LONDON, December 8, 2016 /PRNewswire/ --
OilPrice.com Market Commentary: November 2016 was a historic month in
which two monumental market shocks took place - the election of Donald Trump to the U.S.
presidency and the surprise deal reached by OPEC to put an end to the worst oil bust in decades. Both of those shocks will bring
windfall profits to one sector in particular: gold. Today's energy commentary includes companies Fiore Exploration
Ltd. (TSX-V: F.V) (OTCQB: FIORF), Barrick Gold Corporation (NYSE: ABX), Newmont Mining Corporation
(NYSE: NEM) and Yamana Gold Inc. (NYSE: AUY)
While investors are trying to figure out if defense manufacturers will be a good bet under a Trump administration, or which
oil and gas company will get a boost from OPEC, they would be better off focusing on the gold sector, which will benefit from
both the Trump presidency and higher oil prices. And within the gold sector, investors will do well with the big boys such as
Barrick Gold Corporation (NSYE: ABX) and Newmont Mining Corporation (NYSE: NEM), but there is not a more exciting play right now
than Fiore Exploration Ltd. (TSX-V: F.V) (OTCQB: FIORF).
But before we look specifically at Fiore Exploration, let's look at why these two November shockwaves will be good for gold.
Trump will stoke inflation.
President-election Donald Trump will be a godsend for gold producers. That is because he has
promised to bring radical change to U.S. fiscal policy. Just days ago, Trump's pick for Secretary of Treasury, Steven Mnuchin, said that Americans should expect the "largest tax change since Reagan," with promises to cut
corporate taxes, income taxes, and completely repeal the estate tax and the alternative minimum tax. There will also be an effort
to repatriate some $1 trillion in untaxed overseas corporate income. On top of that, the
Republican-led Congress will likely scrap Dodd-Frank financial regulation.
While Trump will likely bring a massive supply-side economic stimulus, he also promises a Keynesian-style spending spree.
Trump's gargantuan 10-year $1 trillion infrastructure plan to rebuild roads, bridges, tunnels,
airports and the like could boost economic growth.
But it would also fuel inflation. A spending stimulus made sense in 2009 when the economy was in freefall, but seven years
into a recovery, spending $1 trillion could have some unintended side effects. Fed Chair
Janet Yellen cautioned against such a spending spree at time when the economy doesn't need it.
The spending program alone would be enough to raise concerns about inflation, but doing it while simultaneously slashing taxes
across the board will cause inflation to rise to heights not seen in years. The unemployment rate has now dropped to 4.6 percent,
the lowest level in almost a decade, making inflation an unavoidable result from such prodigious levels of spending and tax
cuts.
On top of that, the math doesn't add up without blowing a colossal hole in the federal budget, adding trillions of dollars to
the national debt.
The bottom line: Trump's arrival in Washington DC will lead to more
growth, but more debt and much higher inflation. Many can dispute the wisdom of such plans, but the undisputable fact is that it
is all good news for gold. If the U.S. economy sees higher inflation and the value of the U.S. dollar falters, investors will
flock to gold as a safe haven.
OPEC provides boost to gold
Gold prices have been sinking for the last few weeks, but the long-term effects of the OPEC deal will be great news for gold.
OPEC's agreement has already added about 14 percent to the price of crude oil, and more gains are likely well into 2017. This is
good for gold for a few reasons:
- Higher oil prices will boost inflation, which is always good for gold (see Trump, above)
- Higher oil prices can dampen economic growth, and gold can offer an alternative to investors looking for yield
Gold prices have been hammered over the past few months on the strengthening dollar, dropping to its lowest level in nine
months below $1,200 per troy ounce at the end of November. But the gains for the greenback are
likely at an end. The Fed will raise interest rates this month, but the tax cuts and higher spending levels from the Trump
administration will weaken the dollar, laying the groundwork for a recovery in gold prices in 2017 and beyond.
If gold is a winner in this new world order, then which companies should investors look
at?
Picking a few of the large gold miners would be an obvious choice, but one of the most exciting plays out there right now is
Fiore Exploration (TSX: F.V), a small Canadian-based gold mining company with assets in Chile.
According to the Fraser Institute Annual Survey of Mining Companies in 2015, Chile ranked
11th in terms of investment attractiveness for mining, and ranked first in Latin
America. Chile is the 14th largest gold producer, a position that is likely to
rise in the years to come with a stable investment climate and attractive gold reserves. Chile
is a top country to mine for gold, and Fiore Exploration just happens to have prized assets in the country.
Investors should be aware of Fiore Exploration for a few reasons.
-
Assets next to world-class gold mine. The small Fiore controls three blocks to the north, west and south of Yamana
Gold's (NYSE: AUY) Pampa Augusta Victoria mine, which forms part of the
world-class mining El Penon complex that produced 227,000 ounces of gold and 7.7 million ounces of silver last year, with
cash costs of US$621 and $8.38 per ounce, respectively. Fiore
also has another project, Cerro Tostado, a few miles southwest of Yamana's Augusta Victoria. Yamana is a $2.8 billion company and the company itself
describes its El Penon complex as its "flagship precious metals mine." Fiore Exploration pulled off a coup when it acquired
blocks immediately adjacent to this prolific mine, with similar geological features. For such a small mining company to hold
assets right next to such a successful gold mine means the upside potential for investors is huge.
-
Fiore started drilling program. In October, Fiore began
drilling its El Penon holdings, targeting high-grade epithermal gold-silver veins. Tim
Warman, Fiore's CEO is bullish on the prospect. "Just two months after acquiring this promising exploration ground
immediately adjacent to an operating world-class mine, we've completed a geophysical survey and have begun drilling our top
priority targets. We look forward to seeing the drill results over the next weeks and months, and are also in discussions for
additional property acquisitions as we continue to grow the company," he said in a statement. The results will provide a
near-term catalyst for the company's stock.
- Cash in the bank. Fiore will spend a little over $1 million on its
exploration program, but it has around $14 million in the bank, a large cushion for such a small
junior exploration company. That will allow the company to expand operations if the early results look good.
-
Infrastructure in place. Chile has one of the best business climates for
mining, and on a more regional basis, Fiore is operating in an area that has a mature mining presence. It is located adjacent
to Yamana's mine, which offers facilities and infrastructure for miners. It is also near good quality power lines and
highways, located a little over an hour's drive to the port and mining city of Antofagasta.
Tim Warman, Fiore's CEO, told Pinnacle Digest Podcast that it is one
of the easiest places he has ever worked.
- Experienced management. Tim Warman has 25 years as a geologist, and used
to be the VP of corporate development for Aurelian Resources, where his company made "one of the best discoveries of the
century in Ecuador in 2006, with 13.7 million ounce Fruta del Norte deposit," he told the
Midas Letter, a mining podcast. He also worked for successful mining explorers in Argentina
and Northern Ireland. He also played a role in the C$1.2 billion
takeover of Aurelian Resources by Kinross Gold Corp, which delivered a windfall to Aurelian shareholders.
- Stock price down by 50 percent. Fiore's stock is down roughly 50 percent since October. But early results
of its drilling program will be reported in the next few days and weeks, which opens up the opportunity for a huge bounce.
The Upshot: Gold for short and long-term
Gold mining companies are pretty solid bets over the coming years. Gold prices will bounce back as oil prices will rise and
dollar inflation could increase significantly on tax cuts and increased spending in Washington.
Donald Trump's inflation-fueled presidency will make gold a prized safe haven investment.
But the small company Fiore Exploration offers short-term opportunities as well. It is situated with extremely attractive gold
veins right next to a world-class production facility. It won't be long before the company reports results on an undeveloped
block, and Fiore's leadership is confident the results will be good.
By. James Burgess of Oilprice.com
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