Q3 Gold Demand: ETFs vs. Jewelry
November 1st, 2010 | Posted by Global InvestorsBy Julian Murdoch
When we last covered the fundamentals of gold supply and demand back in August, we commented that "the third quarter is traditionally (minus 2009) a good one for gold demand … Perhaps higher demand—and higher prices—lie ahead."
For the moment, all evidence points to that trend continuing (albeit at a modest pace). In the third quarter, spot gold rose from $1,242/oz to $1,308. Since then, in just a month, gold has gone up another 4.7 percent to hit a high of $1,369/oz—although prices have since eased off a bit, the rise still suggests an acceleration of demand.
But why is gold back on such a tear, and why right now? Clearly, macroeconomic issues are at play; the Fed’s inevitable impending round of QE2, not the least among them. But is there more to the story here?
Last week, the World Gold Council released its quarterly Gold Investment Digest, providing exactly the under-the-hood look gold investors need. While updated supply and demand numbers won’t be published for another few weeks, this investment report usually gives us a sneak preview of what the data dump will contain.
ETF Demand Up … But Barely
To see how gold demand has evolved from last quarter, a natural first step is to look at ETF demand, as precious metals ETFs (like GLTR, the new precious metals basket from ETF Securities) make it easier than ever to access the physical space:
ETF Gold Holdings
Source: World Gold Council
ETF investment may be up, but notice how purchasing flatlined last quarter. This contrasts with previous periods (like Q1 2009), which saw huge spikes in gold purchases from ETFs. But for last quarter, at least, that buying seems to have been quite modest, at 28.3 tonnes (bringing the total ETF holdings to 2,070.1 tonnes at September 30). In fact, it doesn’t seem that the October rally has been spurred by ETF demand: Based on our calculations, last month, ETFs worldwide actually sold just under 8 tonnes of gold from their vaults.
But gold’s rising price must mean demand coming from somewhere. Our bet? Jewelry.
Jewelry Demand: Not Just India Anymore
Jewelry demand is traditionally a huge driver of gold prices, ranging on either side of 50 percent in any given year or month. And of that demand, India remains king. Considered some of the savviest buyers in the market, Indian consumers drive anywhere from 10 percent (in a bad quarter) to over a third of global jewelry demand.
Still, entering the quarter, buying looked a little light in India, with year-over-year demand in the country actually slightly negative. But any slack had been more than made up for by other Asian countries, including Hong Kong, Japan and Russia:
Jewelry Demand, Q210 vs. Q209
Source: GMFS
While we don’t have hard numbers on how exactly the classic September-October pre-festival buying season panned out in India, we do have this nugget from the WGC report:
The first half of Q3 2010 witnessed robust sales in both rural and urban markets, supported by a normal monsoon season. However, with prices staying above the Rs 1,775.00/g (approx. Rs 57,000/oz) level for most of the third quarter, jeweler sales seem to have contracted in September. The WGC expects demand to pick-up further in the fourth quarter with the commencement of the main festive season from early October until November (Diwali-Dhanteras festival).
It’s easy to miss the subtlety here. September usually marks the pickup in Indian demand, but a surge doesn’t always happen. In 2007, for example, Q3 Indian demand crashed along with the regional economy, while in 2008, Indian buying made a major resurgence ahead of the wedding and festival season. In 2009, the first half of the quarter started weak, as gold prices remained extremely high, but then demand surged in late September and into October.
But it’s worth noting that while much of the rest of the world’s economies are struggling with stagnation, 2010 has been a very good year in India. Its economy has grown at nearly 9 percent, and both inflation and government deficits are under control.
For gold bulls, this demand shift away from predominantly U.S. ETFs and back toward jewelry is, I think, a good sign. If gold prices can remain high on the back of declining ETF demand, then should significant QE2-driven inflation fears revive ETF demand again, that would just pile U.S. fear on top of Indian exuberance.
In which case, get out of the way of that charging bovine.
The caveat, of course, is that ETF demand has proven fickle, and prices remain at all-time record highs. On an inflation-adjusted basis, you’d have to go back to the Carter administration to find prices like this. And remember, back then investors faced a Fed funds target rate of 20 percent, and an inflation rate of 14 percent.
If that’s enough to temper the bull — well, we just calls ‘em like we sees ‘em.
Disclosure: No positions
November 1st, 2010 | Posted by Global InvestorsBy Brad Zigler
Back in 1984, Mr. Miyagi famously intoned "Wax on. Wax off," to his Karate Kid pupil. The training mantra for the hero of the eponymous flick could well be adapted to the 2010 market as "Risk on. Risk off."
Judging from the Gold Miners Ratio—the price multiple of the Market Vectors Gold Miners ETF (GDX) over the Market Vectors Junior Gold Miners ETF (GDXJ) — investors flipped the risk switch to the "On" position in July and have kept the light burning ever since.
The price of the larger-cap producers’ funds was once twice that of the junior portfolio, but that premium’s been chipped away as buyers bid up GDXJ. The ratio’s chalking up a new low at 1.58, signaling a new high in mining aficionados’ risk appetite. Think of an investment in GDX as an analog to a blue-chip stock purchase, while GDXJ is akin to a venture capital play.
Since the beginning of the year, the GDXJ portfolio’s gained 41 percent, while the GDX fund’s appreciation has paced that of gold at 24 percent.
That’s an important distinction. GDXJ’s relative strength to gold shot up this summer after being whittled away by the senior stocks in the spring.
Relative Strength Advantage: GDXJ vs. GDX
The present advantage enjoyed by GDXJ, however, is due more to a weakening in GDX’s strength rather than increased vigor in junior issues. GDXJ’s raw relative strength has actually been stalled over the past month.
GDXJ is now trying to regain the high ground reached at $36.77 in mid-October. Last week’s price action was constructive after a rebound from the $34 level. Shares were worth $36.18 as Friday’s trading wound up.
There was a bullish crossover in the fund’s RSI indicator last week, but its momentum oscillator weakened along with Friday’s 1.8 percent gain. The wobble in market momentum has got some traders worried, especially in light of the capital outflows seen in September. The fund’s Money Flow Index fell precipitously then as prices reached their present plateau.
GDXJ Price vs. Money Flow Index
(Click to enlarge)
This indicates that, while the risk trade is on, investors have their hands on the switch plate while they await the week’s election results and the outcome of the upcoming Fed meeting.
Wednesday ought to be fun.
Disclosure: No positions
6 Silver Stocks Ready to Follow SLV’s Momentum
November 1st, 2010 | Posted by Global InvestorsThe author is an avid silver investor, and is watching the silver price this weekend with an eagle eye. With "All Hallows Day" and "All Souls Day" upcoming, is it now time for the "good guys" to win for a change?
Last week we had Silver shocking news from the Commodities Futures Trading Commission (CFTC) that silver futures pricing may have been manipulated:
I do believe that there have been repeated attempts to influence prices in the silver markets,” Mr Chilton said on Tuesday at a meeting in Washington. “There have been fraudulent efforts to persuade and what I consider deviously control that price.
With this news and revelations being priced into the markets, Silver appears poised for a new movement upwards. The author reviews the silver price and the status of his Six Silver Stocks recommendation made on September 17th, 2010.
The Kitco chart following displays the last Silver price at the end of the day Friday October 29th as $24.75 USD.
Click to enlarge:
Figure 1: Silver Daily closes at $24.75 Oct. 29th, 2010.
Examining the silver movement using the SLV Silver ETF as a proxy for the price of silver for the last month in the chart following we see the distinct formation of a bowl or cup shape, circled in blue.
Click to enlarge:
Figure 2: Silver Chart with Bowl formation. Silver appears poised for break upwards.
In technical trading circles, the bowl or cup shape is seen as bullish, as a continuation of an up trend indicator. Looking further back to summer, in the following chart of the SLV, we see that the silver price started the up trend on or about August 22nd, 2010.
Click to enlarge:
Figure 3: Silver moves since August 23rd, 2010. All indicators shown are bullish. The RSI is turning upwards. The price bowl looks poised for a break upwards. The volume is increasing, supporting the price moves. The MACD and STO are curling upwards.
Since that date, the price action has been straight upwards until mid October. On about October 15th, the upwards movement stopped and the prices traced out the afore mentioned bowl shape. With the CFTC news last week, it now looks as if the Silver price may have finished tracing the bowl and may be ready to resume its upwards movement in November.
Following are the charts of the stock prices since August 23rd, 2010, for my six Silver stocks recommendation and comments. Each chart is compared to the price action of the SLV ETF, the silver white tracing.
Silver Wheaton – SLW (Click to enlarge)
Figure 4: Silver Wheaton – SLW is tracking Silver’s price.
Silver Wheaton just seems to be moving along the track in line with the price of silver. SLW did give a bullish pop of 5% this past Friday. SLW reported record earnings of $53 million USD, in August, 2010, up 200%. It will be interesting to see what this November’s quarterly report will bring, with the peaking Silver prices.
Hecla Mining – HL (Click to enlarge)
Figure 5: Hecla Mining – HL is tracking Silver’s price.
Hecla’s share price jumped over Silver in early September, 2010 and has stayed up since. HL reported its third quarter last week with an increase of 30% in cash flow versus 2009.
Silver Standard Resources – SSRI (Click to enlarge)
Figure 6: Silver Standard Resources – SSRI is tracking Silver’s price.
Silver Standard Resources’ share price jumped over Silver in mid-October and has stayed buoyant since then. Last Friday, SSRI announced the sale of its huge Snowfield and Bruce Jack properties. SSRI will still control about 50% of the value of these properties in the new company, Pretium Resources, formed by their former CEO Robert Quartermain. Perhaps this is a mechanism that will be able to unlock the precious metals values in the two large properties.
US Silver Corporation – USSIF.PK (Click to enlarge)
Figure 7: US Silver Corp USSIF is leveraging Silver’s price.
US Silver Corporation displays the characteristics of a junior miner’s ability to leverage the price of silver. USSIF has stayed consistently above the silver price line and the gap higher is increasing. USSIF has just completed a $7 million dollar financing to refurbish a shaft in their Coeur mine, in order to increase production. USSIF reported its 3rd quarter in mid-October, and production missed targets due to a contractor fatality in June, 2010.
Genco Resouces – GGCRF.PK (Click to enlarge)
Figure 8: Genco Resources – GGCRF is leveraging Silver’s price.
Genco Resources is an undervalued Silver producer in Mexico, that was just offered a merger by Silvermex Resources (SLVXF.PK). Last Friday, ISS Proxy Services recommended the merger going forward, causing the movement in the share prices.
Canadian Zinc – CZICF.PK (Click to enlarge)
Figure 9: Canadian Zinc – CZICF is leveraging Silver’s price.
Canadian Zinc made a large movement upwards in mid-September with its deep resource extension drilling. CZICF is the owner of the old Hunt Brothers’ Silver, Zinc and Lead Prairie Creek mine in northern Canada. CZICF is drilling to prove up further resources and is awaiting approval of its water permit, expected in 2011. CZICF just reported last week on its Environmental Assessment and drilling being finished for the season.
Silver appears poised to resume moving upwards this fall. The fundamental reasons for Silver to become more valuable was just given a boost by the CFTC revelations. Major Silver miners such as SLW, HL, and SSRI are moving in time with Silver in addition to their own value creation. Smaller Junior Silver stocks such as USSIF, GGCRF and CZICF are leveraging the price of Silver with their movements upwards. The Silver status is definitely satisfactory.
Disclosure: The author is long Silver mining equities.
Important Disclaimer: The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.
November 1st, 2010 | Posted by Global InvestorsLegendary commodity investor and hedge fund manager Jim Rogers recently pointed out that silver prices are 50% below all time highs.
He’s talking about the brief momentary highs of nearly $50 an ounce back in 1980. With silver currently selling for less than $24 an ounce, Mr. Rogers is technically correct. But priced in 2010 dollars, the inflation adjusted high for silver would be closer to $124.
So if you believe that silver prices will make new inflation adjusted highs, then you’re expecting to see a five-fold increase in the price of silver.
Silver has already trounced just about every other asset so far this year – it’s up 40% since January 1st.
I believe that silver is due for a correction. If you’ve read any of my articles this week, you’ve heard me talk about Ben Bernanke and the upcoming Federal Open Market Committee (FOMC) meeting where he will announce the next round of Quantitative Easing.
Ben’s announcement could strengthen the dollar, which would be bearish for all commodities, not just silver. As I said, silver is due for a correction. Bernanke’s announcement could be a catalyst for silver prices to drop 5-10% in the short term.
That would create an excellent buying opportunity for people like me, who are long term bullish on silver.
I’ll be bullish on silver as long as the Federal Government keeps interest rates absurdly low, and as long as huge amounts of government debt is the only realistic option to keep paying for all the bells and whistles that politicians promise voters and constituents.
But there’s an additional wrinkle in the silver story that I think could give silver an additional, long-term boost…
For years and years, silver prognosticators and analysts have talked about silver price manipulation. In short, the long-running conspiracy theory is that a handful of global banks have placed massive short-side bets in order to manipulate the price of silver.
Well, it’s not a conspiracy theory anymore.
According to a recent story in Bloomberg,
At a hearing in Washington on Oct. 27, CFTC Commissioner Bart Chilton said there have been ‘fraudulent efforts to persuade and deviously control’ silver prices and that violators should be prosecuted.
If you’re not familiar with the Commodity Futures Trade Commission, they’re the Federal Government body in charge of regulating and monitoring all commodity futures transactions on exchanges in the United States.
They run a pretty tight ship, so it will be surprising if they let any of the offending parties in this manipulation scandal off the hook easily. So what’s the upside for manipulating silver futures contracts?
It’s a little complicated, but these banks were placing phantom or “spoof” orders on silver contracts with the intention of skewing prices of options contracts.
The effect, allegedly, is that these spoof orders made some options worthless while boosting the value of other options.
In any event, these “spoof” orders had the supposed consequence of keeping silver prices artificially low.
In light of the announcement from the CFTC that they believe the price has been manipulated, I think we can see an additional boost as short-side orders are either cancelled and/or filled by the offending parties.
When you take a short side bet and you’re wrong, when the options contract expires, you have to buy the security at current prices. The additional volume usually spikes the price further to the upside.
Now that the CFTC is on the case, I’ll expect silver to continue to make new highs.
It still has quite a bit further to go before it hits inflation adjusted highs – but as I’ve been saying: wait for Bernanke’s announcement next week to add to or build a position in silver.
Disclosure: Long silver and gold
Gold vs. Bonds: Which One Is the Wealth Preserver?
November 1st, 2010 | Posted by Global InvestorsMost investors have a deep-seated belief that bonds are a safe investment while gold is risky and volatile. If we explore this belief with an open mind, however, we will find that gold, not bonds, offers vastly superior wealth protection.
The 2008 financial crisis saw an unprecedented move out of equities and into bonds as investors looked for a safe haven, one that would protect their portfolios. Relatively few investors chose to move into gold. This is curious because gold, unlike bonds, is an asset class that has a negative correlation to financial assets, thus providing the greatest diversification as well as protection from inflation and currency crises.
This is illustrated in Figure 1, which shows how gold has outperformed all major asset classes.
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In addition, gold has outperformed all major currencies, as illustrated in Figure 2. (Click to enlarge) |
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The U.S. government’s response to the 2008 financial crisis was to embark on and continue with policies of extreme stimulus and bailout packages. These policies will provide only a temporary reprieve, a Band-Aid solution to America’s dire situation. Since the financial crisis was caused by excess debt, issuing more debt can hardly be the cure. The U.S. Treasury, with help from the Federal Reserve, essentially flooded the economy with excess dollars, driving the money supply to unparalleled levels and inviting the very serious threat of future inflation. In Figure 3, we see gold offering another distinct advantage over bonds; historically, it performs well during periods of inflation. Bonds, however, are severely hurt by inflation, which wipes out the purchasing power of the principal balance as well as the purchasing power of the bond yield. Click to enlarge: |
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When considering inflation, it is important to use accurate, honest data. Currently, the official Consumer Price Index (CPI) stands at a very modest 2 percent. However, the methodology for calculating the CPI was changed in the early 1980s. Instead of using a fixed basket of goods that represented a certain standard of living, today’s methodology uses substitution, hedonic adjustments and geometric weighting to understate the CPI. John Williams of Shadowstats.com calculates the CPI using the original methodology, as shown in Figure 4. From this, we can see that real inflation is already at 8.5 percent and is poised to get much worse. Click to enlarge: |
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The U.S. government is also intervening to keep interest rates artificially low by having the Federal Reserve issue new money with which to purchase U.S. Treasury debt. With interest rates at record lows there is no room to maneuver, except with further quantitative easing, which Fed Chairman Ben Bernanke has already stated he will continue to use. This will only serve to increase the money supply and lead to higher inflation. This policy of aggressive quantitative easing – or, to put it bluntly, money printing – will most certainly devalue the U.S. dollar further, again eroding the real value of bonds and boosting the prices of precious metals prices and other commodities. Critics of gold as an investment will argue that the yellow metal does not pay any interest. While it is true that gold held in a vault does not pay interest, it also has no counterparty risk and cannot decline to zero. Bonds are subject to credit rating downgrades as well as defaults, as became clear in the 2008 crisis, and can become worthless. With interest rates much lower than inflation we can see that, in relative terms, it is bonds that are not providing any returns. With real inflation at 8.5 percent, bonds are not a safe investment. Rather, they represent guaranteed annual losses of about 5 percent of purchasing power. At this rate, bond principal will be halved after 14 years. Gold, however, has generated annual compounded rates of return of 16.7 percent. Gold investors who require cash flow can simply liquidate part of their gold gains in order to generate such cash flow. To match the after-tax cash flow from bond interest payments, investors need only liquidate part of their capital gain; the remaining gain would be enough to keep the purchasing power of the principal from declining. BMG has a comparison chart on its website that compares bond income to a systematic withdrawal of units in BMG BullionFund, taking tax and inflation into account. The chart is customizable to investors’ own situations and/or expectations. The example in Figure 5 compares bond income to an investment in BMG BullionFund with systematic withdrawals, assuming an investment of $1 million, a 4 percent bond yield, an 8 percent inflation rate and a 13 percent annual appreciation of BMG BullionFund. The BMG bond calculator shows the inflation-adjusted cash flow and the inflation-adjusted principal. In the grey section under the heading “Bond vs. BMG BullionFund/Inflation Adjusted/2008 Dollars”, we can see that the after-tax bond interest income starts at $24,000 and reduces to $11,332 in purchasing power by the tenth year. The bond principal balance reduces from $1 million to $472,162. In the gold section, BMG BullionFund investor has liquidated only part of the annual gain, but still maintained the inflation-adjusted purchasing power of the after–tax cash flow for the entire period. In the “Inflation-Adjusted After-Tax Income” section, we can see that the $24,181 net cash flow was increased to $27,347 in the tenth year. BMG BullionFund nominal value increased to $2,686,169 while the inflation-adjusted value of BMG BullionFund holdings increased to $1,268,306. Click to enlarge: |
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Bond returns are so minimal at present that it has given rise to the serious question of whether the bond sector is in a bubble and subject to losses if interest rates rise. This is perhaps a separate conversation, although it is common knowledge that feverish, inexplicable buying is the cornerstone of any bubble. With the negligible interest rates on bonds being wiped out by inflation, it is hard to understand the attraction. While the Federal Reserve can control short-term interest rates, when bond investors around the world lose confidence in the U.S. economy and its currency, bond yields will rise and bond values will fall. In addition, there will be day-to-day inflationary losses. Finally, it is worth noting that bonds, like equities, are a financial instrument, someone else’s liability; a holding of physical gold bullion is not. A bond holder gives up their money and risks a loss of principal for a certain period of time in return for a yield. A holder of physical bullion could lease out their gold and generate income, but they seldom choose to do so as it is precisely the safety of preserving wealth in real terms without risk to capital that savvy investors seek in uncertain times. Given the current economic climate and the fiscally irresponsible policies, including competitive currency devaluation, which governments in the U.S. and indeed around the world are implementing, it is no wonder that investors are desperately seeking ways to protect their wealth. As explained above, however, moving from equities into bonds is like jumping from the frying pan into the fire. The smart move for wealth preservation is to a physical holding of gold bullion. |
Disclosure: No stocks are mentioned that we have a position in – we mention our mutual fund, which Nick is the president of the management company
Goldcorp CEO Discusses Q3 2010 Results – Earnings Call Transcript
November 1st, 2010 | Posted by Global InvestorsExecutives
Jeff Wilhoit – Vice President of Investor Relations
Chuck Jeannes – President, Chief Executive Officer
Lindsay Hall – Chief Financial Officer
Steve Reid – Chief Operating Officer
Analysts
Tony Lesiak – Macquarie
Jorge Beristain – Deutsche Bank
Patrick Chidley – HSBC
Greg Barnes – TD Newcrest
Anita Soni – Credit Suisse
Steven Butler – Canaccord Genuity
John Bridges – JPMorgan
David Christie – Scotia Capital
Goldcorp Inc (GG) Q3 2010 Earnings Call October 28, 2010 1:00 pm ET
Operator
Good day, ladies and gentlemen. Welcome to the Goldcorp Inc 2010 third quarter results conference call for Thursday, October 28, 2010. Please be advised that this call is being recorded.
I would now like to turn the meeting over to Mr. Jeff Wilhoit, Vice President of Investor Relations of Goldcorp. Please go ahead, Mr. Wilhoit.
Jeff Wilhoit
Thank you and welcome to the Goldcorp third quarter 2010 earnings conference call. In the room with me today are Chuck Jeannes, President and Chief Executive Officer; Lindsay Hall, Chief Financial Officer; and Steve Reid, Chief Operating Officer.
For those of you participating on the webcast today, we have included a number of slides to support this morning’s discussion. These slides are available on our website at www.goldcorp.com.
As a reminder, we will be discussing forward-looking information that involves unique risks concerning the business, operations, and financial performance and condition of Goldcorp. Forward-looking statements include, but are not limited to, statements with respect to future metal prices, the estimation of mineral reserves and resources, the timing and amounts of estimated future production, cost of production, capital expenditures and cost and timing of the development of new deposits.
Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from those expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements.
With that, I will now turn the call over to Chuck Jeannes, President and Chief Executive Officer of Goldcorp.
Chuck Jeannes
Thanks, Jeff, and thanks, everyone, for joining us today. As you saw in yesterday’s earnings announcement, Goldcorp delivered strong financial results in the third quarter driven by continued high gold prices and our lowest cash costs in over two years.
Cash margins of $979 per ounce of gold drove record cash flow of over $470 million and a 65% increase in earnings. In light of our solid financial position and confidence in our ability to generate strong, sustained cash flows, our board of directors yesterday approved a 100% increase in Goldcorp’s dividend to $0.36 per share of $0.03 per month.
We’ve been anticipating the completion of capital spending and the commencement of cash flow generation of Penasquito for some time. With the successful commencement of commercial operations there during the quarter we’re pleased to be able to share the success with our shareholders.
On the production side, another outstanding quarter at Red Lake and generally solid performance throughout the rest of the portfolio offset the impact of heavy rainfall at Los Filos and production weakness at Marigold and Alumbrera.
Overall gold production this quarter was 506,200 ounces at extremely low cash costs of $260 per ounce on a byproduct basis and $429 per ounce on a co-product basis. With just a single month of commercial production in the third quarter, Penasquito managed to steal the spotlight with a very strong start to its life as a commercially producing mine.
The power of Penasquito to positively contribute to our overall financial performance is already evident and Steve and Lindsay will discuss more of the details in a moment.
An important theme in 2010 has been the successful execution of our disciplined portfolio management strategy. Put simply, we continually pursue opportunities to strengthen the overall portfolio through the divestiture of non-core assets and the addition of high-quality gold projects.
We were very successful in this endeavor during the third quarter with the divestitures in the San Dimas mine and our terrain metals investment. In general terms, the cash proceeds from these transactions, as well as the second quarter sale of the Escobal silver deposit, are available to fund most of the cash component of our acquisition of Andean Resources.
That acquisition remains on track for closing in late December. We currently have a team on the ground in Argentina working on transition issues with Andean and preparing to advance the project. We’re certainly excited about getting to work on this project, which provides the ability to both enhance our growth in gold production and lower our already low cash cost profile.
As I mentioned earlier, one month of commercial operations at Penasquito contributed significantly to our third quarter performance. Total revenues were over $86 million in the month of September while earnings from operations were over $34 million.
These numbers include the impact of a disproportionately large amount of oxide gold production, which is typically sold later in each quarter. But production of all metals met or exceeded expectations. Cash costs on a byproduct basis were negative $577 per ounce of gold sold for the month of September and $499 per ounce on a co-product basis.
Unit costs for mining, processing and G&A continued to decline according to plan. Construction of the 130,000 ton per day sulfide plant is now essentially complete with mechanical completion of the height and pressure grinding rural circuit and commissioning of that circuit underway. We now continue to ramp up production and we’re maintaining our guidance of 180,000 ounces of gold for the year.
Positioning Penasquito for full production capacity in early 2011 remains a top priority but we’re also making major progress in advancing our next tranche of high-quality growth projects. On our September Canadian asset tour, some of you saw firsthand our progress in developing the kosher project.
This is an important part of our Red Lake District optimization efforts and we expect to have a scoping study completed by year-end. An update to the pre-feasibility study for Eleonore will reflect this year’s larger gold resource and will also be completed by year end and its becoming increasingly apparent that this project is poised to be another key cornerstone mine for Goldcorp.
We also continue to advance our 70% owned El Morro project in Chile, including updating the 2008 feasibility study, advancing permitting and continuing to cultivate key relationships in the local communities and throughout all levels of government. Steve and I were just in Chile reviewing the project with our team there and I’m very pleased with the progress and potential of this project.
Finally, we’ll also have an initial scoping study completed at Noche Buena which will help us advance the opportunity there to improve our overall goal production profile at Penasquito.
We’ve reaffirmed 2010 production guidance of approximately 2.55 million gold ounces. We expect a very strong fourth quarter but in view of the third quarter weakness at certain of the operations there is some risk in this forecast.
On the positive side, in light of the very strong cost performance year-to-date, we now expect to come in below our previous cash cost guidance of $350 an ounce on a byproduct basis and $450 an ounce on a co-product basis.
Demand for gold remained very strong in the third quarter as investors continued to seek a safe haven for preserving wealth amid an uncertain economic environment and ongoing currency instability. As investors see greater leverage to hire gold prices I believe we’ll see increasing interest in the companies that produce it safely and responsibly, particularly those with proven track records of growing gold reserves and operating in lower risk jurisdictions.
Over the past 10 years, Goldcorp has outperformed the physical metal as well as our industry peers by delivering on those very attributes and we expect this performance to continue in the future. Paying a higher dividend, as we announced yesterday, combined with our outstanding growth profile, only enhances that overall value proposition.
With third quarter reporting now behind us we quickly turn our attention to completing our 2011 budget, including updated five-year and life-of-mine plans for all of the mines and projects. This is a very exciting time as we work out the details of how all of our growth projects line up to continue to significantly expand our production and financial performance. We look forward to sharing this updated information with all of you early in the New Year.
With that, I’ll now turn it over to Steve Reid for a review of the operations. Steve?
Steve Reid
Thanks, Chuck. As Chuck mentioned, we saw a consistent production this quarter from most of our mines. Red Lake led the way with production totaling 176,100 ounces at cash cost of just $268 per ounce. The key theme at Red Lake is the increasing flexibility we have to manage our production.
We continue to improve the utilization of existing mill capacity by supplementing the ore feed with tons from the lower-grade sulfide and [far east] zones. The 4499 expiration ramp and the connection drift between the Campbell and Red Lake complexes provide the flexibility to move equipment at the lower levels of the mine to develop new production zones and to add gold reserves.
During the quarter, excellent expiration results were seen in the deep high-grade zone as well as in the hanging well structures higher in the orebody. Red Lake remains well positioned to achieve or exceed its guidance of 275,000 ounces in 2010.
You will have seen in yesterday’s release that as many of you requested we’ve enhanced our reporting for the Porcupine by breaking out the production between the oil pond underground operation, the dome underground and the stockpiles.
The backbone of our production at the Porcupine is the oil pond underground operation and work continued there on the construction of the [deep wins] that will help us better access the orebody over the long term both at depth and laterally to new zones of mineralization that we’ve discovered. These zones, both the (inaudible) continue to return good expiration results.
In September we announced the discovery of a new, higher-grade orebody at Musselwhite called the Lynx Zone shown here and our drilling activity in the third quarter at Musselwhite was focused on further defining the magnitude and extent of the zone which remains open updip.
It’s near our existing underground infrastructure and has the potential to significantly contribute to year-end reserves and to materially enhance the mine’s gold production profile over the long term.
At Los Filos, rainfall during Southern Mexico’s wet season caused dilution of the leeching solution and led to decreased production during the quarter but we expect to recover these ounces in the fourth quarter as the backlog of solution is processed and Los Filos remains on track to meet previous guidance of 300,000 ounces in 2010.
Penasquito’s mill throughput continued to build throughout the third quarter such that by early September when we reached the 30-day average throughput to 70,000 tons per day we declared commercial production for accounting purposes. But as I’ve often said, we have in effect been in operational production since January.
Within the context of the overall project ramp up we remain very pleased with the pace of progress. The last component of the initial construction process is the high-pressure grinding roll circuit which achieved mechanical completion in mid-October.
Commissioning of the HPGRs which are designed to crush oversized material from the milling circuit is currently underway and progressing well and, in fact, we plan to run oil through the circuit for the first time today. This final step will allow us to bring Penasquito to its designed production capacity of 130,000 tons per day in early 2011.
At Noche Buena, the nearby satellite deposit, the potential for an additional source of significant oxide gold production took another step forward. The 2010 drilling program was completed in August. Column leach metallurgical testing commenced and an environmental baseline study was completed. This will all be combined with preliminary engineering analyses in the scoping study to be completed by the end of the year.
At the second satellite project, Camino Rojo, positive negotiations continue with the local communities for surface rights and exploration.
Gold production at Penasquito totaled 44,500 ounces with sulfide production surpassing that from the oxide material for the first time, 25,900 ounces of sulfide and 18,600 ounces from the heat leaching of the oxide cap. Penasquito remains on track towards our previously issued 2010 guidance of 190,000 ounces.
At Cochenour near Red Lake, underground development continues and we’ve now completed more than 18% of the critical path development on the five kilometer high-speed haulage drift that will connect the Cochenour operation with the Red Lake mine.
Exploration drilling into the Bruce Channel Deposit continued from the old underground workings at the 2050 level is currently on hold while we work on the Cochenour shaft and head works. The scoping study remains on track for completion by year-end.
At Eleonor, after previously completing the pre-sinking during the second quarter, the shaft work in the third quarter focused on the hit frame and hoist house so there was no sinking of the exploration shaft during the quarter. However, full phase sinking is expected to commence in the fourth quarter and proceed through 2011.
During the quarter, project permitting activities progressed and the project permit is expected in mid 2011 as previously planned. We also achieved the key milestone that’s been several years in the making with the delivery of grid power to the site to significantly reduce power costs and the logistics of producing power.
Our exploration drill program continued with a concentration on identifying and defining new ore zones within the hanging wall stratigraphy close to the exploration shaft and the program also focused on the definition of the edge of the main Roberto zone. Results of the hanging wall drilling obtained today have been positive and additional drilling will be completed during the fourth quarter of 2010 to follow up the downdip extensions and the pre-feasibility study is being updated to accommodate this year’s larger resource and will be completed by year-end.
We anticipate the positive study results will trigger a formal construction decision but, as you can see from the photograph, the site is beginning to resemble a mine already.
The EIA process at El Morro in Chile remains on progress with approval anticipated by late this year or early 2011. We continue to meet with key government officials and community leaders to develop strong partnerships. Our team in Chile is currently reviewing the previous feasibility study to update the project capital and operating costs before year-end.
Across the organization, we underspent on capital in the third quarter. This does not reflect any change in either priorities or project scope, rather simply the timing of the expenditures. Consequently, the full-year capital guidance has been slightly reduced and may result in a carryover into the 2011 budget year.
Also I want to take this opportunity to thank our teams for their continued focus on safety and the local partnerships. Los Filos and Porcupine both achieved cyanide certification. This brings us now to six operations that are certified under the code and we’re very proud of our leadership position on this initiative within the gulf sector.
With that, I’ll turn things over to Lindsay for financial highlights.
Chuck Jeannes
Lindsay, perhaps just if I can correct one thing that Steve said inadvertently. We expect to achieve or exceed guidance of 675,000 ounces at Red Lake during 2010.
Lindsay Hall
Thanks, Chuck. We’re pleased to report another strong financial performance with record revenues and operating cash flows for the second consecutive quarter. Our average realized gold price increased by 3% to $1239 per ounce, which more than offset the 2% decrease in production.
With our low byproduct cash cost of $260 per ounce we captured 79% of the gold price resulting in almost $470 million in cash flows before non-cash working capital changes in the quarter of $0.64 per share, a 21% increase over our second quarter results.
These cash flows funded capital investments of some $238 million made at our mines and projects for the quarter. Also during and shortly after the quarter we received total consideration of some $880 million with the disposition of our San Dimas mine and our interest in terrain of which the cash portion of the proceeds amounted to $446 million.
Getting into some of the details of the financial results for the third quarter, we had record revenues of $886 million and record earnings per mine operations of almost $400 million. We sold 568,100 ounces of gold at an average price of $1239 per4 ounce at an average cash cost of $260 per ounce realizing a record per ounce cash margin of $979 per ounce.
Cash costs on a byproduct basis were $103 per ounce lower compared to the second quarter of $363 per ounce primarily due to higher byproduct credits and lower YMAD net proceeds payments.
An important milestone was Pinasquito completing its commissioning and commencing commercial production on September 1 on schedule and within 10% of our budget. In our quarterly income statement we have recorded one month of financial results for Pinasquito.
Our key performance indicators on a cost per ton basis are as anticipated and set up in detal in our MD&A. We continue to see improved economics as ramp-up proceeds. Also, as you know, production from Pinasquito’s operations are sold in two concentrates, led and zinc, which are subject to provisional pricing.
The provisional pricing impact during the third quarter related to these concentrates sold in the second quarter was a positive $2 million. At September 30 we have the following metals sold in the third quarter subject to provisional pricing: 9200 ounces of gold priced at $1307 per ounce; 1.2 million ounces of silver priced at $22.07 per ounce; 10.7 million pounds of led priced at $1.03 per ounce; and 22.9 million pounds of zinc priced at $0.99 per pound.
Regarding the Alumbrera provisional pricing impact to our statement for copper during the third quarter, it also amounted to a positive $21 million. For the next quarter, 39 million pounds of copper priced at $3.64 per pound is subject to provisional pricing.
As is our usual practice, you can find all the details of our hedging program as of September 30 in note 10 to our financial statements.
For the quarter, adjusted earnings amounted to $231 million or $0.31 per share, a 15% increase over the second quarter. To calculate the adjusted earnings we add back to net earnings from $466.5 million the non-cash foreign exchange loss of $126 million, $15 million of unrealized non-hedged derivative loss, a $20 million operating loss related to terrain, which was disposed of in October, less the gain on disposition of San Dimas of $408 million.
Consistent with previous quarters, we did not make any adjustment to adjusted earnings for non-cash stock option expense which amounted to $18.4 million or $0.02 per share.
Lastly, just touching on the effective tax rate for the quarter, if one backs out from the book tax provision of $69 million for the quarter, the positive adjustment of $35 million related to the disposition of San Dimas, you’ll get close to an effective tax rate for the quarter of 32%, which is our continued guidance for the full year.
We ended the quarter with $732 million in cash and cash equivalents and an undrawn $1.5 billion revolving credit facility fully available to us. Under the $1 billion Pueblo Viejo project financing obtained with Baird, approximately $100 million is available as additional draws to fund our remaining planned capital expenditures for the project.
We continue into the next quarter with a strong balance sheet and remain confident in our ability to fund development of our mines and projects and the anticipated closing of our acquisition of Andean Resources before the end of the year.
Great quarter, really good momentum moving into the fourth quarter both operationally and financially. With that, operator, I’ll turn it back to you and open it up for questions.
Question-and-Answer Session
Operator
Thank you. (Operator Instructions). Your first question comes from the line of Tony Lesiak – Macquarie.
Tony Lesiak – Macquarie
I was hoping you might provide some more detailed disclosure on Penasquito. Now that you have achieved commercial production, can you talk to some of the more specific concentrate terms, TCRCs and participation rates?
Chuck Jeannes
Tony, as we’ve said all along, and is the case with every company, those specific concentrate terms are subject to confidentiality with our sponsor partners. We’ve provided — and it’s on our website — an average of those terms. I think we called it indicative pricing terms and it’s got the payables, the per ton both smelter and transportation costs and I think that’s very fulsome disclosure and we just can’t give you the very specific details of each particular contract.
Tony Lesiak – Macquarie
Now in terms of the percentage of precious metals in the sulfide reporting to the zinc con for the lead con, can you tell that where that was in the quarter?
Chuck Jeannes
I’m passing that one to Steve.
Steve Reid
Tony, I know that the recoveries were reported in the disclosures there and you have them by metal. The thing that we’ve certainly been clear on is saying that please remember we’re near the top of the orebody so we’re in a transition between sulfide and oxide, so these are not necessarily indicative of the longer term. But I can give them to you if you like but, as I say, they’re listed on the disclosure.
Tony Lesiak – Macquarie
Yes, I mean, they are relatively higher I guess in the second quarter. Have they come down?
Steve Reid
No, generally not. I mean, general zinc recoveries around 61. It was 63 before. Led is up a little at 65 and gold and silver are where we’re expecting them. So, no, they’re actually performing better than we predicted based on what we had considered a ramp-up as we go through this transition ore.
Tony Lesiak – Macquarie
But those are the overall recoveries. I was more interested in to which con they are reporting.
Chuck Jeannes
We’ll dig that out and get it to you, Tony.
Steve Reid
As a corollary to that though, what I can say to you is that the concentrate quality is still sitting right where we expected it to be and within the guidance of what we provided before. We’re still seeing a little bit higher silver than we were projecting but that’s a good thing for us.
Tony Lesiak – Macquarie
On the unit operating costs, is there any further disclosure you can make in terms of where you see them trending to once you get to full production?
Steve Reid
What I would say is we’re obviously looking for them to come down and as we get the throughput rates up that processing rate, for example, it’s currently over $6. We want to get it well under $6.
Chuck Jeannes
I think, Tony, we’re just working on budgets for the coming year and as we complete that we’ll be able to give guidance certainly in the new year with respect to some of our expected costs for 2011.
Tony Lesiak – Macquarie
Well then just finally on the new manto discovery, can you give us some further specifics on that?
Chuck Jeannes
Just generally — I just talked to Charlie about it recently. On a per ton basis it’s about the same value as the discovery that we reported earlier on the other side of the Penasquito deposit. As a general rule — and we’ve only got a few intercepts so far — but it’s lower gold and silver and much, much higher zinc. We’ve got some intercepts up to 16% zinc.
So early days, we don’t really know whether that is a trend that’s going to apply over on the other side of Penasquito or whether it’s just indicative of those particular holes. But that’s the initial information.
Operator
Your next question comes from the line of Jorge Beristain – Deutsche Bank.
Jorge Beristain – Deutsche Bank
I was really pleased to see the doubling of the dividend and so I guess my first question is to Chuck. Has there been any change in the psychology of how you are approaching your dividend policy now? We understand that you obviously have a lot of free cash flow this current quarter, but it would seem that you’re moving towards maintaining a competitive dividend policy vis-a-vis other gold companies and I was wondering if you could talk to that point.
Chuck Jeannes
Yes, actually, Jorge — and thanks for your comments. We’ve always thought that it would be appropriate to deal with the dividend after we saw the big investment in Pinasquito get near the end and Penasquito working. It’s such an important part of our cash flow for the coming years and important today and growing dramatically over time.
So it’s not that the policy has changed since the facts surrounding our company’s performance that have kind of caught up with our ability to do something with the dividend. Certainly, being competitive with our peers is one factor but more is that based on an ability to pay and the confidence that we have that Penasquito is now essentially done and performing as expected.
Jorge Beristain – Deutsche Bank
Sorry, the second question was if you could just clarify, of your recent asset sales, you mentioned briefly in your introductory comments that there’s still cash pending from Terrane. How much cash do you expect to collect in the fourth quarter from the recent asset sales and how much of your recent sales will be held in the form of marketable securities?
Lindsay Hall
Yes, Jorge, it’s Lindsay. I think it’s around $216 of cash. We’ve received it already. We closed I think a couple days ago, so that’s sitting there. When you say marketable investments, all that cash is sitting in cash or cash like, so none of that has turned into any investments.
Chuck Jeannes
Yes, we received that cash plus about 8.5% of the issued and outstanding shares of Thompson Creek Mining. I don’t have that specific number
Jorge Beristain – Duetsche Bank
But that share in Thompson Creek, would that be counted under marketable securities or under long-term investments?
Chuck Jeannes
It’ll be under marketable securities when you see the fourth quarter financials.
Operator
Your next question comes from the line of Patrick Chidley – HSBC.
Patrick Chidley – HSBC
I just wanted to ask a few more detailed questions about Penasquito in terms of the recoveries. In terms of gold and silver, you say that you are on track and you’re in the transition zone right now. What sort of — long term what would you expect the sulfide recoveries to be again in terms of gold and silver on the sulfide mineralization then?
Steve Reid
Yes, Patrick, I know that as we’ve answered these in the past we’ve always said these things are extremely complex because of which rock type you’re talking about and which concentrate you’re expecting it to go to.
In a general sense I can tell you that the assumptions that we’ve made and disclosed in the past — and I’m trying to think of the dates, I think late 2008 thereabouts — none of those have changed. So, I mean, just quickly if you recall it was quite a table based on the different concentrates and the different rock types and so on and none of those have changed.
If you want me to give them to you I certainly can but there’s a lot of them. It’s more than, as I say, that’s what we’re building to and as we go through what is, in some cases, partly oxidized material we know that we’re not going to get those recoveries, which are based on pure sulfide and so we’re still heading towards those and we have no reason to suggest that anything’s changing. In fact, the material’s floating incredibly well.
Patrick Chidley – HSBC
Sort of another side of that same question then, next year, I mean, when do you expect to get out of the transition zone into pure sulfide and would we then see recoveries higher than where they are in the previous quarter?
Steve Reid
Yes, in general, that is the case. What tends to happen as you would expect with a multiphase pit is the deepest part of the pit will be in the fresher material and then there will be peripheral material where the stages are a little less advanced where we’ll have some of that higher up contact material.
Patrick Chidley – HSBC
Just a couple of quick ones — did you use a stockpile this quarter to supplement the sulfide feed?
Steve Reid
We may have but it would have been very minimal if at all, so not significantly.
Patrick Chidley – HSBC
Just seems that the tons processed were greater than the tons mined. It seemed to me you added in the sulfide and the oxide together.
Steve Reid
Yes, we are adding them together but yet there is stockpile material which we use for flexibility.
Patrick Chidley – HSBC
Then just finally on CapEx at Penasquito, seems like you’re all but done on the $1.6 billion of CapEx for the project. You’re basically done in terms of all the equipment on site and ramp-up for the HPGR. What remaining capital would you say going forward into next year, next few quarters I mean? Is there quite a high level of sustaining capital in the first year or so or is it going to drop off very much?
Steve Reid
The most significant thing coming in terms of capital is the in-pit crushing and conveying, which is going to be taking place over the next couple of years and, in total, that’s round numbers $100 million to $150 million. But that’s spread over a couple of years. So other than that, no, we’re largely done and we’re actually looking to focus on running what we’ve built.
Operator
Your next question comes from the line of Greg Barnes – TD Newcrest.
Greg Barnes – TD Newcrest
Chuck, you mentioned in your comments at the beginning of the call about Eleonore, your increasing confidence as becoming a key cornerstone mine for Goldcorp. What are you seeing there that’s making you say that?
Chuck Jeannes
Well, Greg, as we’ve been talking about for the last little while and I think the way I described it last quarter it was that we didn’t really do a very good job of explaining early in the year that we announced to you a pre-feasibility study that had an average of 330,000 ounces of gold production over a 16-year mine life with cash costs below $400 an ounce on a co-product basis. There are no byproducts.
So that’s a nice mine. But that was based on a generation ago mineral resource of about 5.6 million ounces. At the same time we were doing the feasibility study we continued to drill and continued to remodel the resource and at year-end we were at a total resource of above 9 million ounces. So the effort throughout this year has been to update the feasibility study to accommodate that larger resources, and that means very significant work on the mine plan itself to arrange for mining and processing more tons of material.
So my point is we don’t have the numbers yet. We’re working on that. We’re going to be finalized at year-end and try to get this to our board as soon as possible. But we certainly expect the numbers that you saw earlier to be materially improved.
Greg Barnes – TD Newcrest
Just a second quick question — your share holding in the [Cisco], do you see that as a strategic position now or is that something you would look to sell?
Chuck Jeannes
Well, I don’t try to put labels on things. It’s an interest that we’ve made a lot of money on. [Cisco] continues to do very well and we’re pretty happy with our investment there.
Operator
Your next question comes from the line of Anita Soni – Credit Suisse.
Anita Soni – Credit Suisse
First question is for Lindsay. The provisionally priced lead amount, I missed that. It was at $1.03 but how much was it in millions of pounds?
Lindsay Hall
Yes, you want the pounds, Anita, right?
Anita Soni – Credit Suisse
Yes.
Lindsay Hall
It is at led we had 10.7 million pounds of led and 22 million pounds of zinc.
Anita Soni – Credit Suisse
At $0.99, right?
Lindsay Hall
That was what, Anita?
Anita Soni – Credit Suisse
Sorry, zinc was at $0.99?
Lindsay Hall
Zinc was at $0.99 and led was at $1.03.
Anita Soni – Credit Suisse
Second question, with respect to the Andean acquisition, how much of the $1 billion that’s available for cash payout has been taken up?
Chuck Jeannes
None. That decision, that election gets made by shareholders after the vote, the shareholder vote that takes place and then court hearing that will happen in early December. So there’s a period following that where the election takes place. So it’s not like a takeover where people can tender their shares along the way. It’s more in the form of what we would call a plan of arrangement where it all happens following the shareholder vote and court approval.
So just to clarify there, Anita, I said in my comments that we’ve generated cash that nearly pays for that entire $1 billion payment that is available for payment but until the time comes we don’t know whether people will elect shares or cash and that, of course, will largely depend on how our shares are doing in the meantime and, therefore, the Andean shares on an exchange ratio basis.
Anita Soni – Credit Suisse
Secondly or — sorry, lastly, silver recoveries. I do know — this is for Steve — I did notice that the recovery rates on silver were trending down I think over the last three quarters I think at 55%. What is that attributed to and do you expect that to reverse?
Steve Reid
You’re talking Penasquito here?
Anita Soni – Credit Suisse
Yes, Penasquito, sorry.
Steve Reid
Yes, basically there’s nothing of concern to us there. In fact, as I say, we’re actually hitting more silver than we were expecting in the concentrate, so I think it’s a function of there being more silver and it’s a function of the grade being up in this ore that we’re seeing.
Anita Soni – Credit Suisse
So is that supposed to reverse around at any point or should we be seeing more actual silver actually report to the concentrate later?
Steve Reid
Yes, we’re actually expecting that — and much as I’ve explained as we’re getting into the fresher ore, yes, we are expecting what we currently have as recovery rates to increase.
Anita Soni – Credit Suisse
Then lastly, reserve replacement as we go towards year-end and looking towards February, how do you see reserves panning out for this year in resources and how are they growing and will you be able to replace reserves?
Chuck Jeannes
Yes, Anita, again, we’re just in process of calculating reserves based on drilling through the year and that will be coming out, as always, in late January, early February. I can tell you that we’re feeling pretty good about it right now. We’ve had good success, as you’re aware, at Musselwhite. We’ve had continued strong success as Los Filos.
Actually, certainly the Red Lake high grade zone, both extending the zone at depth and laterally back up above the current mining levels and, of course, we’ll have El Morro in to reserve this year for the first time. But even without regard to acquisitions I’m somewhat confident that we’re going to be able to replace reserves on a company-wide basis.
Operator
Your next question comes from the line of Steven Butler – Canaccord Genuity.
Steven Butler – Canaccord Genuity
Question for you guys on Marlin, Inter-American Commission on Human Rights and the administrative process performed by the government. You alluded to I think a 120-day process. That timing I guess, Chuck, would put you to November 21 unless you think there is a date before that.
Is that sort of on track for the delivery of a view from the government by mid to late November and we should therefore expect hopefully a clearing of the air on Marlin at some point thereafter?
Chuck Jeannes
Yes, as best we know, Steve, it’s on track. It’s not the kind of thing that the government is updating us every day in terms of how they’re doing. That 120-day estimate was provided to us at the beginning of the process. I can just tell you that we continue to work very well with the government, very collaboratively.
They’re interacting with the commission itself, the Inter-American Commission on Human Rights and we think that that’s gone positively. Nothing has changed in terms of the initial reaction that you got from the government that was publically stated by the president that they don’t believe there were negative impacts to the environment or human health as a result of our activity. So we continue to work very hard on that issue and would like to get some resolution as well.
Steven Butler – Canaccord Genuity
Lindsay, going forward, you will equity account I think for San Dimas and will you show the 34% or 36% of production from San Dimas in your sort of consolidated production tables but simply equity account for the earnings from San Dimas?
Lindsay Hall
We’ll certainly equity account for San Dimas. I’m not sure that we’ll show the production from San Dimas in really what you are getting at, Steve, are guidance. So, no, as you saw in this quarter we’ve excluded anything to do with [primarily] sales that would constitute and equity portion of it. So the answer to your question is yes on equity accounting, no on recording its production.
Operator
Your next question comes from the line of John Bridges – JPMorgan.
John Bridges – JPMorgan
It may be a dumb question but I was just looking at your slide 24 and you helpfully break down the revenues on a percentage basis. But if I apply those to your site costs, then the costs seem to be skewed towards the base metals. There’s something different going on there. I wondered if you could give us a bit of guidance as to how you can allocate costs in the co-product method.
Chuck Jeannes
This is in our slide, John, the byproducts and the co-product methodology?
John Bridges – JPMorgan
Yes, slide 24.
Chuck Jeannes
Yes, all that’s happening there, John, is, as you know, the industry is that you just use gross revenues. So if you take the percentages that’s the gross revenue that we’re showing you that’s being allocated. What we buried in there is the offsite costs and the 86, so you have to remove the offsite costs of the 86 in order to get the percentages working for you. But, for you, the percentages are what you want to use and that’s the true gross revenues that we’re using to allocate the cost.
John Bridges – JPMorgan
So the site costs are split on the revenues as given and then the off-sites are — ?
Chuck Jeannes
Yes, all we’re doing, John, is in the 86 we’ve netted the site costs in there but, yet, as you know, when you allocate on a co-product you exclude the effect of TRCs in allocation of those accrual costs against using the revenues to allocate the cost.
It’s a matter of trying to match the MD&A on that table with our preferred — the industry-wide method of allocating costs, that’s all.
Operator
Your next question comes from the line of David Christie – Scotia Capital.
David Christie – Scotia Capital
Just a quick question — you hit another mantle on the other side of Penasquito pit and you have some pretty good ones on the opposite side. What is sort of the plans? You talk about it sort of supplementing production at some point? How are you going to get there and how quickly will it do that?
Chuck Jeannes
Yes, it’s not something that’s going to happen, obviously, very quickly, David, because we’d have to build a shaft, an underground infrastructure and the like. Our goal now is to continue drilling and try to define enough of this material that we can then get the engineers to work and start putting together a plan. Steve?
Steve Reid
Chuck and I just said that initially the mantles were relatively small, albeit very high in value and we expected them to come near the end of the mine life. As we look now and start to think about a more significant contribution from them given that there’s a potential for some sort of block caving underground operation already below the pit, the combination of the two is actually bringing it forward in our thinking and if the mantles are larger. So it’s something that once we’re now operating we’ll start to look at the underground in more detail and see if we can bring it forward.
David Christie – Scotia Capital
One other sort of deposit you’re looking at is the Camino Rojo there. What is the sort of plan for that as far as timing right now?
Steve Reid
We are looking to be exploring as soon as we possibly can. What we need to do, however, is come to an agreement with the local community there and there are a number of residual issues that we’re still working through from the previous owners. But it’s going very well but we’re looking to be exploring through next year.
David Christie – Scotia Capital
So these are the (inaudible) the landowners?
Steve Reid
That’s correct.
Operator
Thank you. There are no further questions at this time, so I will return the meeting back to you, Mr. Jeannes.
Chuck Jeannes
Thank you. I understand that the link to the slides was apparently not working for some of the viewers on the call and I apologize for that. Those slides are available on our website and certainly apologize for the technical difficulties and you not being able to follow along real time.
So with that, thanks, everyone, for joining us today. As you’ve heard, we’ve got a significant amount of news flow coming over the next few months around our new projects and 2011 budget and new five-year plan, so stay tuned and we look forward to sharing our progress with all of you. Thanks for your continued interest and support. Good-bye.
Operator
Thank you. The conference call has concluded. You may disconnect your telephone lines at this time and we thank you for your participation.
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Commodities Experts Say Where They Think Natural Resources and Gold Are Headed
October 31st, 2010 | Posted by Global InvestorsThe “World’s Greatest Investment Event,” the 2010 New Orleans Investment Conference kicked off on Wednesday as gold and natural resources investors descended on the Crescent City for answers to today’s market questions.
The list of speakers for this year’s conference reads like a who’s who of the natural resources and commodity world—Dr. Marc Faber, Newt Gingrich, Dennis Gartman, Dick Armey, Peter Schiff and others.
We know everyone can’t make it down to the conference this year, so we’re going to be sharing some of the highlights with you over the next couple of days.
Rick Rule, chairman of Global Resource Investments, Ltd., was first to speak Thursday morning and he had a clear message for the audience: We’re in a bull market for commodities and natural resources. Rule said that the easy money, what he called “riskless” money, has been made, but the “big” money is still out there.
Rule cautioned that this bull market in natural resources comes with a hefty amount of volatility; however, he told the audience of several hundred to use the volatility to their advantage. Rule said “volatility means items are continually being sold at 30, 40 and 50 percent off.”
One big reason Rule cites for the bull market in commodities and resources are supply-side constraints. A severe bear market in the 1980s and 1990s kept many companies and governments from investing in exploration and today’s consumers are living off reserves discovered in the 1960s and 1970s. With per capita consumption growing in places like China, new discoveries will need to be large and fruitful to prevent supply shocks.
Next up on the stage was Brien Lundin, editor of the Gold Newsletter and host of the New Orleans Investment Conference. Lundin began his presentation on gold showing that the current rally—which he says began in August 2009—has taken longer and appreciated less than recent run-ups in 2006 and 2008.
Lundin says he has been expecting a correction in gold prices that has not come to fruition. This could likely come when the Federal Reserve institutes their second edition of quantitative easing because market expectations have just gotten too high.
Lundin is also positive on copper, saying that analysts have been trying to kill off copper for years but the Chinese have refused to play along. Lundin thinks we’ll see $4 a pound copper sooner rather than later.
Although Lundin thinks a pullback in gold prices is coming, he believes this is the time for investors to reload. His long-term bullish view on gold is based on unprecedented debt levels by the Fed and the oncoming devaluation of nearly every major currency in the world.
Bubble-spotter Peter Schiff led off the mid-day session with a discussion of bubbles and excessive government spending. Schiff says we’re currently experiencing one of the biggest bubbles in history; it’s not a bubble in equities, not in gold or commodities, but a bubble in government. The rest of his half hour speech laid out the case supporting this argument. Schiff says that the 2008 housing bubble was the overture to a much greater debt opera that is nowhere complete.
While Schiff spent his time at the podium explaining where a bubble is, newsletter mavens Pamela and Mary Ann Aden spent their time onstage explaining where there isn’t one—in gold. Mary Ann Aden began by laying out the history of gold’s trip from $200 in the 1990s to more than $1,300 today. One of the biggest drivers has been the explosion of government debt. Mary Ann said that if the government paid $1 million a day on its debt, it would take nearly 2,000 years to pay it off.
Mary Ann said that gold is far from a bubble because of the world’s reliance on paper currency and “there’s not one paper currency in the history of the world that has survived.” Mary Ann says that central banks have seen the writing on the wall and that’s why you’ve seen a pickup in central bank buying of gold this year. Mary Ann’s sister Pamela Aden proclaimed in her speech that gold is currently in a “once in a lifetime” megabull market.
We’ll have more updates from other speakers soon.
Disclosure: Long positions in natural resources companies
Disclaimer: All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Is Now a Bad Time to Be Short Silver?
October 31st, 2010 | Posted by Global InvestorsThe pressure on silver shorts has been relentlessly increasing on a daily basis. On the heels of CFTC’s statement of intention to actually enforce antitrust regulations in the silver market, two lawsuits were filed against JPM and HBC for manipulating the silver price. With the testimony of whistleblower Andrew Macguire and admission that there has been fraudulent activity in the silver market by CFTC Commissioner Bart Chilton, these lawsuits have a much larger chance of success than just a year ago.
One of those lawsuits is seeking group or class action status if enough investors sign up. Silver investors who suffered from losses in 2008 and are interested in joining the lawsuit can contact the law offices of Christopher Lovell at 212-608-1900.
While lawyers and regulators are pressuring the banks by taking legal action, the suffering for the silver shorts is just beginning. Whether or not the plaintiff’s prevail in their legal actions, evidence that JPM and other banks have cornered themselves into enormous naked short positions on physical silver is coming to surface to the mainstream. The lawsuits are blood, and sharks are circling the market itself. Profit is profit and few people will shed tears for the commercial banks should they be squeezed.
Sprott Asset Management has announced that it is planning to raise $500 million for a publicly traded silver ETF that will only invest in physical bullion trading under the symbol PSLV. Sprott already has a similar gold ETF that trades at a large premium to the price of gold – perhaps because investors truly believe that it is backed by the physical metal. Both the gold ETF (GLD) and silver ETF (SLV) have been questioned for their ownership of the physical gold and silver bullion. Interestingly, JPM is the custodian of the SLV silver ETF. Given Sprott’s solid record, there is a possibility of mass redemption from the questionable SLV ETF by investors who reallocate into PSLV.
Demand for physical silver has increased such that the US Mint announced on September 30th that it will increase its premium for silver eagles by a third.
click to enlarge images
Over the last few weeks, silver has oscillated between $23 and $25 as the commercial shorts have been thrashing in an attempt to find a weakness in bids. There is no weakness, and the $2 correction may already be over. Every 50 cent or $1 takedown is met with a wave of bids, and the commercial shorts are trapped. Thus far, the bids have remained unaggressive with most buying fulfilled on intraday dips. It is only a matter of time before the big money starts to aggressively buy.
Disclosure: Author is long SLW, PAAS, SSRI
It Now a Bad Time to Be Short Silver?
October 31st, 2010 | Posted by Global InvestorsThe pressure on silver shorts has been relentlessly increasing on a daily basis. On the heels of CFTC’s statement of intention to actually enforce antitrust regulations in the silver market, two lawsuits were filed against JPM and HBC for manipulating the silver price. With the testimony of whistleblower Andrew Macguire and admission that there has been fraudulent activity in the silver market by CFTC Commissioner Bart Chilton, these lawsuits have a much larger chance of success than just a year ago.
One of those lawsuits is seeking group or class action status if enough investors sign up. Silver investors who suffered from losses in 2008 and are interested in joining the lawsuit can contact the law offices of Christopher Lovell at 212-608-1900.
While lawyers and regulators are pressuring the banks by taking legal action, the suffering for the silver shorts is just beginning. Whether or not the plaintiff’s prevail in their legal actions, evidence that JPM and other banks have cornered themselves into enormous naked short positions on physical silver is coming to surface to the mainstream. The lawsuits are blood, and sharks are circling the market itself. Profit is profit and few people will shed tears for the commercial banks should they be squeezed.
Sprott Asset Management has announced that it is planning to raise $500 million for a publicly traded silver ETF that will only invest in physical bullion trading under the symbol PSLV. Sprott already has a similar gold ETF that trades at a large premium to the price of gold – perhaps because investors truly believe that it is backed by the physical metal. Both the gold ETF (GLD) and silver ETF (SLV) have been questioned for their ownership of the physical gold and silver bullion. Interestingly, JPM is the custodian of the SLV silver ETF. Given Sprott’s solid record, there is a possibility of mass redemption from the questionable SLV ETF by investors who reallocate into PSLV.
Demand for physical silver has increased such that the US Mint announced on September 30th that it will increase its premium for silver eagles by a third.
click to enlarge images
Over the last few weeks, silver has oscillated between $23 and $25 as the commercial shorts have been thrashing in an attempt to find a weakness in bids. There is no weakness, and the $2 correction may already be over. Every 50 cent or $1 takedown is met with a wave of bids, and the commercial shorts are trapped. Thus far, the bids have remained unaggressive with most buying fulfilled on intraday dips. It is only a matter of time before the big money starts to aggressively buy.
Disclosure: Author is long SLW, PAAS, SSRI
Silver Wheaton Up 4.36% on Friday
October 31st, 2010 | Posted by Global InvestorsSilver Wheaton Corporation (SLW) Up 4.36% Friday
As we mentioned in our update Thursday, this is just the ‘pop’ that we needed to finish the week well above the $27.00/oz level, which had been acting as resistance to Silver Wheaton’s progress. So it gave us great pleasure to watch this stock close at $28.75, for a gain of $1.20, or 4.36%.
The chart is looking fairly good at the moment with the MACD being nicely positioned for a crossover that should also be positive for the stock. The one thing we don’t like is the gap between the stock price and the 200dma, but we can live with it, for now.
This, of course, is all on the back of the progress being made by silver prices which closed at $24.72, for a gain of $0.72 or 3.00%. That would be a great move over a week, but this move took place in just one day. Where else can you get so much volatility and excitement crammed into such a short period of time? Earlier on the day over at The London Stock Exchange we watched as prices drifted lower, Fresnillo Plc., was down around 2% at one point. So, it was looking like another down day with the shorters winning the day, however, things can and did turn on a dime.
A quick look at position regarding our options play and we can see that they have improved dramatically and hopefully put a smile on your face too.
and
We also acquired more SLW stock on 9th August 2010, for an average cost of $19.76 per share, which now stand at $28.75, giving us a paper profit of 45% in a little over two months, which is not a bad gain for a stock with such a large market capitalization. However, if you have something whose performance is better, then stick with it, otherwise give SLW some consideration.
Disclosure: SLW, GLD
DISCLAIMER: Silver Prices makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.
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