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Why
Gold? Tips for Investors On Where Gold Stands Today
By Jennifer Lee
June 10, 2004
When gold rose for the third day in a row in London last week, alongside
the fall of the U.S. dollar, reports linked this affect with two
car-bomb explosions that took place in Iraq, just three weeks before a new
government was due to take power. The event, as analysts conclude, proved
that once again when we are faced with times of global political
uncertainty, gold is where investors look to put their money, when the going
gets tough.
But
as many have also said, gold has recently reached a plateau after its bull
run, which leaves us now asking the question, just who invests in gold, when
and why?
If
we look even further at how the current economic climate influences gold
development and where things are at within the mining sector, perhaps a
clearer picture might emerge, to help investors see where gold is going and
just as key to how it fares, where it has been.
A
Vancouver based resource exploration company, Running Fox Resource
Corporation, has recently answered questions for investors who are
considering just why they should invest in gold and what it is that sets
Canadian based exploration firms apart on the world stage. The company is
also currently involved in exploring an area called the Brett Property,
located approximately 29 kilometres West of Vernon in south-central British
Columbia, Canada. Running Fox President Michael Meyers comments on the
following:
Its been said that gold’s bull run has now begun to level off.
How would you describe this particular period in time, for investors who may
be looking at gold? What are some of the factors about this industry, that
investors need to take into consideration now, before investing their money?
Answer:
“The
bull run may have levelled off, but as inflation creeps in, (oil prices,
housing etc), the defensive stocks like gold will perform as hedges. The
overall long term bull run has just started. We are currently in a
pull-back, correction or consolidation phase, due in part to the rapid rise
over the last year. As in most long-term gold bull markets the required
conditions are starting to add up and the next phase will be fuelled by
stronger Asian demand (especially in China), US dollar weakness, inflation,
political and financial instability, rising real interest rates and a few
other surprises in the financial conditions of developing countries.
On
the supply side, fundamentally the real inventory levels are actually lower
than predicted because in the tough mining times, the high-grade was taken
out, leaving lower-grade reserves that are not as economical. The inventory
of real, high-grade deposits is much lower than currently thought and they
take much longer to ramp up today due to environmental factors. There are
not many significant economic deposits in the pipeline that can be brought
on stream as quickly as with the Brett Property, which has excellent
infrastructure and is about 12 miles off of pavement, near the City of
Vernon.
Secondly, the current economic and environmental climate is much
tougher than it was in years past, so many of the known deposits that have
been sitting on big gold companies’ books are now in fact, uneconomic or
mired in environmental and engineering dilemmas. Many will not be developed
but continue to show up as a reserve. Today, infrastructure costs can be
enormous and if a deposit is located in a remote area, it is almost always
uneconomic and will not be mined in the foreseeable future, yet it still
shows up as a reserve.
Third, the financial conditions that led to the huge hedge fund short
position in gold have now slowly been unwinding. The market forces that were
exerting pressure on gold are now moving off their positions and the metal
is beginning to be seen in a new realistic light. Economic deposits of gold
are in fact very rare. The metal is extremely useful in many industries and
replacement metals do not come close to gold in their applications.
Finally, as the large gold companies have been drawing down their
reserves, they have needed to build more reserve bases and have accomplished
this in large part by merging, acquiring, or combining with other gold
companies that have reserves. It is much easier to do this than to find new
deposits that are economic. Now, many of the easy or strategic fits have
already been consumed and much of the consolidation has taken place,
although there will be a few large transactions this year. People need to
understand that economic gold deposits are very rare, and the real intrinsic
value in gold itself is much higher than in other rare commodities such as
gem-quality diamonds, which rely on massive marketing and emotional
valuations. ”
What promise do you see in Canadian gold and more specifically
where do you see things headed (especially right here in B.C.) over the next
two to three years?
Answer:
“The
benefits of British Columbia gold properties are very simple: political
stability, fair legal and title systems and a skilled workforce. Previous
governments stalled the industry with red tape and exploration seekers and
miners went elsewhere, even though some of the best geology is in B.C. This
has changed now and the desire at the government levels is ripe for
projects. Since we enjoy the aforementioned benefits, we are a more stable
place in which to mine. This means that better quality capital pools are
available at a lower cost (interest rates) for project finance.
Where is Running Fox currently at with the development of its
Brett Property and can you comment on any new projects up and coming?
Answer:
“The
2004 exploration program is about to commence, equipment and heavy machinery
are being mobilized and drill permits are being arranged. The summer program
has been planned, the drill targets identified and the crew and other
manpower is being assembled. We
know the high-grade is there, which we will progressively define, but we
also seek to prove a big, low-grade system around and between the high-grade
systems. The combination of these elements is what will make a significant
mine.
The
company is analyzing significant additional projects which have to remain
confidential at this time. We can say that some are in the United States, in
very well known gold camps/zones, with others in Canada. They tend to be
lower risk development properties rather than raw exploration properties. We
intend to go where the gold is known to exist and would seek to prove up
additional ounces and economic rational for developing mining operations.
For Running Fox to consider a property, it must contain known significant
gold and we work at determining how much is there.”
It has been said that the area currently under exploration by
Running Fox, otherwise known as the Brett Property, hosts “epithermal
style gold mineralization containing coarse golds and has excellent
potential of hosting an economically viable gold deposit.” Can you give
further comment on the epithermal nature of this gold and what might make it
more commercially viable?
Answer:
“The
epithermal model itself does not make a deposit viable, it is the grade and
tons that determine the economic viability. However epithermal type deposits
are known throughout the world and vary in size from a few thousand tons to
tens of millions. They are highly sought after due to their
high-grade.
Deposits
in Peru, Chile, Mexico, Nevada, Arizona, British Columbia and Alaska all
fall into this type. Famous deposits are the Lihir (Papua New Guinea);
Steamboat Springs, Round Mountain, Comstock (Nevada); El Indio (Chile),
Cripple Creek (Colorado), Zortman (Montana) and in British Columbia: the
Premier, the Equity Silver, the Eskay, the Snip, the Cariboo Gold, etc., to
name a few.
The
significant epithermal deposits range in size from 500,000 ounces to 21
million ounces of gold for the largest (Lihir). Common mine sizes are in the
500,000 to 2 million ounce gold range.
They
are often part of large systems that host several deposits, including skarns,
veins and porphyry type minerals. The deposits themselves usually have an
extremely high-grade core surrounded by low to medium grade mineralization.
Depending on the economics, mining can be a large-scale open pit or
underground operation removing everything or a smaller scale high-grade
operation. Mining rates can range from 100 tons per day to 25,000 tons per
day, depending on the size of the system.
Given
the size of the Brett system as defined to date: 4,500 ft long, by 30 to 60
ft wide, and 600 ft deep and open in all dimensions, accompanied by other
parallel shears that are already identified, the indications are of a
large-scale system. What we are
trying to determine is how many tons of what grade is actually present on
the Brett Property.
Epithermal
types of deposits are being sought by every major exploration company,
because they are usually very high-grade and extremely profitable and to
have one with several extremely high-grade assays already obtained is very
rare especially in today's gold market. For more information please review
the independent NP 43-101 Technical Report on the Brett Property and review
our website at www.foxgold.ca in order
to make your decisions informed ones. We stand ready to answer further
questions or provide further comments.”
Jennifer
Lee
Jennifer Lee has a degree in English Literature from the University of
British Columbia. She holds a publishing certificate from Simon Fraser
University and has worked at both Vancouver and Western Living magazines,
where she began her career as an editorial intern. She has worked as an
editor in countries such as Zimbabwe and South Africa, producing books,
newsletters and editing various quarterly magazines on a variety of
international development related topics. In South Africa, she worked to
help produce a bi-weekly newsletter for the Institute for Security Studies
on crime and corruption headlines which appeared in all national and
provincial papers. Prior to working in southern Africa, she wrote articles
for DMR Consulting, on mergers and acquisitions taking place in the market
during 2001. She now produces a quarterly publication at the University of
British Columbia and works on the side as a freelance writer
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