Month: July 2013

By www.CentralBankNews.info     Moldova’s central bank held its basic rate steady at 3.5 percent, along with its other main rates, saying the mains risk is deflation from Europe, Russia and international food prices while inflationary pressures could arise from a recovery in domestic demand and higher oil prices from ongoing tensions in the Middle East.
    The National Bank of Moldova (NBM), which last cut its rate by 100 basis points in April, said the aim of its current stance was to boost domestic demand by stimulating lending and thus help mitigate disinflationary pressures, keeping inflation close to the medium-term target of 5.0 percent, plus/minus 1.5 percentage points.
    The central bank added that if there is persistent supply of foreign currency, it would intervene in foreign exchange markets “carefully” without jeopardizing the inflation target.
    Moldova’s inflation rate eased slightly to 5.5 percent in June from 5.7 percent while the country’s Gross Domestic Product returned to positive territory in the first quarter after contracting by 0.8 percent in 2012 due to severe drought and less demand from Romania and Russia.

    Annual growth in the first quarter was 3.5 percent, up from shrinkage of 2.5 percent in the fourth, and the bank said the revival of economic activity was due to higher foreign demand and a slight recovery in domestic demand due to higher disposal income. Government consumption contracted by 1.5 percent.
    Inflation is forecast to average 4.3 percent this year and 3.8 percent in 2014, down from an average of 4.7 percent in 2012, and over the next eight quarters inflation is forecast to remain within the central bank’s target range.

    www.CentralBankNews.info

Source: Brian Sylvester of The Gold Report (7/24/13)

http://www.theaureport.com/pub/na/15471

As an investor, you probably get a lot of advice and don’t know which to follow: there are conflicting reports, Fed announcements, figures that tell only half the story. In this interview with The Gold Report, Ralph Aldis, senior mining analyst with U.S. Global Investors, helps investors parse these many information streams, explains what seasonal gold pricing patterns could mean for investors and offers a stable of junior equities that could provide greater leverage to a gold price recovery.

The Gold Report: The CEO of U.S. Global Investors, Frank Holmes, recently told gold investors to “keep calm and invest on.” I hope you have the T-shirt royalties for that. What advice do you have to help investors do that?

Ralph Aldis: We like this phrase because it reminds investors not to let their emotions get the best of them. Instead, investors need to plan an investment strategy and make sure it includes all their assets. Investors need to think about what the weightings are in those assets, track quarterly performance numbers to make sure assets aren’t correlated with each other, make sure there is diversification and rebalance the portfolio every year.

TGR: What’s a good asset allocation mix through at least the end of the year?

RA: The asset mix will be a function of age, investment objectives and how soon liquidity is needed. Generally, a maximum of 5–10% in gold and gold stocks, 50% in equities, 30% in fixed income and the balance in some other asset, such as real estate or home value.

TGR: U.S. Global Investors recently reported that gold has 30% upside potential over the next 18 months. What do you believe will specifically move the gold price?

RA: A 30% rebound is well within the normal volatility swings of gold for a given year. Right now, we have the seasonal rally in the gold market. Buyers, like jewelry manufacturers, return to the market usually in late July or August and start restocking to get gold into the pipeline.

Another factor is the employment data that recently came out. It beat expectations, and people got excited. But most of the gains came from part-time jobs, which were up 360,000, and we lost 240,000 full-time jobs. The full U6 unemployment rate actually climbed to 14.3%, up from 13.8% in May. The quality of the employment numbers was dismal, but people saw the headline number and thought “Woohoo, go long equities!” Macquarie Research released a study on July 11 that said the Federal Reserve tapering is much further out than expected—Q4/16 not Q4/14.

TGR: Can a climbing gold price and a strong U.S. economy coexist?

RA: Yes. Some economic growth and a little inflation could get the gold price and the economy growing in sync. But you need the dollar to weaken, which is a function of U.S. interest rates going down. The Federal Reserve doesn’t want a rising interest rate because that stifles some of the economic activity and makes the U.S. debt burden greater.

TGR: What about central bank buying by emerging market countries? If their economies are stronger, will some of the spoils go into gold?

RA: We’ve had seven months in a row of central banks buying gold. The U.S. dollar isn’t as significant to official holdings as it used to be. It has lost a lot of influence, and emerging markets don’t feel they need to own dollars instead of gold.

TGR: But if the American economy is rolling, chances are the global economy is doing well. If these emerging market economies buy more gold, won’t that put pressure on the gold price?

RA: That would be the hedge that I would want to be making, too, trying to diversify some of that risk as some countries, like China, probably have way too many dollars in their official reserves.

TGR: What are some signs for investors that it’s safe to return to the precious metals sector?

RA: We look at the year-over-year changes in the gold price to indicate whether the price has moved up two standard deviations from its mean, which means that gold may soon correct, or whether the metal has moved down two standard deviations from its mean, in which case, gold is due for a rally.

Also, look for the exhaustion of money flows out of the gold sector, which is happening now. We’re just beginning to see positive money flows come into some of our gold funds now.

We’re also seeing gold analysts capitulate. These people get paid to love stocks, and they capitulated. When analysts do that, I believe it’s a sign to buy.

TGR: Has the slide in precious metals prices and the recent selloff exposed some of the flaws in precious metals exchange-traded funds (ETFs)?

RA: If you’re a U.S. citizen, the biggest drawback is a tax liability issue. The SPDR Gold Trust ETF (GLD) is taxed as a collectible, so if you recently sold and made a gain, you actually have to make twice as much than you would on a gold stock investment. It’s liquid and gives you exposure, but it’s just not tax efficient.

TGR: You said investors should have 5–10% of their portfolios in gold and gold equities. Why should they hold Canadian or American gold equities versus gold futures or gold ETFs?

RA: Tax efficiency is a consideration. Plus gold equities can move two to three times the magnitude of the underlying metal price. And our research has found that a small weighting of gold stocks in a portfolio of U.S. companies historically increased return with the same amount of risk.

TGR: But some of the names you’re following have limited liquidity. How do investors deal with that?

RA: Sometimes people look at our mutual fund holdings and marvel that there are 150 names there. But we want to have enough liquidity to adjust positions. Maybe we’d like to have a bigger position, but if investment conditions change for that particular stock, you could compromise your liquidity. If we can build a portfolio out of 10 or 20 junior names that meet our criteria, then we’re insulated from some of the extreme price moves.

TGR: Could you share the names of some of those juniors with us?

RA: Almaden Minerals Ltd. (AMM:TSX; AAU:NYSE) has a great management team that is adept at project generation. It’s a father and son combo; the son lives in Mexico. It’s not a giant position with us, but the company has the right skill set to build its portfolio.

Pilot Gold Inc.’s (PLG:TSX) team has a successful track record of selling its prior asset, Fronteer Gold Inc., to Newmont Mining Corp. (NEM:NYSE) for around $2 billion. Pilot still has some assets in Nevada, and it has had some relatively high-grade hits in Turkey recently.

TGR: Is Pilot’s TV Tower the reason you’re in this play?

RA: Yes. It’s in Turkey and Pilot owns 40% of it.

Rye Patch Gold Corp. (RPM:TSX.V; RPMGF:OTCQX) is another junior in our portfolio. The company had property staked around Coeur Mining Inc.’s (CDM:TSX; CDE:NYSE) Rochester mine and finally got a settlement instead of drawing out the legal battle. Bill Howald of Rye Patch did the right thing; now he has enough cash to carry him forward for two years. He has some good prospective ground and a royalty on the Rochester mine. But Rye Patch’s shares got knocked down. It’s probably a great buy at this point.

TGR: Why did the market punish it for something that, at first blush, looks like a very positive settlement?

RA: Some people did a quick valuation of the settlement on a per-share basis and just marked it down to that per-share value, and they basically threw out the other assets.

TGR: What is Rye Patch going to do with that $10 million ($10M)?

RA: I think Bill is going to stick to his knitting. He has some good exploration prospects, and he’ll be judicious. He will probably plan it to make sure he can stay afloat for the next two years and continue to do the key work. But I don’t have his work plan.

TGR: Does Pilot have sufficient cash to carry out development work on TV Tower and its other assets over the next two years?

RA: Yes, in the first quarter of 2013 financials showed about $24M in cash. But we also look at the relative performance, at the companies that show price leadership.

TGR: What is price leadership?

RA: We look at price performance over a period of time and for statistical significance of outperformance relative to others in that model.

Klondex Mines Ltd.’s (KDX:TSX; KLNDF:OTCBB) stock is up 25% over the last three months, and the average stock in the exploration and development space is down 25%. The company must be doing something right. We also own stock in Pretium Resources Inc. (PVG:TSX; PVG:NYSE), which is up almost 16%. Virginia Mines Inc. (VGQ:TSX) is up 11.9%. Even Mirasol Resources Ltd. (MRZ:TSX.V) is up 7% over the last three months. I feel that some of the smart money right now is already onto the high-grade stories.

When the market knows more than you do, you can see it through price leadership. Ask why a stock is outperforming and see if it makes sense. Klondex recently put out a news release indicating that its resource, an underground drift at its Fire Creek project in Nevada, is basically 132.8 grams per ton (132.8 g/t) over 144.2 meter strike. It already has 2 million ounces (2 Moz) at 9.95 g/t. It is high quality and high grade and in the politically safe jurisdiction of Nevada. We’re the third largest shareholder. None of the top three shareholders has to raise any cash to meet redemptions. That stock won’t have any selling pressure, but you can still buy it for $70M. I don’t know where you can buy 2 Moz at 9.95 g/t for $70M.

TGR: Back to Pretium. About a year ago, Pretium was an $18 stock. Can it get back to that?

RA: Yes. Pretium is a binary story in that if this bulk sample works, its mine could be put into production for a relatively small amount of money. It could be a fourfold or fivefold lift on the stock. It’s just not much money relative to some of these multibillion dollar projects.

TGR: What are some other junior producers where you see upside?

RA: Virginia Mines is one. Éléonore is being put into production by Goldcorp Inc. (G:TSX; GG:NYSE) and Virginia is already getting paid a big royalty. Virginia CEO André Gaumond arranged to get preproduction royalties from that royalty agreement with Goldcorp and has been getting them on Éléonore for the last couple of years. This is one situation where if you look at the value of the royalty, or you look at the value of the assets that Virginia Mines has, you’re either getting one or the other for free.

Imperial Metals Corp. (III:TSX) is an up-and-comer. The company has two mines in production that are funding its push to get its Red Chris mine into production. It’s in British Columbia, a politically safe jurisdiction. Management owns a lot of stock, and it’s keen on not diluting. Imperial has a debt financing partner lined up and is doing everything it can to fund it internally. It says it is not going to do any equity and has been sticking to that.

Mandalay Resources Corp. (MND:TSX) is a producer currently evaluating potential acquisitions. Normally that’s a negative, but it has shown it does very smart acquisitions. It found projects with either people or technical issues and fixed the problem. It turned them around and immediately started paying dividends out of its cash.

TGR: Can Mandalay be profitable at $1,200/ounce ($1,200/oz) gold and $18/oz silver?

RA: Yes. Our all-in production cost right now is $1,180/oz, and that’s converting the gold, silver and even antimony to gold equivalent for cost. It’s turning a profit, but margins are thin. Mandalay also has good management; it understands what investors want from a mining company. It’s refreshing when you hear Mandalay’s management present its accomplishments and vision of management.

TGR: What is its stated objective for growing the company?

RA: Mandalay won’t grow just to grow. It wants to have healthy margins. It’s not going to do just any acquisition; it can find a deal that makes sense.

TGR: What stories of companies trying to grow production at their current mines are on your radar?

RA: Luna Gold Corp. (LGC:TSX) is actually a great opportunity right now. The company will finish the phase 1 expansion of the Aurizona project in Brazil by the end of the year. The engineering is 90% complete and procurement packages have been 98% awarded. Aurizona is fully financed through existing cash and with its streaming partner, Sandstorm Gold Ltd. (SSL:TSX.V), to get phase 1 done and get to 125,000 ounces (125 Koz). It just did a resource expansion and is modeling a 200–300 Koz possible annual production. That would be phase 2.

TGR: Is that realistic?

RA: Based on that 4.6 Moz, do you mine it 125 Koz/year and have a 15- or 20-year mine life, or do you size it up to a reasonable level given the costs? You want to do the study to find out. I think it will be a go. However, one downside to the company is that it marketed in Q1/13 knowing it had bad news regarding the water issue. The stock was under $4/share when it was marketing, and now it’s around $1.50/share. People were buying it at $3.50 or $3.75/share, and when it reported the quarter, it was a shortfall. The stock got pummeled.

TGR: What are some of the most recent junior positions you’ve added to the portfolio?

RA: Silver Bull Resources Inc. (SVB:TSX; SVBL:NYSE.MKT) is a recent addition. Coeur Mining owns 10% of the stock, and some other big hands are in there, but it has a very high silver grade that is supposed to be right at surface. Once you strip off that silver cap, you have a massive zinc ore body. For the company’s market cap, which is $58M, you get something that will end up being taken out by the senior shareholders. The silver grade is very robust, and that zinc kicker is right under it. Plus you have a senior partnered up with it.

TGR: You say the smart money will go to the bigger players when we start to climb out of this cyclical trough. Any particular names?

RA: I don’t know if the money will flow to Barrick because it is in such disarray. Goldcorp may be a beneficiary. Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) has a good corporate culture and high-quality ore bodies. It’s in the top scores. Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) and Silver Wheaton Corp. (SLW:TSX; SLW:NYSE). Maybe Eldorado Gold Corp. (ELD:TSX; EGO:NYSE). Maybe Newmont because it is U.S. listed and is the only gold company included in the S&P 500. For funds limited to buying index constituents, it may be the only stock they can buy.

TGR: Do you have some parting thoughts for us, Ralph? Maybe something to bolster the hopes of the retail crowd?

RA: Gold investors are seeing two newer trends in gold. One has to do with a move out of paper gold to the physical holding of gold. Chinese gold imports from Hong Kong have more than tripled since 2012 and premiums for gold physical delivery in Shanghai jumped above $30/oz. In addition, the U.S. Mint suspended sales of its smallest American Eagle gold coin after it sold off its entire inventory.

The second trend is the extreme pessimism toward gold, with speculative short positions hitting a record level. As of the beginning of July, the number of outstanding gold short contracts was close to 140,000. I think investors will see some higher gold prices later this year.

TGR: Thank you for your insights.

Ralph Aldis, CFA, rejoined U.S. Global Investors as senior mining analyst in November 2001. He is responsible for analyzing gold and precious metals stocks for the World Precious Minerals Fund (UNWPX) and the Gold and Precious Metals Fund (USERX). Aldis also works with the portfolio management team of the Global Resources Fund (PSPFX) to provide tactical analyses of base metal, paper, chemical, steel and non-ferrous industries. Previously, Aldis worked for Eisner Securities, where he was an investment analyst for its high net-worth group and oversaw its mutual fund operations. Before joining Eisner Securities, Aldis worked for 10 years as director of research for U.S. Global Investors, where he applied quantitative skills toward stocks, portfolio tilting, cash optimization and performance attribution analysis. Aldis received a master’s degree in energy and mineral resources from the University of Texas at Austin in 1988 and a Bachelor of Science in geology, cum laude, in 1981, from Stephen F. Austin University. Aldis is a member of the CFA Society of San Antonio.

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DISCLOSURE:

1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an employee or as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Almaden Minerals Ltd., Pilot Gold Inc., Rye Patch Gold Corp., Pretium Resources Inc., Goldcorp Inc., Mandalay Resources Corp., Silver Bull Resources Inc. and Klondex Mines Ltd. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Ralph Aldis: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. The following companies are held in U.S. Global Investors’ Gold and Precious Metals Fund and/or World Precious Metals Fund: Agnico-Eagles Mines Ltd., Almaden Minerals Ltd., Eldorado Gold Corp., Mirasol Resources Ltd., Goldcorp Inc., Imperial Metals Corp., Klondex Mines Ltd., Luna Gold Corp., Mandalay Resources Corp., Newmont Mining Corp., Pilot Gold Inc., Pretium Resources Inc., Rye Patch Gold Corp., Silver Bull Resources Inc., Silver Wheaton Corp., SPDR Gold Trust EFT, Virginia Mines Inc. and Yamana Gold Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.

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London Gold Market Report
from Adrian Ash
BullionVault
Thursday, 25 July 08:55 EST

WHOLESALE gold rallied from a drop to $1310 per ounce Thursday lunchtime in London, gaining as world stock markets also cut earlier losses.

 Trading back above $1322 – a two-year low when hit by April’s gold crash – spot bullion also rallied 1.0% for Euro and Sterling investors.

The Pound meantime regained half a 1-cent loss on news the UK economy grew 0.6% in the second quarter, in line with analyst forecasts.

Of the €4 billion in bail-out funds due to reach Athens next Monday, says the Ekathimerini newspaper, “more than half will be kept aside to pay for maturing bonds held by the European Central Bank” and other Eurozone partners.

“The selling gained speed after support at $1321 broke once again,” Reuters quotes gold trader Alexander Zumpfe at German refinery group Heraeus.

 “While the metal remains above key support at $1301,” says technical analysis from bullion and investment bank Scotia Mocatta, “it has now descended back below the downtrend that it had broken out of [Tuesday].

 Wednesday’s action – opening higher but ending the day down – “formed a bearish reversal pattern called Key Reversal,” says gold price analysis from fellow London market-maker Societe Generale.

 “Gold is therefore poised to correct lower to the previous congestion at $1303/1295.”

 Commodities also reduced earlier losses in London trade Thursday, as did major government bond prices.

 Ten-year US Treasury yields eased back from 1-week highs near 2.60%.

 Silver bullion tracked and extended the moves in gold, rallying 1.9% from a 4-session low to trade at $20.18 per ounce.

After new data on Wednesday showed China’s manufacturing activity falling to an 11-month low, the State Council in Beijing last night unveiled what one analyst calls “a mini-stimulus.”

 Aiming to “arouse the energy of the market,” the cabinet cut taxes on small business, reduced paper-work for exporters, and invited new investment in railway expansion.

 “China’s leaders turned to credit-fueled investment…after export demand faded in the wake of the 2008 financial crisis,” says a Wall Street Journal report, noting that investment’s share of Chinese GDP rose from 42% to 48% in the six years to 2012.

 “China’s world-renowned 8 to 12% growth rate is a myth,” writes financial author James Gorrie in London freesheet City AM today, “even as it now slips down towards 7%.

“China’s hard landing will…unfortunately be our hard landing as well.”

A cross-asset report from Societe Generale sees strong gold price volatility on a China hard landing, perhaps with “a sharp bounce from the initial sell-off if global central banks respond with further QE.”

 Looking at US policy, “Recent communication by Fed officials has emphasized that the overall level of monetary accommodation will not be reduced significantly,” says a note from commodities analysts at investment bank Goldman Sachs.

 Now forecasting an average gold price of more than $1400 per ounce for 2013 as a whole, the metal will average $1165 next year, the note says – repeating Goldman Sachs’ previous outlook – with a possible drop to $1050 by end-2014.

 Dollar gold has so far averaged $1491 per ounce in 2013.

 Gold mining companies took advantage of Jan-June’s drop in prices to reduce their hedge book, analysis from Thomson-Reuters GFMS said Thursday.

 Building a total forward sale of nearly 3,000 tonnes by 2001, the gold mining industry then “de-hedged” that position as the price rose.

 On top of the 11 tonnes bought back in the first 3 months of the 2013, “During the second quarter miners took the opportunity to reduce hedge cover further as the gold price fell sharply,” says the Global Gold Hedge Book Analysis, identifying another 17 tonnes of de-hedging between April and June.

 Contrary to recent talk of a return to gold miner hedging by other analysts, “We forecast that producer activity will remain on the side of net de-hedging for the year,” GFMS adds, “despite the sharp fall in price.”

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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Africa is becoming the top choice for North American oil companies looking to diversify, and the East African Rift is the hottest of the hot, with Kenya waiting on commercial viability, Angola and Ghana already on the road to rival Nigeria and two newcomers—Namibia and Zambia—where the doors have been thrown open for exploration. Getting in on Namibia and Zambia is an extremely expensive endeavour, but here’s a way to de-risk this adventure, keep your shareholders calm and strategically position yourself to take advantage of the next big find without footing the massive drilling bill: Buy up a ton of acreage and sit back and let others do the expensive exploration and drilling on territory adjacent to yours. Then strike and watch offers come in.

In an interview with Oilprice.com, Alberta Oil Sands (AOS) CEO, Binh Vu … discusses:

• How to get in elephant-sized plays in the East African Rift
• How to save cash by piggy-backing on others’ expensive exploration
• Why Namibia could be a major oil monster
• What makes Zambia such an attractive oil venue
• Other African plays that are worth looking into
• Why it’s hard for juniors to compete in Africa
• Why someone will always need Canadian oil sands
• What heavy oil economics will look like over the coming years
• Why Canada’s Algar Lake is a major sleeper play
• What qualities investors should look for when betting on juniors

Interview by James Stafford of Oilprice.com

James Stafford: With the oil discoveries in Kenya and a lot of optimism over other rifts and lake systems including those present in Uganda, Zambia, Tanzania, etc. the East African Rift System has become an emerging oil hot spot. What we want to know is how to make money here without spending a ton of cash in exploration and drilling? What’s the smart way to stake a claim on the East African Rift Basin?

AOS: That is a great question. The truth is that this area has become quite expensive as it has been found to be increasingly prolific. Major signing bonuses, deposits, and commitments are required in spots like Kenya, Tanzania, and Uganda. There is very little opportunity for the junior explorers to compete.

We believe that Zambia is a fabulous jurisdiction because it shares the geology and rock age in certain large areas that have hosted the Lake Albert Discovery and the Block 10BB Kenya discovery. However, it is totally underexplored for hydrocarbons and thus provides much cheaper access to very prospective areas. Our company has successfully tied up ~18 million acres or what we believe covers about 33% of the attractive rift areas in Zambia – which equates to oil and gas rights over about 8% of the country.

James Stafford: How does an exploration company on a budget go about covering and “high-grading” targets over such a large area?

AOS: Without a doubt that is a highly important question for any company engaged in the pursuit of elephant-sized targets in new frontiers. One of the things that we do is first is aim for concession agreements that don’t tie us to expensive immediate seismic commitments. Second we eschew large and expensive 2-D seismic programs in favor of a process of high grading using satellites, other remote sensing techniques, and ‘ground truthing’.

We estimate that by using satellite data analysis over a number of criteria–gravity gradiometry, thermal emissivity analysis, geobotany analysis including vegetation anomalies and geo-microbial review over specific high-graded areas on our acreage–we can save millions of dollars and years of time. We then get to specific areas that are ready for smaller, focused electroseismic surveys / 3-D surveys, and that can then be attacked as drillable targets either to take on ourselves, or to farm down to majors who are looking for the next major rift discovery.

James Stafford: What does the playing field look like right now in Zambia? Who’s there, what are they doing, and how are you positioned to take advantage of all the money being spent there on exploration and drilling?

AOS: There are a number of companies there and we have focused on two lakes as well as two dry rifts that show very promising gravity responses from the most up to date databases. Our number one focus is on Lake Tanganyika. This lake spans through Burundi, Tanzania, DRC, and Zambia.

There are currently to our knowledge at least three major active seismic programs on Lake Tanganyika including one recently completed by Beach Energy, an Australian company with a $1.75 billion valuation. Beach is directly adjacent to AOS, on the Tanzania side of the Lake. It is likely that Lake Tanganyika will see at least 1 drill hole in 2014.

We like Lake Tanganyika as the right spot for the next Lake Albert (3.5 billion barrels reserves) discovery because of the almost identical geological setting and rock age as well as the size of the Lake and the major indications of an existing petroleum system. Lake Tanganyika has multiple oil slicks and natural oil seeps including one that is believed to be the largest natural oil seep in the world. You can see it from Google Earth.

James Stafford: You’ve also recently acquired acreage in Namibia, which just made its first-ever commercial oil discovery. What are the prospects here and what kind of timeframe are we looking at?

AOS: I’m glad that you asked that. Namibia to us is a potentially direct analogue to all of the major offshore discoveries in Brazil (plate tectonics theory) and Angola to the north. Offshore Namibia has the identical age and rock type as the discoveries in offshore Angola. Combined, those two countries have nearly 30 billion barrels in reserves.

Namibia itself, however, remains highly underexplored with only 16 wells drilled in 20 years–seven on Kudu Gas Field alone–and the majority of the rest were shallow shelf wells. People are starting to get the idea and now. BP, Petrobras, Repsol, Galp Energia, HRT, are all there.

HRT has had success there on their first well of this three-well campaign where they discovered light oil for the first time. Their second well was dry. The third well on which they will begin drilling in August in their PEL-24 block which borders directly on to AOS’ 2.5 million acre land package in the Orange Basin – blocks 2712A and 2812A. We are at ground zero.

HRT rates their play chance there at 25% and to my knowledge it is their biggest target–a 30 billion barrel monster. If that one works, I would think that there will be companies knocking down our door. We will know likely in late September, maybe the beginning of October.

Regardless, there should be at least five more wells drilled and $500 million to $1 billion being spent offshore Namibia over the next 12-18 months, so it really fits well with our strategy of being in highly active basins where majors and big independents are spending lots of money around us to prove up major discoveries.

James Stafford: AOS’ new Africa portfolio is an ambitious diversification of its original assets in Alberta oil sands. Why the need for diversification here?

AOS: It is indeed; however, I think that what shareholders need to understand (and many of ours do not) is that AOS has been traded for the last 24 months strictly on its balance sheet. It basically always trades at its cash per share. Why is that? Very simply there is or has been in recent times, very little capital market appetite or excitement for small companies developing SAGD oilsands plays.

Athabasca Oil was one bright spot, but that was a marvel of financial engineering that caught a window.

AOS has 500+ million barrels of oil sands resources which are getting no value. Combine a terrible junior market with complete apathy for this asset class, and the result is a share price that declines almost in lockstep with the treasury, and a total lack of response or enthusiasm to basically just about any kind of positive news.

We feel that while AOS is underpinned by its cash and by real assets on which the company has spent almost $65 million developing since 2007, it adds meaningfully to shareholder value by bringing into the fold, as cheaply as possible, blue sky scenarios with major lottery ticket potential and requiring little to no cost commitments over the next 12-18 months.

Ultimately, as we gain approval at our flagship Clearwater project in Alberta, part of our plan as we examine our options to unlock value in two distinct plays could be to dividend out our African assets to shareholders into a new company on a 1 for 1 basis, such that shareholders retain 1 pure play share of Oilsands in Alberta (Clearwater, Grand Rapids, Algar Lake), and one pure play share of our 21 million acre and growing high-impact African exploration portfolio (Zambia, Namibia, DRC).

James Stafford: Mainstream media reports generally put a price tag of $75 to produce a barrel of Canadian oil sands, but is this really reflective of the true price once you get past the start-up phase?

AOS: Some of the junior oilsands development companies that have made the transition to SAGD have stumbled without a doubt. Connacher and Southern Pacific being two recent examples. I believe, however, that the economics are actually superlative once all problems are solved, and of course you can go on producing for a very, very long time. The margins of an operation in full-swing and after start-up/growing pains, are much better than the mainstream media is reporting.

James Stafford: For how long will the US continue to need crude from Canada’s oil sands given current levels of production from US shale plays? What is the production price comparison here? Will it cost more to sustain production from wells in the Bakken and Permian Basins?

AOS: This is an interesting question. My personal view is that whether it be the US or someone else, there will be no shortage of demand for what the Canadian oil sands can produce. Further, there is a lot more certainty in terms of consistency and longevity of the oil sands assets and their production profile, once they get going.

James Stafford: What are your predictions for North American heavy oil economics over the next 2-3 years? Plenty of investors think this is the place to be with a lot of refineries coming out of turnaround and getting heavier and heavier despite all the light shale oil. Will demand for heavy oil rise?

AOS: I read analyst prognostications on this stuff every day. They can certainly have different complexions depending on who you are listening to. To me it’s pretty simple: I don’t believe that prices are going to go outside of a range (below, or above) where extremely healthy margins can be made by good operators, for their shareholders. We will be range-bound here at healthy levels is my overriding feeling on this.

James Stafford: What can we expect from AOS in terms of Canadian oil sands development in the next 6-9 months; in the next 2-3 years? What drilling will occur across AOS’ oilsands acreage?

AOS: Alberta Oilsands has four main projects domestically, and two of them are sleepers.

For our flagship Clearwater asset with 373 million barrels of resources we hope to receive ERCB permits for production in Q4 of this year at an initial rate of up to 5,000 bopd, with a phase II of up to 40,000 bopd. This will be a game changer for us, and is the one thing that probably will move our market much higher immediately.

Our Grand Rapids project has resources of 119 million barrels and we have just completed an EUR study that demonstrates its ability to produce as much as 30,000 barrels a day, for 40 years. This is highly encouraging and is totally overlooked by the market.

Our third asset is a sleeper asset, in my opinion. AOS has taken on a partner to drill its Algar Lake project. We chose this partner because of its history of great exploration success. The team has, from scratch, made two separate billion+ barrel discoveries in Alberta and Saskatchewan and sold each to the majors. They want to turn their focus to Algar Lake now because it has the potential for cold flow production. Cold flow CAPEX is ~25% of SAGD CAPEX. On the OPEX side and on the operational complications side, it is basically the same story as well. Those are fundamental and major benefits.

If I can find a couple hundred million barrels of cold flow today, I think that the world is at my door. The 5 well program this winter will be enough to tell us if we have the next Pelican Lake – CNRL’s most profitable operating division per barrel, full stop.

James Stafford: It is no doubt a very difficult time right now for most junior oil and gas explorers and developers–whether with a domestic focus, or an international focus. What do you tell investors?

AOS: I would say that I don’t see that risk capital coming back for some time. It will be very opportunity specific and success driven. You want to look for companies that have the ability to survive for a while with the cash in the bank, are underpinned by real assets with a real value, and also can provide the excitement and possibility of a geometric return on investment.

James Stafford: And does AOS qualify for those criteria?

AOS: Not to toot our own horn here James, but my view of the world is: AOS is trading at just above cash value. Our combined PV10 between Clearwater and Grand Rapids is $823 million–or about 225X our market cap net of cash. We have a very small burn rate. We have multiple catalysts that can take us much higher in the next few months, including: Success in Namibia by HRT in September; approval at Clearwater for production in Q4; partners on our vast African acreage, or other discoveries near our rift acreage; demonstration of cold-flowing reservoirs at Algar Lake; and a strategic partner for Clearwater or Grand Rapids.

If any of these things come to fruition I think that the market and our own shareholders will sit up and take notice again and realize that right now they get all of those potential outcomes for free while we sit trading at cash value, with 500 million barrels of oil booked, and 21 million acres of prime exploration ground with 100s of millions of dollars being spent right around it.

James Stafford: Thanks very much for sharing your views with us on both the African landscape for exploration and discovery, as well as the outlook for heavy oil prices and oil sands development in Canada.

Source: http://oilprice.com/Interviews/Piggybacking-on-the-Hunt-For-Massive-Oil-Discoveries-Interview-with-AOS.html

By www.CentralBankNews.info Here’s today’s Central Bank News’ link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

By www.CentralBankNews.info     The Philippine central bank held its policy rates steady, including the Special Deposit Account (SDA), saying the risks to inflation remain broadly balanced, economic growth is strong and recent market volatility calls for caution in assessing the policy stance.
    The Central Bank of the Philippines (BSP) said inflation is expected to remain within the bank’s target range in the next two years, supported by well-contained inflation expectations and subdued global economic prospects that will temper upward pressures on commodity prices.
    “Nonetheless, upside risks to the inflation outlook remain, including pending utility rate adjustments as well as the recent depreciation of the peso,” the bank said.
    The BSP held its benchmark overnight borrowing rate, or reverse repurchase facility rate, steady at 3.50 percent – unchanged since October 2012 – along with its overnight lending rate at 5.5 percent, and the SDA rate at 2.0 percent.
    The decision to hold rates was widely expected following a statement last week by the bank governor who said there was “no urgency to change policy because inflation remains under control.”
    While keeping its main rates steady this year, the BSP has cut the SDA rate by 150 basis points to make it less attractive for foreign funds to park their money there, putting upward pressure on the peso. Last year the peso rose by almost 7 percent against the U.S. dollar.

    But since last June, the peso has bounced back and is now only down 5.4 percent since the start of the year, quoted at 41 peso to the U.S. dollar today.
    In June the Philippine inflation rate rose slightly to 2.8 percent from 2.6 percent in May and April.
    Last month the BSP also said inflation was expected to remain within the bank’s target for 2013 and 2014 – 4.0 percent plus/minus one percentage point – and the 2015 target of 3.0 percent, plus/minus one percentage point.
    In April the BSP forecast 2013 inflation of 3.3 percent.
    The Philippine economy continues to be robust, the bank said, supported by domestic demand and buoyant market confidence, strong domestic liquidity and bank lending
     Gross Domestic Product was up 2.2 percent in the first quarter from the fourth quarter for annual growth of 7.8 percent, the fastest rate since the second quarter of 2010. The government has forecast growth this year of 6-7 percent compared with 6.6 percent in 2012.
   
    www.CentralBankNews.info

By www.CentralBankNews.info     Fiji’s central bank held its Overnight Policy Rate (OPR) steady at 0.5 percent, saying the current accommodative stance was appropriate as inflationary pressures remained in check, foreign reserves were at a comfortable level and the economic outlook was positive.
   The Reserve Bank of Fiji, which has maintained its rate since December 2011, said investment activity was “extremely buoyant” with cement sales higher along with increased lending to the manufacturing, building, construction and real estate sectors, confirming the bank’s estimate that investment to GDP ratio this year will exceed the government’s target of 25 percent.
    “Domestic economic conditions were very positive and there was a growing sense of optimism and confidence about our economy,” the bank’s governor, Barry Whiteside said.
    Fiji’s inflation rate was steady at 1.5 percent in June from May and the Reserve Bank has forecast Gross Domestic Product growth of 2.7 percent this year, up from 2012’s 2.5 percent.
    The bank also said that liquidity in the banking system was adequate, putting downward pressure on market interest rates and commercial banks’ deposit and lending rates were at historical lows.
    “Against this background, domestic credit has continued to gain momentum with robust commercial bank lending accounting for much of the surge in private sector credit,” the bank said.

    www.CentralBankNews.info
   

By MoneyMorning.com.au

‘I don’t think the Fed can get interest rates up very much, because the economy is weak, inflation rates are low. If we were to tighten policy, the economy would tank.‘ – Ben Bernanke’s response to a question from the House Financial Services Committee hearing held on Wednesday 17 July 2013

After increasing the money supply at a rate of 33% per year for the past five years, the best US Federal Reserve chairman, Dr Ben Bernanke can manage to achieve is ‘the economy is weak‘.

The sheer volume of newly minted dollars has financial experts and gold bugs searching the horizon for evidence of inflation and even hyperinflation. The theory is, ‘Surely with this much money being added to the system, higher inflation must soon appear on the horizon?’

Conventional wisdom suggests inflation should be a by-product of the central bankers’ efforts with the printing press.

However, the fact is we aren’t in conventional times. Therefore the world as we know (or think we know) it may not act in its usual ‘Pavlovian’ way.

The following chart on UK inflation rates dating back to 1265 shows persistent inflation is only a 20th century phenomena.

Prior to 1900, the UK and other developed economies experienced the ebb and flow that happens when humans interact in a buying and selling process.

Supply, demand, greed, fear and a host of other variables drive our decision-making process. This in turn moves the economy in certain directions – positively and negatively.

Source: Credit Suisse

The negative period in the early 1900′s was a result of ‘The Panic of 1907′. This severe downturn gave the authorities and big banking interests an excuse to set up a central bank.

Lesson number one for the rich and powerful is ‘never let a good disaster go to waste’. They sold the central bank concept to the public as a tool to stabilise the economy.

Ever since then, central bankers have ‘controlled’ the economy. But the value of a dollar has been anything but stable. Inflation has all but vaporised the buying power of a dollar issued a century ago.

Due to central bank meddling intervention, inflation is all we have known for the past century. Little wonder we expect inflation – especially when the Fed now prints more money in a year than it did for the previous century.

Yet in spite of all we think we know about the economy, ‘inflation rates are low.‘ The following graph confirms Bernanke’s testimony.

Click to enlarge

The core personal consumption expenditures deflator (an indicator the US Fed watches closely) is at a fifty year low with just a 1% year-over-year change.

Bernanke is fervently following the manual written by those who went before him. However, it’s not producing the outcomes they achieved.

A hundred years is a long time for an experiment (and that’s what central banking is) to show consistent and reasonably predictable results. However, they can only repeat the results if the lab conditions are the same each and every time.

And that’s the subtle but key missing piece of the puzzle that most people have overlooked – the lab conditions aren’t the same.

• World population quadrupled in the past century – finite resources mean this is unlikely to happen in the next century.

• Population growth in the western world has stabilised compared to the growth rates of the past century.

• Millions of baby boomers are transitioning from excessive consumption to conservative retirement.

• Household balance sheets are dripping in red ink – capacity for more personal debt is declining.

• Compared to a century ago, government welfare, healthcare and warfare obligations are ‘through the roof’. A sustained period of consumption (producing higher tax revenues) won’t rescue heavily indebted and over-obligated governments this time.

For the time-being the days of excess consumption are in the past.

The following chart (dating back to 1965) shows over the past five years there has been a 90% correlation between what consumers earn and what they spend.

Click to enlarge

Compare this to the 2002 to 2007 period (the credit bubble period) when there was next to no correlation between earnings and expenditure.

Why was that? This was when consumers treated their home as an ATM – using home equity loans to fund consumption.

The next chart on Mortgage Equity Withdrawals (MEW) shows the debt feeding frenzy that occurred from 2002-2007. Since the GFC hit it has been all downhill. The consumer focus has been on living within their means and repaying (or, defaulting on) debt.

Click to enlarge

Inflation is the by-product of money creation plus credit.

In the past five years the Fed has produced around US$2.5 trillion of new money. Over the same time, the private sector has cut debt levels by US$4 trillion.

There are a couple of other telltale signs of inflation that are pointing in the wrong direction. Commodities prices have trended down for the past two years, and the Baltic Dry Index (an indicator of global shipping activity) is down to levels last seen during the GFC.

The Great Credit Contraction is producing the equal and opposite effect of The Great Credit Expansion. The inner tube of the global economy has a puncture – more air is escaping then the central bankers can pump in.

When a tyre loses pressure it is DEFLATING.

But the deflationary outlook isn’t unique to the US. Look at this chart from a recent Societe Generale report:

Click to enlarge

Here is an edited version of the commentary accompanying the chart (emphasis mine):

‘Perhaps, though, the most decisive macro factor for all markets will be any slide into deflation in China…. The recent Q2 GDP data contains the surprising fact that China’s implicit GDP deflator had slowed to only 0.5% yoy – noticeably weaker than the CPI data… The fact that China is on the verge of outright deflation may prove more important than even Fed tapering.‘

But don’t worry. Bernanke has it all under ‘control’ – after all isn’t that what central bankers believe?

How’s this for supreme confidence. When asked how the Fed will exit its QE (quick & easy) money experiment he said:

‘We know how to exit. We know how to do it without inflation… We have all the tools we need to exit without any concern about inflation.‘

The only tools Ben has at his disposal are the other board members sitting around the Fed’s boardroom table.

Four years of money printing have done nothing but damage the integrity of markets. By distorting interest rates they have forced investors into high risk investments paying low returns. Let’s face it, for the average punter a few percent from anything looks a whole lot better than 0.25% in the bank.

The longer this experiment is allowed to continue (and Fed hubris means it will be for longer than anyone expects), the greater the dislocation in markets. When GFC Mk II hits, consumers will retreat even further into the cave of cautious spending and debt reduction or default.

The irony is the Fed’s money printing has increased the odds of a deflationary outcome.

A century of central bank meddling in markets has produced another type of inflation – in the form of central banker egos and belief in their abilities.

The pending market upheaval will hopefully deflate these puffed up theorists.

Vern Gowdie
Editor, Gowdie Family Wealth

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From the Archives…

Why Invest ‘Hard’ When You Can Invest ‘Easy’?
19-07-2013 – Kris Sayce

Read This Before You Buy Another Stock or Bond…
18-07-2013 – Murray Dawes

Could Uranium be the Best Investment in 2013?
17-07-2013 – Dr Alex Cowie

Asteroid Mining and the Commercialisation of Space
16-07-2013 – Sam Volkering

Why the Australian Share Market is Heading Even Higher
15-07-2013 – Kris Sayce

AUDUSD failed to break above 0.9305 resistance, and stays in a trading range between 0.8998 and 0.9305, suggesting that the pair remains in consolidation of the downtrend from 1.0582 (Apr 11 high). The range trading could be expected to continue in a couple of days. Support is at 0.8998, a breakdown below this level will signal resumption of the downtrend from 1.0582, then further decline towards 0.8500 could be seen. Key resistance is at 0.9305, only a clear break and hold of this level could indicate that the downtrend from 1.0582 had completed at 0.8998 already, then the following upward movement could bring price back to 1.0000 zone.

Provided by ForexCycle.com