Is Base the New Precious?
by Peter Grandich
Throughout the better part of last year, most base metals continued to fall in price. The growing world recession
and credit crisis gave little hope to any real turnaround for base metals. The only glimmer of hope I gave to them
at the beginning of this year was the fact that copper prices were not anywhere near their lows of the last recession.
This was suggesting to me that production cuts were meeting demand destruction.
Then in a span of just four weeks, copper and other base metals received significant attention to the upside on the back of a major worldwide stock market rally. This rally came in the face of deepening economic contractions worldwide. Was this a case of the markets anticipating a bottom to the recession and moving up in advance as they have in the past? Or was this another bear market rally in a secular bear market that still has further to run?
Believe it or not, no one really knows. But one thing appears a near certainty; massive money creation around the world should sooner or later see a rise in inflation, particularly in the United States. This should only lead to a weaker US dollar, which can only be good for commodities.
In 2008, precious metals were among the very few asset classes that more than held their own. In recent times, though, precious metals have significantly backed off from their highs. In the meantime, base metals – as noted earlier – have sharply bounced off their bottoms. Are they taking over the lead role for all metals in 2009?
First off, I don't believe there have been any precious metals to for a while now. Gold, silver and platinum have not been in short supply for years. Silver, in fact, is really a base metal but because of its long-standing role as gold's 'kissing cousin' or 'the poor man's gold' is lumped into the precious metals group.
In my opinion, gold is the only metal truly separate from industrial driven metals. Yes, jewelry usage is still a significant part of its demand, but its monetary appeal is what I believe can drive it higher in the months and years ahead.
So what group is going to lead in 2009 and beyond? The jury is still out as I pen this article given the fact that there are still many questions unanswered regarding the financial crisis and when it may end. If one believes the worst is already behind us and/or a significant economic rebound is in the offering, base metals could lead. My personal choice is gold because it's a win-win situation. If we're only in the eye of the storm, it can continue to be a safe haven play. The more likely scenario is inflation returns with a vengeance and gold becomes an alternative to paper money. Either way, I don't see much downside but plenty of upside.
In the meantime, there are a number of juniors I believe are worth considering. Among them are:
Bravo Ventures (BVG:TSX). This company's exploration activities are focused within North America, specifically in northwestern British Columbia, Nevada and southeastern Alaska. The VMS/Epithermal gold/silver Homestake Ridge project in British Columbia is advancing with excellent drill results and a 2006 NI43-101 compliant technical evaluation (currently being updated) that reported an inferred resource of 900,000 ounces of gold. The 2008 exploration program consisted of an extensive 42 hole, 8,400 m multi-rig drill program that continues to demonstrate continuity of mineralization and remains open down dip and along strike to the southeast and northwest. The Woewodski Island prospect in Alaska is a precious-metal rich VMS target, which lies within a mineralized trend that hosts both the Greens Creek and Windy Craggy VMS. As well, the company has acquired a substantial land package consisting of thirteen properties located in the Battle Mountain/Eureka trend, Nevada. Numerous targets on a number of the projects have been identified, with drilling planned this year.
Donner Metals (DON:TSX). This company has made high-grade zinc and copper discoveries in the prolific Matagami camp of Quebec – right beside Xstrata's producing Perseverance mine. Xstrata has commenced a scoping study on Bracemac-McLeod discovery that the Donner/Xstrata team made in 2007 and further delineated in 2008. With a positive feasibility study, this discovery has the potential to be fast tracked into near-term production. Donner and Xstrata have a joint venture agreement and are actively searching for additional feed for the Matagami Lake Mill on the 801 km2 Matagami project area. Capital costs are quite low due to the proximity of Xstrata's 2,600 tonne/day mill and the established infrastructure at the Matagami camp, including an airport, railway, paved road, and access to power. Donner Metals and Xstrata Zinc won the international Outstanding Achievement Exploration Award from the Mining Journal at the Mines and Money World Congress in London last December. With a nomination of the Bracemac-McLeod zinc-copper volcanogenic massive sulphide discovery at the Matagami mining camp from Quebec's SIDEX, the Societe d'investissement dans la diversification de l'exploration (Diversification of Exploration Investment Partnership), this recognition was awarded to the Donner/Xstrata team for achieving the most notable exploration success during the past year.
Silvermex Resources (SMR:TSX). The company has had success on expanding low cost near surface silver resources in Mexico. Silvermex is developing silver resources at multiple projects. Silvermex recently published silver resource increases on each of its three priority projects: San Marcial, La Frazada, and Penasco Quemado. Over the last two years the company has increased its resources by over 443 percent, marking 0.89 ounces of silver for each of its shares.
Peter Grandich is a compensated consultant to the above companies.
