Day: Jul 30, 2015

The Calm Before The Storm?

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The Calm before this particular Storm?
The Calm before this particular Storm?

Is this the calm before the storm? Some months ago, before Xmas, I floated the proposition that “The West” might be about to shoot itself in the head, heart, AND foot, just to make sure.

My reasoning was that I felt Russia, might be about to demand payment in Rubles for their gas, and other things, which would effectively shoot the west in the aforementioned organs, as the U.S. sought to ratchet up pressure on President Vladimir Putin.

The U.S. through its monetary influences and power in International Organisations – the IMF, BIS, Federal Reserve, and of course the ECB, Bank.of.England, U.N. and Bank of Japan. is waging war on Russia, and the Fed by its agents is waging that same war on both Gold and Silver too, in a vain attempt at defending and extending American Capital influence ostensibly to protect itself from the rise of China and a resurgent Russia.

However, having recently read some Russian blogs, I now know that Russia is using its dollars received for its energy, to buy Gold at the artificially low prices that are artificially low due to Fed manipulations, thus doing two things.

One is that President Putin is helping to relieve America, and the West of its Gold hoard, and two, he’s also ridding himself of those pesky dollars, that he doesn’t really want.

And China a little over week ago released its “ahem” Gold reserve figure, which appeared to all the gold watchers as an absolute falsehood. It just isn’t possible, that after importing 100 tonnes per month plus, for three consecutive years, and mining 3-400 metric tonnes per year, that the PBoC only increased its Gold holdings from 1,054tonnes, by some 600 tonnes over the 5years since its last declaration to 1,658 tonnes.

As it is, we will need to wait to find out just how big of a lie this really was.

On bloomberg yesterday morning (EST-July 29, 2015) we learned that Russia is stopping the purchase of foreign currencies, as the Ruble comes under renewed pressure. And later a talking head – Scott Bauer – Senior Market Strategist for Trading Advantage, in a face to face commentary with Julie Hyman of Bloomberg, suggested “Now is the time to dip a toe in the water” with regard to Gold bullion.

But as I was trawling the blogosphere, looking for additional information, I fell upon this recording of an interview between gold commentators with Dave Kransler and Rob Kirby of Kirby Analytics from a couple of days previously:

The key takeaways from the interview, are that the recent price fall in Gold, was as a direct result of manipulation, as $2.7billion worth of Gold Futures contracts, were sold short on Sunday evening EST, (Monday morning – Shanghai time) a full two minutes before the Shanghai Exchange opened, which if it was an attempt to get the best price for Gold – failed abysmally.

In fact Rob Kirby, thinks it was a warning shot towards the Chinese, via Asian markets to stop buying Gold. He then went on to quote fellow Gold Bug and commentator when he quoted – James Turk:

“We’re witnessing the Western World destroy its money”

And yesterday also, the Fed announced it was on course to raise interest rates sometime this year. One commentator on Bloomberg even went as far to suggest that it would be better to raise early, and then have ammunition if they fell back into recession, but I’m not so sure that they’re not already pushing on a string as the saying goes.

After the stock market crash of 1929, the Fed cut interest rates too, and then 8 years’ later in 1937, raised interest rates again, only to watch as the U.S. quickly fell back into recession, until the second world war which meant the U.S. had to turn some of its productive capacity over to war production. We shall see if a repeat of this is on the cards.

The beginnings of this financial madness began with the Soviet Union. The west in NATO, but especially the U.S., needed to outspend the Soviets with military spending, and the only way to do that, was with a flexible currency, and that meant, they couldn’t have a currency backed by gold, as that would limit the ability of politicians and the Fed to inflate the currency supply – remember Nixon closed the Gold window temporarily in August 1971, and this temporary closure has been in effect ever since.

At the end of the Soviet Empire, the European organisations made agreements with the Soviets, to not encroach into former soviet countries, yet many of those countries, in order to not risk re-colonisation, chose to either join the North Atlantic Treaty Organisation (NATO) or European Union. (E.U.). This was of course encouraged to strengthen the U.S’s Federal Reserve monetary system, which as I’ve mentioned numerous times is now no longer backed by physical metals but requires constant growth to feed the beast. At one point Russia even made overtures to join NATO.

But like the childhood game of “King of the Castle”, the U.S. right-wing group within government – the neo-cons – decided it wasn’t enough for the U.S. to win. The old cold war enemy – Russia, had to lose.

Dr. Paul Craig Roberts – Ex Treasury Secretary under President Reagan, says “The US Government is the most corrupt on Earth”.

“It’s like that film The Matrix… We live in a totally made up world”
– Dr. Paul Craig Roberts.

When this House of Cards collapses, real money will achieve its true value.

So, from a financial perspective, buying into Gold, Silver, and Gold and Silver miners at their current low valuations is beginning to make even more sense as most miners have fallen in excess of 70% in price, and Silver now trades below $15/ozt.

And if you’re wondering about the demand for metals, perhaps these two silver charts will reassure you of where the future lies…

Global Physical Silver Sales – 2005 – 2013

And this, that shows how silver has been supplied by government sales that have come to an end…

U.S. Government Silver Sales as a percentage of the total 2003-2014

Junior Miners

To that end, I’d like to re-introduce you to a miner, that I have been following for some 12+years…

Mining Operations in Africa, by this junior...

The company is predominately a junior gold miner, but has mineral properties in several countries in Sub-saharan Africa – Democratic Republic of Congo, Angola, South-Africa, Botswana and Zimbabwe…

Unfortunately for its shareholders, a number of events outside management control have had a dramatic effect on the company over the last decade, and its share price has suffered, this has also meant several management changes, particularly in early June of this year, when the most recent CEO was voted off the board by some large shareholders, as the share-price languished.

Shortly after, the company announced the Nominated Adviser (NOMAD) was to resign too, and a new one would be looked for.

This prompted much speculation amongst shareholders, that the new board would deliberately fail to appoint within the required timescale, and thus the listing on the AIM would be withdrawn under its rules, taking the company private.

However, on the final day before de-listing, a new NOMAD – Grant Thornton UK LLP – was announced, and a new broker too to come on board in the not too distant future.

The price prior to these announcements, had dropped like a stone, and halted at just 1.15p (GBP) before a small rebound to circa 1.35p.

However, in the last two days, the board has published its Annual Accounts, and laid out management plans for the future.

The mood of the newcomers to the board appears to have been, that things were happening too slowly, and that the necessary cost cuts, and financial re-organisation was long overdue, meaning Corporate Overheads were too high at a time of falling ore prices.

The Company owns several properties in Copper, Nickel, Diamonds, and of course Gold.

The principal producing Gold mine is flowing at the rate of just below 60,000 ounces of Gold per annum (a little over 1,000 ounces per week) (85% owned). Their subsidiary Nickel mine has been on care and maintenance as has the 75.4% owned Nickel smelter and refinery. Which is the only Nickel mine, smelter and refinery in the whole of sub-Saharan Africa, and to build from scratch would cost upwards of $500million. (some valuations have even suggested circa $750m)

Annual Revenue increased 6.9% to $152.3 million, with group net cash rising by 81.3% to $11.6m and EBITDA came in at $18.8m, with COP rising slightly to $1,067/ozt up from $959/ozt last year, with the all-in costs up to $1,259/ozt from $1,186/ozt..

The main mine – Freda Rebecca produced 57,799 ounces of Gold, slightly down on 2014 from 58,704, but given that a leach tank fell over duriing the early part of the year and was out of commission for a few weeks while a suitable replacement was found and repair carried out meant some lost production. The Company’s nickel production was also down slightly.

However, the company last year raised a $20m corporate bond, which now sits on the books as an asset, with $16.4m banked last year, and the final tranche some of which was recently received, and the rest to be received by the end of September this year.

This money will be used to restart smelter operations, at the Nickel smelter and refinery, which were put on care and maintenance during the nickel price collapse, and the collapse of the economy during the Zimbabwe hyper-inflationary period.

For these reasons, the company share price collapsed, but if a fair metals price and a stable political environment ensues, then a share price in the region of £0.50 – 0.90 would seem realistic, and that is a long way up from these depressed levels.

The Smelter’s excess capacity will be used to smelt ores from nearby miners to ensure full capacity, which is 17,000tpa, and to raise profitability, at least until the “Trojan” mine which is part of the group, can be brought back into full operation, and the massive ore bodies accessed. The existing nickel mine is one of four – Hunter’s Road, Shangani, Maligreen, and Trojan
which is due back on-line early next year, which together with two Gold mines – Freda-Rebecca, and Makaha (100% owned) which is an exploration property are Zimbabwe based.

In South-Africa, they have the Klipspringer Diamond mine. And in DRC, they are not yet mining, but are exploring on several properties, which are either wholly or jointly owned, with a 9kilometre rift, that has already had measured 2.9million ounces of Gold, with 6 of the nine kilometres still to explore.

Whilst I am not advocating anyone invest their pension pot in this junior, with political risk, not least from a President and his closest advisers, who seem to have a deep seated resentment for ownership of Zimbabwean assets by non-natives.

Despite this, a wind of change is beginning to emerge, as recognition that without access to expertise and finance from the best sources, that the economy cannot hope to flourish, but as Robert Gabriel Mugabe is now the oldest Head of State in the World, and its longest serving, when he departs the political stage, the political risk in this blighted country will turn, and the price of this small miner will explode to the upside, as happened several years ago when it was reported that he (RGM) was ill, I do feel that for those with a little risk tolerance, a small investment might be worth the inevitable risk. But nothing in life is a certainty…

However, if Gold explodes upwards to the prices I ultimately predicted for precious metals some years ago, of $8,500 for Gold, and $500 for silver, then all miners will benefit, but those who are highly leveraged with controlled costs, will benefit the most, and junior miners with good resources, will explode by multiples of this. In the last Gold bull market in the 1970s, some of the junior miners went up 100,000%.

And this miner is? MWA,- Mwana Africa.

In summary, the company Mwana Africa has operations in Zimbabwe and South Africa, has several exploration properties in 3 other countries, a controlling interest in a nickel mine, smelter and refinery estimated to be worth half a billion pounds, a well educated and trained workforce, 5+million ounces of Gold, A total of 2 million tonnes of kimberlite with diamond grades in the measured and indicated categories of 51 carats per hundred tonnes, a copper resource in DRC that is currently estimated to be in excess of 200million pounds, and 36million tonnes of nickel ore with a grade at 0.55%.

Mwana Africa – Operations

So, why is this company still valued at a Price Earnings Ratio of 7, and a valuation of just $17million?

In a word – Politics – at home and abroad. But the storm is approaching, which will give this junior a serious jolt of lightning.

NB: Nothing in this post should be considered investment advice. The prices of shares can go down as well as up, and those who invest should seek professional advice. The writer of this post has a small holding of this particular stock. And this is considered a long-term holding.