NFGC - All Is Golden With Centerra Gold And New Found Gold

2023-06-14 00:33:14 ET

Summary

• Strong Central Bank buying will pressure gold higher.
• Centerra Gold will benefit from their Oksut mine back in production.
• New Found Gold continues to outline a very high-grade discovery.

I am convinced that the recent correction in the Comex Gold ( GLD ) price is about over. Since my call of a triple bottom in gold November 8th 2022 (All is Golden) and jumping back into gold stocks, the uptrend remains intact (blue lines). Since then the 100 day moving average has also acted as support and we have now witnessed a few bounces off the $1940 area. Other positive technicals are the CCI indicator that dropped into the red like previous correction bottoms and although the RSI did not drop as far it was significant. I see resistance just above $1980 and ultimately $2070 area, the all-time high.

On the fundamental side, strong Central Bank buying in the physical market underpins the Comex paper market. Central banks alone have bought 228 tonnes from January through April, according to the latest World Gold Council report. Anytime the price drops on Comex, more physical deliveries are requested. In general you can see below in this chart from SchiffGold , that Comex deliveries have increased since 2022. $1.2B of gold was delivered during May. This is the second largest May on record, trailing only May 2020 during the storm of the pandemic.

China is Building a War Chest of Gold

China increased its gold reserves for a seventh straight month, among strong demand for the precious metal from the world's central banks. China raised its gold holdings by about 16 tons in May, according to data from the People's Bank of China on Wednesday. On April 16, Reuters reported that China has given domestic and international banks permission to import large amounts of gold into the country.

In November, Chinese President Xi Jinping told the People's Liberation Army to "focus all its energy on fighting" in preparation for war . U.S. military personnel have confirmed China is preparing for war to annex Taiwan, but not given a time frame. China's behavior is like Russia's before the invasion of Ukraine. Before invading Ukraine, Russia de-dollarized its economy and stockpiled gold and Chinese Yuan. China closely watched the sanctions and the world's reaction to Russia's invasion. China has been negotiating trade agreements outside the Dollar and stockpiling gold. China may be planning an attack against Taiwan sooner than most imagine.

This is not getting any coverage in legacy media yet but the Peoples Bank of China announced changes about 3 weeks ago to incentive its citizens to buy gold. The commercial banks in China created the ability for Renminbi savings accounts to be connected to gold accounts, so that Chinese citizens can now buy gold directly out of those savings accounts. I believe you will see an even faster draw down of western gold as it gets bought in the east from China and other central banks as well.

China did a similar thing back in 2010 and at that time it underpinned the gold price and this will/is happening again. As their citizens buy gold, they want to see that investment rise in value for them. China knows all too well how the US$ can be weaponized against them and they are preparing for that day. When the time comes, China will back the Renminbi with physical gold and reveal the whole extent of its gold reserves, as many are off the books at their reserve banks.

World Gold Council reports Central bank demand hit 228t in Q1, 34% higher than the previous Q1 record, set in 2013. And it is not just China, as India's official gold reserves are up from 17.9 million troy ounce in December 2017 to 25.55 million troy ounce in April this year according to the latest RBI data. This roughly translates to 795 metric tonnes of gold. The Monetary Authority of Singapore ((MAS)) was the largest single buyer during the quarter. Central Bank buying has been strong for over 10 years and it went into over drive in 2022 and with Q1 2023 this pace looks to continue. You may also notice that ETF flow remains weak, slightly negative. It is only a matter of time before funds and retail get on board.

Many may not realize that just 5 months ago gold became a tier 1 asset class worldwide for banks, making it equivalent to cash. Gold has zero counter party risk, so banks may realize that it is better than fiat based assets on their balance sheets.

Now, the Fed is the only remaining central bank net short gold. It looks to me like a last ditch effort to keep the US$ value up relative to gold as most of the eastern world is moving away from the US$. They see how it can be used against them as in Russia's case.

Conclusion

I believe the strong Central Bank buying of physical gold will underpin prices higher on the Comex paper market. As the physical market gets tighter and tighter, it is only a matter of time before the Comex breaks out to record prices. Once this happens, I see $2,500 as a likely target and the move towards this will bring in strong fund and retail buying that will also move silver higher and the precious metal equities. Centerra Gold ( CGAU ) is well worth a look.

Centerra Gold and New Found Gold

We got stopped out of Centerra Gold in 2021 at Cdn$11.00 and can now buy back around $8.00. The stock was on a very good rally, hitting $10.00 in April. However, it got hammered after May 15th when Q1 2023 financial statements were released.

Net loss for the quarter of $73.5-million, or 34 cents per common share, including (net of tax) a non-cash reclamation expense at the care and maintenance sites of $15.6-million, or seven cents per common share. Also exploration and evaluation costs at the Goldfield project of $11.7-million, or six cents per common share. And standby cash costs at the Oksut mine of $7.8-million, or four cents per common share. Mining costs at the Oksut mine were expensed in the period due to the focus on waste stripping activities with limited mining, crushing and stacking of ore. Adjusted net loss for the quarter was $52.9-million, or 24 cents common share.

The market seemed surprised but their Oksut mine activity had been sidelined since August 2022 as they had to upgrade the plant and renew permits. They were processing limiting amounts of stock piled ore. Eventually this had to hit the financial numbers and it did. However, this is now resolved as May 31st they announced the Turkish Ministry of Environment, Urbanization and Climate Change has approved Centerra Gold Inc.'s amended environmental impact assessment ((EIA)) for the Oksut mine in Turkey.

With the EIA approval in hand, along with the receipt of regulatory approvals for the mercury abatement retrofit to the adsorption, desorption and recovery plant (ADR plant), the company expects to restart full operations at Oksut in the coming weeks.

CEO Tomory commented in the May 15th financial release: " In the first quarter of 2023, the company continued to demonstrate that safety remains Centerra's top priority, with a number of our sites achieving milestones without a lost time or reportable injury. In Turkey, I'm pleased to announce that we have completed the mercury abatement retrofit to the Oksut mine's ADR plant and that the system has been tested under the supervision of the Turkish ministry. The regulatory review of Oksut mine's amended EIA remains on track; all review steps have been completed and it has been submitted for final ministry approval. Subject to receipt of the final approvals of the EIA and ADR plant, the company will be well positioned to begin processing the approximately 100,000 recoverable ounces of gold-in-carbon inventory on hand. We will then be able to shift our focus to the additional approximately 200,000 recoverable ounces of gold in the Oksut mine's gold-in-ore stockpiles and on the heap leach pad."

Oksut is a major asset for the company and just had its first full year of commercial production in 2021 before the ADR plant issue in 2022. In 2021 Oksut produced 111,703 ounces gold and was projected to double that in 2022, so the ADR plant set back was very significant to the company. The 2Q results will still be impacted by the Oksut mine given the shutdown for most of the quarter.

Centerra will be able to liberate cash from inventory over time and generate more cash from Oksut going forward as noted by the CEO above with a large stock pile of ore to process. Centerra offers investors exposure to gold and copper, while generating solid cash flow. Centerra also has a strong balance sheet and huge future potential with three molybdenum assets, highlighted on this graphic from their presentation . This offers leverage on molybdenum prices and may be sold for significant value.

On the chart, there is support around Cdn$8.00 and the stock had a gap below this and a gap above it on the surprise news flow. Or what was taken as surprises. The first resistance is just above $9 and once that is broken, I expect the uptrend can continue to around $13, the 2022 highs before the Oksut mine issue.

I wrote about New Found Gold here last April and the stock went lower with the gold market but has been moving up again since March this year. It is amazing and reflects how bad this gold stock market is with New Found Gold ( NFGC ) at these prices and reporting drill holes that can only be described as spectacular. It reminds me of Kirkland's Fosterville discovery that is about the lowest cost gold mine in the world, because the grade is very high at 23.19 g/t.

June 5th, New Gold released the results from one diamond drill hole at 105 g/t over 27.1 meters. It was completed as part of a follow-up drill program at the new Iceberg discovery, a high-grade zone located 300 metres northeast of Keats Main along the highly prospective Appleton fault zone ((AFZ)).

NFGC-23-1210 intersected 105 grams per tonne gold over 27.05 metres at Iceberg, just 35 m from surface. High-grade mineralization is well distributed throughout the composite, with nine individual sample intervals registering over 100 g/t Au.

• The hole is located 32 m along strike of previously reported 49.7 g/t Au over 29.85 m in NFGC-23-1120 (March 13, 2023), and 30 m down dip of previously reported 15.3 g/t Au over 10.75 m in NFGC-22-1084 (March 1, 2023).

• Iceberg is currently drill defined over a strike length of 550 m and represents the fault-displaced eastern extent of the Keats-Baseline fault zone (KBFZ), the same fault that hosts Keats Main.

Melissa Render, vice-president of exploration of New Found, stated: " Discovering high-grade gold mineralization of this magnitude over such a thick interval is rare in nature, and yet, Queensway has produced several of these high-calibre hits across a multitude of zones. NFGC-23-1210 runs 27 m in length with several distinct areas of strong quartz veining, laden with visible gold. Logging of the hole identified 1,153 counts of visible gold, which ranks as one of the highest seen at Queensway to date.

"The Keats-Baseline fault has proven its potential time and time again and is now defined over a strike length of 1.8 km. With the majority of drilling at Queensway focused in the top 250 m, and with the seismic program well under way, we look forward to exploration drilling later in 2023 when we can use the drill bit to target the deeper plumbing along the Appleton fault zone, with an eye towards finding feeder zones and repetitions in mineralization."

New Found Gold continues to build on a very high grade gold discovery. I don't know how long we can buy at these lower prices. The stock did pop about $0.70 on this drill news and I believe this pull back provides another good entry point. The downtrend was broken in March and there is good support between $4.10 and $4.50. I see resistance just over $5.00 and again just below $6.00.

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