After the last 48 hours involving both the Germans and the U.S. option for “QE to infinity” the future for gold and its producers has been set in stone. There’s a binary decision being made, Gold either goes nuts or the financial system implodes. It really is that clear cut. Gold discoveries are going to be sought out not just by the mining community but by the entire financial community and any human beings with any sense of reality.
The discoveries of about to be in production or for current gold producers with long-lived deposits (porphyries, IOCGs and some VMS) will go first. The tender offers will be flying by groups you would have never associated with the mining community. The sovereigns will be active, the huge pension funds will be active the bankers will get involved. Those that are short gold will be on the prowl to circumvent their having to go to the open market in order to cover.
Only about 1% of investors have any exposure to gold. When people finally figure out that fiat currencies and the equity and bond markets derived there from aren’t worth the paper they’re written on then there won’t be many other investment options with no counterparty risk excepting for perhaps land or collectibles to even consider. That money has to go somewhere. The lack of exposure to gold by investors sits as a form of potential energy.
None of our problems have been addressed by the central planners. The day of reckoning has only been extended. When you perform a series of QE measures the law of diminishing returns kicks in. Not only does that occur but the can you’re kicking down the road slowly becomes a 55 gallon drum as the problem not being addressed grows in size. Note that Bernanke also chose to continue “operation twist” and extended near zero percentage interest rates yet another year into the future.
With the marked increase in the “supply” of parties seeking gold production the tender offers Medinah will undoubtedly receive might be for the whole company or for its ownership, NSRs and free carried interests in its various projects. The “value” of those interests went up immeasurably in the last 48 hours when the Germans and Bernanke showed their cards (or lack thereof). If these guys had any other tools in their tool box they’d have been deployed by now. “Open-ended” purchases of mortgage backed securities UNTIL the employment debacle improves being done coincidentally with Europe doing the same thing and China slowing down results in a self-fulfilling prophecy. Nobody’s employment stats will get better. Gold has to go nuts because none of the countries with access to a printing press ever pay their bills. Admittedly it did take much longer for this “week of reckoning” to occur and provide the visibility it did.
What’s so special about tender offers for a company like Medinah? Try to picture a tender offer of even 30-cents per share for Medinah USA’s free carried interest in their LDM holdings. In a company with past credibility issues like Medinah a tender offer provides a “benchmark valuation” regardless of whether its shareholders vote up or down on it. A tender offer like this would also provide an approximate “benchmark valuation” for Medinah’s ADL ownership “package”. Very smart people while looking out for their own financial interests and not that of the Medinah shareholders would have provided a present day “valuation” service to the Medinah shareholders. In this current fiat currency environment there are going to be plenty of “service providers” competing for the right to pull gold out of the ground for perhaps the next 25-30 years. Whether or not their intent is to “flip” the asset for a quick couple of hundred million dollars matters not.
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