Resource World Magazine

20 www.resourceworld.com a p r i l / m a y 2 0 1 5 s p e c u l a t i o n s L e o n a r d M e l m a n U nquestionably, over the past two years at least, one of the most dominant considerations in both precious met- als investments and general investments has been dynamic moves within the inter- national currency markets and, for our purposes, we are paying particular attention to the relationship between the US green- back and the Canadian dollar. Those moves have indeed been noteworthy and they are having important impacts on a host of investment decisions. To summarize quickly, the Canadian dollar (C$) peaked in terms of relative value to the US currency at US $1.06 in mid-2011, coincidentally at about the same time as the peak in precious metals. After holding in the general vicinity of parity (equal value) with the greenback until early 2013, the C$ began to fall in earnest; first declining below US $0.95 in late 2013; then below US $0.88 in late 2014 and recently accelerating to the downside in late 2014 through early 2015, falling at times below US $0.80. These declines have affected trading results in many ways. One of the most important is that these currency moves have tended to favor investing in US securities rather than Canadian, a con- dition which is draining capital out of Canada – including Canadian mining share investments. For example, an American investor who purchased 1,000 shares of a US stock at US $5.00 and saw the stock merely stand still would still have an investment valued at US $5,000. However, had that inves- tor purchased 1,000 shares of a Canadian mining share denominated at C$5.00 when the currencies were at parity and had those shares also held steady, his US $5,000 investment would now be worth only about US $4,000. There is little doubt that this reality has tended to discourage American investment in Canadian secu- rities – just at a time when the Canadian junior mining share market can use all pos- sible investment capital. There have been striking differences on the impact of these currency changes on our Canadian mining industry between already-producing mines and those juniors without production who are engaged in various stages of exploration and development. In the former case, there have been positive impacts since the decline in the Canadian dollar has resulted in greater revenues from produced metals which are quoted in US currency. As an example, and relating to early March, 2015, with gold priced at approximately US $1,200 per ounce, this means each ounce of gold produced and sold would result in revenue of approximately C$1,500, representing a sizeable increase in profit potential since Canadian miners pay their bills in Canadian, not US dollars. On the other hand, exploration and development juniors have no production revenue, yet their expenditures for items such as petroleum-based fuels, imported mining equipment and many professional services are denominated in greenbacks, making them progressively more expensive for Canadian juniors as the C$ declines. Given the new importance of relative currency values in our investment deci- sions, it is worth our while to identify important factors which can influence cur- rency price movements and market actions and one important market day – Friday, March 6, 2015 – provided us with valuable information. On that day, the US Department of Labor reported a growth of 295,000 new jobs in America, a number far in excess of expectations. As a direct result, financial analysts immediately speculated that the Federal Reserve might quickly revise its low-interest policies, given what appeared to be evidence of accelerating economic growth. They came to that evaluation on the basis that the American economy might no longer require strong stimulation and also improving economic statistical data could suggest escalating future inflation. What followed on the world markets was a rapid decline in US government bond quotes; a corresponding rise in long-term US government bond interest rates; and, as a result, an influx of buying into US dollar-denominated investments which caused the US dollar to soar – and other currencies to decline proportion- ately. Immediately following on the release of the jobs data, on that one day the US Dollar Index rose swiftly from 96.4 to 97.8, an enormous one-day move by historic standards, while the C$ plunged from US $80.25 to US $79.25 and other interna- tional currencies such as the Euro, Swiss Franc, Australian dollar and British pound fell simultaneously. Based on these actions, it appears rea- sonable to conclude that the financial community is paying close attention to information relating to US Federal Reserve policy actions; economic data which might show strengthening of the US economy; and also any indications of future increases in the rate of inflation going forward. It would appear to be sound policy for investors of all stripes to pay close attention to these and other important indicators of currency movements going forward. n This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relat- ing to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@shaw.ca Investing during wild currency moves

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