Daily Market Wrap – Wed 31 May, 2017

Money Flow Data and The Fed Beige Book Recap

In this market wrap I take a look at the hard data on money flows continuing to move into Europe and Emerging Markets. Considering also that insider selling was expected to be the largest in 6 years it got me searching for where the buying is coming from. Listen in to find out.

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Cory Fleck
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  1. On May 31, 2017 at 2:09 pm,
    Excelsior says:

    Here was an interesting comment from an anonymous user on ceo.ca.

    It recaps the recent conference but I’ll extract out the interesting section on Big AL:


    @anonymous – “The Lighter Side of the #IMW17:”

    “The most annoying moment came on Mon afternoon, when Big Al was moderating the Korelin Panel, featuring Frank Holmes, Brent Cook and Rick Rule. The attendees were being enamored by the insights being extracted by Big Al’s skillful questioning, when suddenly there were yelling in the exhibition area disrupting the process.
    Turned out it was Mr Zimtu, DH, doing his BULL Yell ritual, supposedly waking the bulls. Big Al was noticeably pissed. He openly asked Joe Martin, IMW17 organizer, to go and investigate and put a stop to the insensible act. Doesn’t Mr. Zimtu realize that Big Al is just about to squeeze out the success secrets from these three immortals for our benefit? How dare!

    Joe Martin was put in an awkward position, weighing in his friendship with Mr. Zimtu. Fortunately, a few more yells and peace returned. (Was told that Cambridge may start posting the videos on YouTube. If so, this panel discussion is worthy to watch.)”


  2. On May 31, 2017 at 2:22 pm,
    Bob UK says:

    Thanks Cory – very interesting info on the US.

    Looks like a long summer ahead.

  3. On May 31, 2017 at 3:52 pm,
    Excelsior says:

    Canadian miner (AKG) doomed without huge gold rally, Muddy Waters says
    DANIELLE BOCHOVE – Bloomberg News – Wednesday, May 31, 2017

    “Carson Block, the founder of activist short seller Muddy Waters LLC, says nothing shy of a massive rally in gold will save Asanko Gold Inc.”

    “At this point Asanko has backed itself into a corner and short of gold ripping to $1,700 an ounce, we don’t see how this company gets out of it,” Block said Wednesday in a telephone interview from San Francisco.

    Asanko shares fell 13 percent to C$2.19 before trading was halted in Toronto on Wednesday. The Vancouver-based company, which mines gold in West Africa, had tumbled after Muddy Waters said it was shorting the stock, believing it “highly likely to end up a zero.”

    Shares remained halted all day. In a statement just before the broader market closed, the company refuted the report and reaffirmed its production guidance for 2017.”


    • On May 31, 2017 at 3:54 pm,
      Excelsior says:

      ‘Highly likely to end up a zero’: Asanko Gold halted after Muddy Waters announces short position
      Sunny Freeman | May 31, 2017

      “Asanko Gold Inc. shares were halted Wednesday following a dramatic decline after short-seller Muddy Waters released a report saying the Vancouver-based miner “is highly likely to end up a zero.”

      The firm’s Carson Block, who exposed the Sino-Forest scandal, said he was shorting the stock, partially because the company invested in Ghana’s Nkran and Esaase mines based on flawed geological work.

      “Management is outwardly assured and confident, but their behavior reeks of desperation and short-termism,” he wrote in the report issued Wednesday morning.

      The stock was halted by the Investment Industry Regulatory Organization of Canada about an hour after markets opened Wednesday after it fell 13 per cent to $2.19 on heavy volume trading. The company did not immediately respond to a request for comment.

      Block estimated the miner will soon need to spend between $75 and $115 million at Nkran, which is experiencing a collapse of a west wall.”


      • On May 31, 2017 at 3:58 pm,
        Excelsior says:

        A contributor at ceo.ca brought up an interesting point on how these “hit pieces” factor in to the firms already substantial short position.

        @Highheat – “MuddyWaters of course front runs their own research in the same way a pump & dump player does except they build sell a big position and then plant the bankruptcy seed with their report. They don’t really believe $AKG goes to zero but rather plan on their report being the catalyst to create the damage they prophesied. Then buy back the stock and look for the next victim in a way very similar to a pump & dump. No regulation for either.”

        • On May 31, 2017 at 4:09 pm,
          Excelsior says:

          I tend to agree with @Highheat , and it is hard for me to imagine Asanko going to $0 as a producing miner, but it is more likely that they just want to clean up on the selloff in the stock.

          Then again, a number of people voiced their opinions that the mining method that AVK is deploying by high-grading the guts of the deposit is problematic and shortened the mine life substantially. Most of the concern is also around the west wall collapse, and this has generated a range of opinions from investors.

          Here are a few snippets from the Muddy Waters 43 page report:


          ” The west wall collapse is a problem because it limits access to one functioning ramp even before the start of the peak rainy season. Several sections around the east wall above and below its ramp are also exhibiting signs of stress and being at a risk of further collapse. A failure along the east wall would be a severe issue for AKG because it would cut off access to the ore at the pit bottom. To stabilize the west wall and rebuild a new access ramp would require a large push at great expense. AKG has not publicly estimated the tonnage involved in moving the walls back, but we believe it would exceed 37 million tons in order to expand the surface area of the pit and continue to access new ore zones at Nkran.”

          ” Contrary to the narrative from management who, described the collapse as “just a little tiny portion of the pit ramp” and stated “the sidewall failure [as] very similar to the one [it] had last year”, this collapse impacts roughly a quarter of the pit’s rim. AKG appears to have been unable to access the west ramp throughout May because of the wall failure. AKG claimed the collapse has had no impact on operations, however, our sources indicated that with just one ramp in operation, the trucks entering and exiting the pit have encountered problems with bottle-necking.”

          Nkran might “pinch out”

          “The company’s response to finding significantly less gold than estimated at Nkran was to aggressively mine the “guts” of the ore body. In doing so, it abandoned plans for ongoing wall pushbacks that would have allowed the company to slow-mine and slowly monetize what had been planned as a rich deposit.21 Now Nkran has now been mined into a steep “V” shape.

          We believe that the Nkran pit floor is fast becoming too narrow to mine, a condition known in the industry as “pinching out”. At the point a mine pinches out, it is no longer economically viable to spend the additional capex required because the costs of moving waste rock are greater than the value of the ore being extracted. Because of AKG’s aggressive mining, The lowest level of its pit floor is currently ~200 meters below the surface and less than..”


          • On May 31, 2017 at 4:13 pm,
            Excelsior says:

            Marin Katusa (who has been pumping Asanko as a good value stock during the GDXJ madness and forced selling as it rebalances) answers back to some of the criticism of AKG:

            “Katusa has responded….On Nkran and pit wall failures…

            The Nkran pit, a major part of Asanko’s operations, has a history of wall failures. Furthermore, in Asanko’s Q1 2017 Management Discussion and Analysis (MD&A), the company states:

            “The Nkran pit has a history of side wall failures, even during the Resolute operating days. Since mining recommenced in 2015, there have been several partial side wall failures. During the quarter, there was a partial failure on the western wall of the Nkran pit, however due to the mitigation measures which have been put in place, as well as the slope stability radar (which has been instrumental in predicting geotechnical issues in the walls of the pit since mining began) there was no impact on either production or safety in the pit.”

            “In the event there was an issue with trying to truck ore out of the pit, there is an inventory of stockpiled ounces which is used specifically for this purpose. It is common practice for every operating mine to have a stockpile of ore to smooth out any interim production issues. This was addressed specifically in Asanko’s Q1 2017 Management Discussion and Analysis.”

          • On May 31, 2017 at 4:19 pm,
            Excelsior says:

            The other big area of discussion has been around the Gold price assumptions used in the pit wall and for the mining projections.

            Our very own FundamentalAnalysis had some interesting thoughts earlier:

            @FundamentalAnalysis – “Thanks for that update…..yes I was stating previously Asanko needs $1300-1350 gold ideally to generate Free cash flow. In regards to $2000 gold , agree that was just the pit shell, some of the resources would need that figure but not the entire deposit. I read the report and don’t 100% believe the wall issues as being a major issue in the sense that its an issue but not something that would break the mine, the report highlights apart from the geology that “the wall” being the issue…..and how much the wall would cost etc. I still think of Asanko as a marginal producer but not convinced of its doom for now.”


            Here is a direct excerpt from the Asanko MD&A that Katusa and FundamentalAnalysis were both referencing:

            “Consistent with the Company’s Definitive Project Plan1 (“DPP”) and risk management philosophy, the Company has now built a 1.6Mt strategic stockpile of ore. This on surface stockpile, in conjunction with the fully operational dual ramp system in the Nkran pit, allows the Company to maintain steady processing rates, even in the event of a temporary impact on in‐pit access or mining rates. In addition, with the development work we have done to date, we have access to an in‐pit ore inventory containing 166,000 ounces.”


            Lastly, here were a few more thoughts on the Asanko mining pits, gold prices used, and other surrounding resource from their presentation:

            @Alan – On the gold price used… (unsure if this is from the Katusa response or his response, but it is referencing the data from the company)

            “Muddy Waters references the geologic interpretation of the Nkran pit which Asanko currently is mining from and claims Asanko is using $2,000 gold to boost its measured resources. The $2,000/oz gold price is for designing the pit shell around the entire gold deposit and uses measured and indicated resources.

            Slide 22 of Asanko’s February 2017 technical presentation states it uses $1,300/oz to adjust its pit design parameters for calculating Nkran’s proven and probable reserves which are located within the Nkran pit. Engineers can estimate Proven and Probable reserves within 90% accuracy. Using a gold price of $1,300 to identify accurate reserves is reasonable. If Asanko used $2,000 to measure its proven and probable reserves then I would be concerned. This is not the case.

            Slide 24 of Asanko’s February 2017 technical presentation shows the proven and probable reserves of each deposit within the Asanko Gold Mine complex. Nkran’s total reserves have gone down as a result of the geologic interpretation of the deposit, but also because the deposit has been mined for several years. It is only natural the reserves will decrease over time since the deposit is a finite resource.

            The key to understanding the Asanko Gold Mine complex is that it is in fact a composition of many pits. There are multiple deposits nearby which Asanko can target and bring into production. Slide 35 of the same February technical presentation shows this map.”

          • On May 31, 2017 at 4:22 pm,
            Excelsior says:

            Mining – It’s a glorious business, filled with challenges, risks, and misunderstandings.

            I hope Asanko pulls out of this mess, but I highlighted these detailed posts to illustrate the challenges and assumptions companies deal with and deal out to the marketplace.

            These steep sell-offs we’ve witnessed recently with Northern Dynasty, or yesterday in Arizona Mining, or today in Asanko illustrate precisely why it is important to have a grasp of the fundamental issues that face a company in addition to just looking at the charts.

  4. On May 31, 2017 at 4:25 pm,
    Excelsior says:
  5. On May 31, 2017 at 4:52 pm,
    Excelsior says:

    Mike Swanson: FED Policy Turns Bullish For Gold


  6. On May 31, 2017 at 5:09 pm,
    OOTB Jerry says:

    Real Estate………..Bank One….forecast…..1/4 of all Malls to close in next 5 yrs…..zh

    • On May 31, 2017 at 5:11 pm,
      OOTB Jerry says:

      Jobs are going to go bye, bye also……..

  7. On May 31, 2017 at 6:26 pm,
    Dick Tracy says:

    You know I am right when I say, the word is out that you can not do business with the government now, even if you fixed things out with the right man.
    The biggest problem that Trump has is that his administration is toppling into disgrace because he can not control the leaks, without a secure government you can not govern.

    • On May 31, 2017 at 6:39 pm,
      Dick Tracy says:

      Big Al, think about what I just said. DT