Richard Warke on mining equities, U.S. dollar - “bad spell won’t last”

2015 was a tumultuous year for gold stocks.  The beginning of the year started with a strong gold price ($1,350 an ounce in January) that slowly eroded as the months wore on.

Despite the downward trend, the gold sector has been enduring this year.  Some analysts are forecasting that the US dollar will be brought back to reality in 2016, which, if that happens, will serve as one step in allowing silver and gold and, more broadly, the precious metals sector to regain some of the footing that the market’s lost over the last four years.

“Don’t be fooled, the US dollar is overbought and ready to turn over while the Euro and precious metals could finally see the bounce they have been waiting for over four years. The exact opposite conditions of what we saw 4 years ago,” says analyst and MiningFeeds contributor Jeb Handwerger. http://www.miningfeeds.com/2015/12/08/how-much-longer-will-rising-us-dollar-crush-commodities-and-mining-equities/

While Handwerger is optimistic, other analysts remain pessimistic about the potential for precious metals to make a recovery in 2016. Their reluctance in part stems from the Bloomberg Commodity Index, which is a broad tracker of commodities, which is currently at its lowest levels since 1999.

With mines coming into production, even at current low prices, Jessica Fung, a commodity strategist at BMO Capital Markets, sees little relief for the resource industry in 2016. “Miners are not commodity market speculators,” she said. “Their job is to run operations as efficiently as possible and earn a profit. As long as that’s what the supply side is doing, it’s hard to see sufficient cuts next year.” http://business.financialpost.com/news/mining/metal-price-meltdown-opens-door-for-private-equity-to-walk-in

In order to weather the financial storm, miners have begun to sell non-core assets. Quite a few of these good assets are on the market right now and there will be more to come this year. Anglo American PLC announced this month that it will begin selling 60 percent of its assets, making this an intelligent time for private equity buyers to get involved with the mining industry.

“There have been fewer private equity mining deals than investors expected over the past few years, though groups such as Waterton have done plenty of small-scale acquisitions,” writes Peter Koven of the Financial Post. http://business.financialpost.com/news/mining/metal-price-meltdown-opens-door-for-private-equity-to-walk-in

Koven sees 2016 as a possible catalyst to private equity investment, especially with the Anglo assets going on the block. “[Private equity] have only been dipping their toes [in mining] because they’re not used to resource-type exposure,” comments Michael Amm, co-head of the mining group at Torys LLP. “We know they’re holding billions and billions of dollars. At some point, they will deploy it.” http://business.financialpost.com/news/mining/metal-price-meltdown-opens-door-for-private-equity-to-walk-in

Mining executive, Richard Warke, who has more than 25 years of experience in the mining sector and is particularly notable for his sale of Ventana Gold Corp. in 2011, comments on the future of the precious metals market. “Silver, like other precious metals, will always have its supporters, regardless of market conditions,” Richard Warke mentions. https://ca.linkedin.com/in/richardwarke

Interestingly, Warke then points to the growing momentum in other sectors of the industry.  “Lead and zinc are both doing very well right now,” Richard Warke adds.  “And I’m particularly excited about those metals.” https://about.me/richardwarke

It’s important to also remember that although gold performed poorly in 2014, it was overall the second best performing currency of the year, second only to the US dollar. It’s conceivable that  gold will bounce back in 2016, particularly if and when the US dollar, which many think is overbought, returns to a normal value level. http://www.businessinsider.com/the-us-dollar-and-commodities-2014-12