Who knows how long it will stay here, but nevertheless it's positive for us. We are unable to take full advantage of this price due to Lamaque being out of commission, but it is still a major advantage for us:
1) It allows San Juan to be more profitable (100% unhedged), which is currently our only source of cash generated through operations. At these gold price levels, San Juan appears to provide sufficient cash to allow the overall business to move forward without an equity offering or bridge loan, or so it seems anyway. It even sounds like they are continuing to work on the resource upgrade program at Lamaque (based on comments by PK during the conference call). I wouldn't be surprised if the 1.1M reserve oz total at Lamaque is unofficially even higher now, as they have continued to work on this program all along (the last official update was a year ago, with Lamaque reserves being 1.1M ounces and Lamaque resource total being 4.6M ounces). I imagine that they will not be able to release updated numbers until they get financing and is able to bring back the 43-101 guy to officially update the numbers. Regardless, basic logic would suggest that continuous work on the project for a full year would likely increase the numbers.
I think a major advantage that Century has over most other junior companies (aside from having Lamaque, a signficant project that can be brought into production near-term, once financing is gained) is the fact that Century actually has a profitable GOLD producing operation (San Juan) in place that provides sustainable cash (very few juniors have this). In addition, Century's secured debt is held by IQ (essentially a government organization with the #1 priority of providing jobs for Quebec citizens during these difficult times). None of these 3 very important benefits are reflected in Century's share price as yet.
2) As important as note 1, the solid gold price allows for more favourable marketing of Lamaque, be it for bank financing or outright sale or J/V.
US gold price currently $874.
3 comments:
By the way, I saw something interesting, perhaps positive yet unusual and unexplainable at this time, in the DD report (posted on Century's website). It's in the Capital Expenditure report, located on page 17.
The total "Outstanding Quebec Payables" of $10M Cdn, although slightly lower than total payables in Q3 statements, seem to be reasonable as the difference would probably represent San Juan payables.
However, what is odd is that they only show $9M Cdn for IQ Debt Repayment. I'm not sure if they expect to pay back the other $6M Cdn through another means (not reflected in the report) or if the $6M represents some sort of discount/incentive that IQ is willing to provide if we can get Lamaque up and running again. It's completely unclear to me, but interesting nonetheless.
U.S. bailout package will spark inflation and shift the burden to foreign investors: CIBC World Markets
Inflation will be further stoked by growing oil supply crunch
TORONTO, Jan. 23 /CNW/ - CIBC (CM:TSX; NYSE) - To pay for its multi-trillion dollar bailout and stimulus packages, the Obama administration will print money at an unprecedented rate, a course that will drive up inflation and drive down the greenback while shifting a large part of the financial burden onto foreign investors, finds a new report from CIBC World Markets.
The report predicts that like Argentina in the late 1980s and Zimbabwe today, the U.S. government will simply create more money to fund its plans. "If the central bank prints it, someone will spend it," says Jeff Rubin, chief economist and chief strategist at CIBC World Markets. "Already U.S. money supply is growing at a nearly 20 per cent rate in the last three months and the printing presses are just warming up. And there's no shortage of more troubled assets to monetize along with $1.5 trillion-plus federal deficits to keep money supply growth chugging along in the future.
"As it buys up spread product, the Fed will leave Treasuries to be mopped up by foreigners. Since outsiders, like the People's Bank of China, now own over 50 per cent of America's debt, there has never been a better time to reflate. Why default on your taxpayers when you can default on someone else's? A 10-year Treasury bond will, of course, mature at par, but who's to say the greenback won't sink 40 per cent against the Yuan over its term like it did against the Yen between 1971 and 1981?"
Mr. Rubin notes that while the prospect of reflation may seem incredulous on the cusp of negative U.S. CPI numbers, past deficits that were a mere fraction of what they are today in relation to the size of the American economy, were readily monetized. And without fail, that monetization led to an explosive bout of subsequent inflation.
"The huge World War II deficits saw inflation peak at almost 20 per cent in 1947," adds Mr. Rubin. "When the printing presses were turned up to pay for the Korean War, inflation moved from negative territory to over nine per cent within the space of nine months in the early 1950s. And when Arthur Burns greased the Fed's presses after the Vietnam War, inflation soon made a triumphant return back to double-digit territory.
"Headline U.S. CPI inflation will grab a negative handle in the next few months but it will be running north of four per cent in less than a year."
Adding to these inflationary forces in the next year will be increased pressure on oil prices. While global demand is expected to be down about one per cent in 2009, oil supply is also declining. The plunge in oil prices caused by the recession has put the brakes on a number of new supply projects that were expected to address the depletion loss of nearly four million barrels a day this year alone.
"The IEA (International Energy Agency) recently estimated that the industry will have to spend well over half a trillion dollars annually to meet future demand and counter depletion," says Mr. Rubin. "No one is going to finance those money-losing mega-investments at oil prices anywhere near $40 per barrel. If yesterday's record high prices haven't spurred supply growth, what chances do oil prices a third or a quarter of those record levels have?"
A year ago, Mr. Rubin estimated that production would grow from about 86 million barrels per day in 2008 to around 88 million by decade's end, based on data for 200 pending new projects. However, recent announcements of project cancellations and postponements not only cancel out the expected two million barrel per day increase in global production by 2010, but they are likely to actually drive production down a million barrels per day below last year's levels.
In Canada, a region the IEA expects will be the single largest source of new crude supply, almost three times as important as Saudi Arabia over the next 20 years, cancellations or delays in recent months have already affected about one million barrels per day of planned oil sands capacity. Now, rather than grow by close to 400,000 barrels per day by 2010, total Canadian production is likely to rise by only a third of that.
"That's only the tip of the iceberg since the vast majority of cancellations have been on projects whose first flow dates are well after 2010," adds Mr. Rubin. "If oil prices were to stay at current levels, production, instead of plateauing around 88 million barrels per day by 2012 as we had previously forecast, would decline at an accelerating pace between now and 2015. By 2015, production would decline to around 76 million barrels per day, a level of roughly 10 per cent lower than last year's level. Unlike past oil shocks, there is no longer any newly discovered $10 per barrel North Sea oil to meet a rebound in demand."
He notes that higher prices will ultimately change that supply outlook by reversing some of the cancellations announced in the wake of oil's price plunge. Global demand snapped back at around a three per cent pace after the two declines in oil consumption seen in the early 1980s. Even a 2-2 1/2 per cent bounce back would leave the world facing even tighter supply conditions than it did in 2007 when oil prices moved from $60 to $100 per barrel.
"Back then, demand was about 1.5 million barrels per day more than supply. This imbalance, not only led to a very rapid inventory drawdown, but also attracted speculative activity in oil markets. By our estimates, we expect to see an even larger imbalance, almost two million barrels per day, between recovering demand and shrinking supply as early as 2010.
"When that happens, global oil inventories will plunge, and global oil prices will once again spike. That may well reverse some of the supply destruction that is currently taking place, but not before world oil prices print triple-digit levels again."
The complete CIBC World Markets report is available at:
http://research.cibcwm.com/economic_public/download/sjan09.pdf
CIBC World Markets is the corporate and investment banking arm of CIBC. To deliver on its mandate as a premier client-focused and Canadian-based investment bank, World Markets provides a wide range of credit, capital markets, investment banking, merchant banking and research products and services to government, institutional, corporate and retail clients in Canada and in key markets around the world.
For further information: please contact Jeff Rubin, Chief Economist and
Chief Strategist, CIBC World Markets, at (416) 594-7357, jeff.rubin@cibc.ca;
or Kevin Dove, Communications and Public Affairs, at (416) 980-8835,
kevin.dove@cibc.ca.
IMO, Obama is playing with fire big time here. They have increased efforts in accusing China of manipulating their own currency to enable increased export sales. They are now treatening sanctions on China. Are those crazy moves or what? China was already seriously considering buying substantially less of the US debts, or perhaps stop it completely. If they do then the US and the US dollar are in major trouble. This is how US has survived all these years - by China funding their initiatives (US is no longer a producer nation - they hardly export anything). If China stops buying their debts then the US will have to print new money almost 100% of the time, which will kill the dollar (even before other things do).
Of course, this will be to the benefit of gold investors, as China will likely then use part of the surplus cash to buy gold. Their funds are huge and the gold market is small. Even a small purchase into the gold market will send the gold price to the root. We'll see how the story develops.
Anyway, here is an article on Geithner/Obama's tough stance on China:
Geithner signals tougher stance on China
By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer – 35 mins ago
WASHINGTON – Treasury Secretary-designate Timothy Geithner says President Barack Obama believes China is "manipulating" its currency, a declaration that American manufacturers have long sought in their efforts to combat America's soaring trade deficit with China.
However, Geithner also suggested that now might not be the right time to brand China as a currency manipulator under U.S. trade law, a designation that would trigger negotiations between the two countries and could result in U.S. economic sanctions against China.
"President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency," Geithner wrote in answer to questions submitted to him by members of the Senate Finance Committee.
"President Obama has pledged as president to use aggressively all the diplomatic avenues open to him to seek change in China's currency," Geithner said.
He noted that while in the Senate, Obama sponsored legislation along with other senators that would overhaul the process for determining what countries are manipulating their currency to gain trade advantages in competition with the United States. That legislation would have authorized a new enforcement process "so countries like China cannot continue to get a free pass for undermining fair trade principles," Geithner said.
Geithner's comments raise the possibility that the Obama administration will take a tougher line with China than former President George W. Bush did. The previous administration refused to cite China as a currency manipulator in a report that Congress requires the Treasury Department to prepare twice a year.
Instead, former Treasury Secretary Henry Paulson insisted that the best way to get China to revalue its currency was through diplomatic engagement. Paulson began the Strategic Economic Dialogue, high-level discussions that have been held twice a year starting in late 2006.
During this process, China did allow the value of its currency to rise by 21 percent. But American manufacturers say that the Chinese yuan is still significantly undervalued, making Chinese goods cheaper for U.S. consumers and American products more expensive in China.
If Paulson had labeled China as a currency manipulator, that designation would have launched negotiations between the two countries and if that process had failed, the United States could have imposed trade sanctions on Chinese imports.
While Geithner did state that Obama believes China is manipulating its currency, he said the new administration would consider a number of factors in deciding how to proceed.
"The question is how and when to broach the subject in order to do more good than harm," Geithner wrote. "The new economic team will force an integrated strategy on how best to achieve currency realignment in the current economic environment."
In response to another question on China's currency, Geithner noted that China's economy is slowing at present as a result of the global downturn which has cut into China's ability to export.
"Because China accounts for such a large fraction of the world economy, a further slowdown in China would lead to a substantial fall in world growth and demand for U.S. exports and delay recovery from the crisis," Geithner said. "Therefore, the immediate goal should be for us to convince China to adopt a more aggressive stimulus package as we do our part to try to pass a stimulus package here at home."
Under U.S. trade law, the first currency report that the new administration must submit to Congress will be due in April although past administrations have often missed the deadlines.
In response to another question on China, Geithner did not commit specifically to continuing the current Strategic Economic Dialogue talks but he said the administration wanted a "deep engagement" with China.
Geithner's nomination to be treasury secretary was approved by the Finance Committee on an 18-5 vote on Thursday despite unhappiness on the part of many senators over mistakes Geithner made on his tax returns earlier in the decade.
The full Senate is expected to take up Geithner's nomination on Monday and he is expected to win approval at that time with supporters saying that the current economic crisis requires quick approval of someone with Geithner's qualifications.
Geithner is currently head of the New York Federal Reserve Bank. In that post, he was a key participant in the financial rescue decisions made by the Bush administration and Federal Reserve Chairman Ben Bernanke.
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