Why Gold Miners Just Keep On Diggin’ A Deeper Hole For Themselves

What does Peter Schiff not understand?

If only gold mine operators could flatten their debt mountains as easily as they can the real things.

Mining companies built up record borrowings to boost gold output during a 12-year bull market in the metal that stopped dead in 2011. The 42 percent slump in prices since then leaves them effectively servicing the debt with devalued currency.

Gold mining companies boosted debt to take advantage of rising prices.

Output that might have fallen as gold sank has continued on to all-time highs as producers need to generate enough cash from sales at lower prices to keep up payments on what they owe.

That’s squeezed profitability and share prices, with a benchmark index of 30 of the biggest precious-metals miners falling to the lowest levels since 2001, when bullion was barely a quarter of its current rate of $1,110 an ounce.

Equities tumble to their lowest since 2001.
Equities tumble to their lowest since 2001.

“The industry is in a shocking state,” said Mark Bristow, head of Randgold Resources Ltd., the producer with the best share performance in the past decade. “Everyone is still focused on production and not on profitability.”

Growth in output has exacerbated an oversupply that makes a recovery in the bullion price harder to achieve, Bristow said.

Gold production continues to rise even as prices fall.
Gold production continues to rise even as prices fall.

Debt held by 15 of the biggest producers including Barrick Gold Corp. and Goldcorp Inc. hit a record $31.5 billion at the end of the first quarter, up from less than $2 billion in 2005, according to data compiled by Bloomberg Intelligence.

That was spurred by the dash for growth when prices were rising, including $8.5 billion for Barrick’s mine in the Andes mountains and C$8.2 billion ($6.3 billion) for Kinross Gold Corp.’s bet on Mauritania. In the past decade, world output expanded 24 percent to last year’s 3,114 metric tons.

“The whole industry is being encouraged to continue to live on hope,” Bristow said. “The question is how much cash flow do you need to expunge the debt? There’s nothing really left to create value for shareholders.”

Precious Metals Routed as Gold Extends Decline

Gold Extends Decline to Five-Year Low

Precious metals were routed as gold sank to the lowest in more than five years on prospects for higher U.S. rates and after China said it held less metal in reserves than some analysts expected. Platinum plunged to the lowest since 2009, while silver and palladium lost more than 2 percent.

Bullion for immediate delivery tumbled as much as 4.2 percent to $1,086.18 an ounce, the lowest price since March 2010, and traded at $1,106.90 at 10:54 a.m. in Singapore. Miners’ equities fell as prices extended a fourth weekly loss.

Gold has fallen out of favor with investors as Federal Reserve Chair Janet Yellen prepares to raise rates this year, boosting the dollar. While China updated its bullion reserves on Friday for the first time since 2009, the 57 percent increase to 1,658 metric tons was smaller than had been estimated. Gold’s plunge raises the prospect of third straight annual drop.

“The market is in one of its bear phases, where any news is bearish news,” said Jack A. Bass Vancouver-based managing partner at Jack A. Bass and Associates, predicting that gold may drop as low as $1,050 an ounce. “People had expected China’s holdings to be higher,” said Bass , author of The Gold Investors Handbook. His managed accounts hold no gold or gold miners.

Newcrest Mining Ltd., Australia’s largest producer, lost 7.1 percent to A$12.26 in Sydney, while Evolution Mining Ltd. slumped 13 percent and Saracen Mineral Holdings Ltd. tumbled 13 percent. In Hong Kong, Zijin Mining Group Co. lost 3.8 percent.

“Gold has generally been suppressed by the ongoing expectation that the dollar may get stronger should the U.S. Fed raise interest rates,” Wallace Ng, a trader at Gemsha Metals Co., said from Shanghai. “But this sudden drop during Asian trading seemed to have been triggered by some stop-loss selloffs that have nothing to do with fundamentals.”

Commodity Losses

Some investors are turning away from precious metals amid a wider retreat in raw materials. The Bloomberg Commodity Index dropped for a fifth day on Monday to as low as 96.6395, heading for the longest run of declines since March.

China bought about 604 tons of gold since 2009, second only to Russia, according to data from the central bank and International Monetary Fund. The total holdings make China, the world’s biggest producer, the world’s fifth-biggest gold owner.

Prospects for a U.S. rate increase strengthened the dollar, hurting the allure of gold, which generally offers returns only through price gains. The Bloomberg Dollar Spot Index rose as much as 0.1 percent to the highest level since April 13.

‘Still Bearish’

“I’m still bearish on gold,” said Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp., the most accurate precious metals forecaster in the eight quarters to March, according to Bloomberg rankings. “For the year-end, I’m still looking at $1,050 an ounce. The bearish outlook is underpinned by the likelihood of the U.S. Fed rate hike.”

Holdings in gold-backed exchange-traded products have shrunk as U.S. equities rallied and the dollar climbed. Global holdings were at 1,585.96 tons on Thursday, down from a record 2,632.5 tons in December 2012.

Gold futures retreated as much as 4.6 percent to $1,080 an ounce and traded at $1,109.50 on the Comex in New York. Money managers are holding the smallest net-bullish bet on gold since the U.S. government data begins in 2006.

Platinum for immediate delivery dropped as much as 4.7 percent to $947.38 an ounce, the lowest since January 2009, and traded at $962.90. The metal is 20 percent lower this year.

Spot silver lost as much as 2.3 percent to $14.5449 an ounce, the lowest since December 2014, and was at $14.6678. Palladium fell as much as 3 percent to $596.75 an ounce, the lowest since October 2012.

Seeking Alpha highlights Gold Portfolio Destruction

The destruction of capital can be seen across a swath of gold relative securities, and silver too.

Precious Metal Relative Last Week Last 3 Mos. TTM
SPDR Gold Trust -2.5% -6.0% -13.9%
iShares Gold Trust (NYSE: IAU) -2.6% -5.9% -13.8%
ETFS Physical Swiss Gold Trust (NYSE: SGOL) -2.5% -6.0% -14.5%
iShares Silver Trust (NYSE: SLV) -4.4% -8.6% -29.9%
ETFS Physical Silver Trust (NYSE: SIVR) -4.6% -8.4% -28.7%
Market Vectors Gold Miners (NYSE: GDX) -7.9% -21.8% -42.5%
Market Vectors Junior Gold Miners (NYSE: GDXJ) -5.3% -14.3% -52.2%
Direxion Daily Gold Miners Bull 3X (NYSE: NUGT) -23% -55.2% -89.1%
Goldcorp (NYSE: GG) -10.4%* -24.8% -44.4%
Randgold Resources (NASDAQ: GOLD) -3.6% -17.1% -28.6%
Barrick Gold (NYSE: ABX) -13.1% -30.5% -52.8%
Silver Wheaton (NYSE: SLW) -9.5% -29.5% -48.1%
Coeur Mining (NYSE: CDE) -8.2% -22.3% -48.8%
Silvercorp Metals (NYSE: SVM) -9.6% -28.8% -56.2%

-3 month & trailing 12 month data from Seeking Alpha; GG 1 week performance adjusted for dividend

Now get your watch list updated – from Amazon.com Books

for portfolio guidance and tax reduction strategies  read more athttp://www.youroffshoremoney.com

 

Braggin’ Rights :Gold Reaches Lowest Since 2010

We sold and advised YOU to sell at $1800

We told you repeatedly Peter Schiff was leading you astray

For six years, investors have been guessing how much gold China owns. On Friday, they found out and the results were underwhelming.

China said it boosted bullion assets to about 1,658 metric tons, less than brokers at GoldCore Ltd and Sharps Pixley Ltd. expected. Futures dropped to the lowest since 2010 on Friday as signs of improving U.S. economic growth further diminished the metal’s appeal as a haven.

With investors in the U.S. scoffing at the precious metal, bulls were holding out hope that buying from China could help to buoy demand. The Asian country is the world’s biggest gold producer and vies with India as the top consumer. The price rout worsened the outlook for miners, with shares of Barrick Gold Corp. dropping to the lowest since 1991 on Friday.

“I’m shocked by how small the figure is,” Ross Norman, chief executive officer of dealer Sharps Pixley, said by telephone from London, referring to China’s gold reserves. “I don’t think I was alone in thinking they have accumulated three times as much.”

Gold futures for August delivery dropped 1.1 percent to $1,130.90 an ounce at 11:16 a.m. on the Comex in New York, after touching $1,129.60, the lowest since April 2010.

The reserve figures “were disappointing in some aspects and reflected that China isn’t adding gold as much as people thought it was,” Bernard Dahdah, a precious-metals analyst at Natixis SA in London, said in a telephone interview. “It begs the question of what’s been happening to the gold produced that hasn’t been taken by the central bank.”

Weekly Drop

Prices extended losses after a government report showed new-home construction in the U.S. climbed in June to the second-highest level since 2007. The metal is heading for a fourth straight weekly decline as Federal Reserve Chair Janet Yellen has indicated that the central bank will increase interest rates this year amid the improving economy.

Higher rates cut the appeal of precious metals because they don’t pay interest or give returns like other assets such as bonds and equities. Gold futures in New York fell for a seventh straight session, the longest streak since November.

Shares of Barrick Gold, the world’s biggest producer of the metal, fell as much as 6.5 percent in Toronto. The Philadelphia Stock Exchange Gold and Silver Index, a gauge of miners, slumped as much as 4.2 percent, reaching the lowest since January 2002.

“There is just no interest in the market to own gold,” Donald Selkin, the New York-based chief market strategist at National Securities Corp., which manages about $3 billion, said by telephone. “The Fed’s hawkish stance is the biggest culprit for the decline that we are seeing in the precious-metals market.”

Now get your watch list updated – from Amazon.com Books

for portfolio guidance and tax reduction strategies  read more at http://www.youroffshoremoney.com

Corporate stock buybacks put a floor under earnings ? Bloomberg

Wall Street analysts are gloomy about corporate performance in the second quarter, predicting that profits fell 6.5 percent. If companies weren’t buying so much of their own stock, the drop could be much worse: 9 percent. “It makes you rethink a lot of things,” says Kevin Mahn, president of Hennion & Walsh Asset Management. “We question how much earnings growth has taken place because of actual sales growth and consumer spending—and how much is attributable to buybacks.”

Corporations report profits as earnings per share (EPS). By reducing the number of shares outstanding, buybacks help increase a company’s EPS. The impact of buybacks was harder to see in the first three years of the bull market, when ballooning profit margins helped companies in the Standard & Poor’s 500-stock index almost double their earnings. Now that margin growth has flattened out, buybacks’ contribution is more significant. Companies in the S&P 500 bought more than $550 billion of their own stock last year, boosting EPS growth by 2.3 percentage points, according to data compiled by Bloomberg.

The last time buybacks contributed as much to profits was in 2007, when companies spent the most ever on their own stock and enhanced that year’s increase in EPS by 3.1 percentage points. “Today the argument is buybacks are distorting the market, but I’m less certain,” says Dan Greenhaus, chief global strategist at BTIG, which provides trading services to institutional investors. “To the extent companies have thought their shares are undervalued the past few years, buybacks have been a fair use.”

Buyback announcements so far in 2015 have already topped full-year totals for 2008, 2009, 2010, and 2012, and they’re on pace to reach an annual record of $993 billion, according to Birinyi Associates. AIG announced a $3.5 billion share repurchase plan in April, and in June, Wendy’s said it would buy $1.4 billion of its stock.

Some companies borrow money for share purchases. Over the three months through June 19, companies in the S&P 500 listed buybacks or dividends among the uses for $58 billion they raised in bond sales, according to data compiled by Bloomberg and Sundial Capital Research.

Since 2009 companies have spent $2.4 trillion on buybacks, drawing criticism from politicians who say the companies should use the money to hire workers, pay them more, build plants, and fund research. In her economic policy speech on July 13, Hillary Clinton vowed to “propose reforms to help CEOs and shareholders alike focus on the next decade rather than just the next day, making sure stock buybacks aren’t being used only for an immediate boost in share prices.” Senators Tammy Baldwin (D-Wis.) and Elizabeth Warren (D-Mass.) have asked the Securities and Exchange Commission to look into the practice, with Warren saying that buybacks “create a sugar high for the corporations.”

Wall Street has its own doubts about the tactic. Investing in people, facilities, and research arguably could have a much bigger long-term impact on a company’s bottom line—not to mention the entire economy—than a company taking advantage of low interest rates to borrow money to buy its own stock. That’s the reasoning behind a letter BlackRock Chief Executive Officer Laurence Fink sent in April to the CEOs of S&P 500 companies, arguing that their “duty of care and loyalty” should be to long-term owners instead of activists agitating for returning more cash to shareholders.

One reason buybacks are common is that U.S. companies have earned so much money in the past few years. Over the previous 12 months they’ve generated $1.1 trillion in profits—a sum that “cannot possibly be reinvested back” as capital spending or research and development, says Dubravko Lakos-Bujas, an equity strategist at JPMorgan Chase. “Cash flow generation for U.S. companies has been very robust, balance sheets have remained pretty healthy, and interest rates are still low,” he says. “With growth fairly anemic, it’s extra reason for buybacks.” Or as BTIG’s Greenhaus puts it, “Companies have to do something with their cash.”

When dividends are included, companies are returning about as much cash to shareholders as they have in the past. Added together and expressed as a proportion of stock prices, repurchases and other payouts total 4.3 percent—about the historical average, according to JPMorgan data.

Investors have shown that they approve of the tactic. Shares of the 100 companies that use the biggest portion of their cash on repurchases in 2014 have beaten those that spent more on plants and equipment, according to an April study by Barclays. Says Marshall Front, chief investment officer at Front Barnett Associates: “Corporations wouldn’t buy back as much of their stock if they could make a significant increase in earnings over the years through investment.”

The bottom line: Companies spent more than $550 billion on their own stock in 2014, boosting earnings by 2.3 percentage points.

Barron’s Energy Review : A Whole Lot of Shorting Going On

Chesapeake Energy: A Whole Lot of Shorting Going On

Sterne Agee CRT’s Tim Rezvan is feeling bullish about Chesapeake Energy (CHK), which he upgraded on June 29. One of the reasons: The latest short interest data. He explains:

Daniel Acker/Bloomberg News

Largest Increases in Short Interest Among Coverage Names:PetroQuest Energy (PQ), Cheasapeake, Noble Energy(NBL). The largest increase in short interest came from PetroQuest Energy, which had a 16.1% increase to 7.2 million shares (11.0% of shares outstanding, 5.0 days to cover). Other large increases were seen in Chesapeake Energy, which had a 14.1% increase to 185 million shares (27.8% of shares outstanding, 8.1 days to cover), and Noble Energy, which had a 10.3% increase to 17.9 million shares (4.6% of shares outstanding, 4.1 days to cover).

June 30 Data Likely Represents Peak of Bear Case Fervor for Chesapeake Shares. Our June 29 upgrade of Chesapeake shares to Buy from Underperform reflected what we believed was oversold conditions, and month-end short interest data validates this thesis. Short interest in Chesapeake shares increased 14% to 185 million shares from mid-June to the end of June (+163% from the end of February). We expect profit-taking from shorts to provide further support to Chesapeake shares into 2Q earnings

Here’s a chart of the short interest in Chesapeake, which as the analysts note is just massive:

Shares of Chesapeake Energy have tumbled 3.4% to $10.98 at 9:57 a.m. today, while Noble Energy has fallen 0.3% to $38.94, and Petroquest Energy has gained 1.7% to $1.75.

Read more on protecting your assets at http://www.youroffshoremoney.com

King Coal: The King Is Dead – here’s proof

 Signs That Coal Is Getting Killed

Coal is having a hard time lately. U.S. power plants are switching to natural gas, environmental restrictions are kicking in, and the industry is being derided as the world’s No. 1 climate criminal. Prices have crashed, sure, but for a real sense of coal’s diminishing prospects, check out what’s happening in the bond market.

Bonds are where coal companies turn to raise money for such things as new mines and environmental cleanups. But investors are increasingly reluctant to lend to them. Coal bond prices tumbled 17 percent in the second quarter, according to an analysis by Bloomberg Intelligence. It’s the fourth consecutive quarter of price declines and the worst performance of any industry group by a long shot.

Bonds fluctuate less than stocks, because the payoff is fixed and pretty much guaranteed as long as the borrower remains solvent. A 17 percent decline is huge, and it happened at a time when other energy bonds—oil and gas—were rising. Three of America’s biggest coal producers had the worst-performing bonds for the quarter:

  • Alpha Natural Resources: -70 percent
  • Peabody: -40 percent
  • Arch: -30 percent

Coal powered the industrial revolution and helped lift much of humanity out of poverty, but its glory days have reached an end. Here are four of the biggest pressures facing the industry:

1. The U.S. Grid Is Changing

About 17 percent of U.S. coal-fired power generation will disappear over the next few years, according to an analysis by Bloomberg New Energy Finance (BNEF). Obstacles include age, the abundance of cheap natural gas, and new EPA rules to cut pollution. Here’s a great visual breakdown of what’s happening to U.S. coal power.

Coal Plants on the Way Out by 2020

Source: Bloomberg Business / BNEF

The map shows coal plants in 2010 that may be headed for retirement. Blue circles represent plants that will be shuttered by 2020, while yellow will convert to gas, and red have undetermined futures. Big coal won a small victory over the EPA’s new mercury restrictions at the Supreme Court in June, but it’s most likely a temporary reprieve.

2. Even China Is Approaching Peak Coal

The biggest power investments are now happening in renewable energy, but fossil fuels will be with us for decades to come. The global burning of coal won’t peak on a global scale until around 2025, according to BNEF. But that doesn’t indicate a thriving industry. Even China, the world’s biggest consumer of coal, wants to be rid of it.

While China’s electricity demand will soar in the coming decades, its coal use will remain relatively flat, peaking by 2030 and then declining, according to BNEF. The pollution is too thick and the alternatives too cheap for coal to flourish. The chart below shows China’s ever-falling price of wind power (blue) and solar (yellow) vs. the rising cost of coal (dark gray) and natural gas (light gray) over the next 25 years.

Wind and Solar Will Win the Price War

Source: BNEF

3. Financial Distress

The declining prices of bonds is a huge problem for U.S. coal companies. When bond prices fall, the cost of borrowing money goes up. And coal needs more money.

Coal companies are allowed to avoid costly insurance premiums by showing they have the capital to clean up after themselves. It’s called self-bonding. This year the federal government has started taking a closer look at whether the struggling coal companies still qualify.

In May, the Wyoming Department of Environmental Quality told Alpha Natural Resources it no longer qualifies for self-bonding in the state, and the company has until Aug. 24 to post collateral or cash against $411 million of reclamation liabilities. The department last week confirmed that Peabody, the largest U.S. coal producer, can continue to self-bond.

4. Renewables Are …

Coal is an industry in terminal decline, and financial markets are reflecting this new reality. Drastic new energy policies are still needed to avoid catastrophic climate change, according to nearly every credible analysis. But even setting aside the environmental and health issues, renewables are on a trajectory to outcompete fossil fuels, starting with coal. Between now and 2040, two-thirds of the money spent on adding new electricity capacity worldwide will be spent on renewables, according to BNEF. The table below forecasts the proportion of renewable electricity in select countries by 2040.

Winning

In the past year, global stock prices for coal companies are down almost 50 percent, but it’s in the bond market that coal is really getting hammered. The focus of energy finance has shifted from coal to renewables, and it’s not likely to turn back.