.



Peter Spina

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