For the tail of the tape; the TSX Exchange lost 2.20%, while the TSX Gold Index dropped 0.5% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, fell 1.72% with the declining issuers beating out the advancers by a 589 to 324 margin on volume of 129 million shares traded.

The big news of the day was Kinross Gold’s all share bid to buy former market darling Aurelian Resources (TSE:ARU). The friendly deal is valued at around C$1.2 billion and would see Aurelian shareholders get 0.317 of a Kinross share, plus 0.1429 of a warrant for each Aurelian share held. The Kinross warrants have an exercise price of C$32 per and have a five year term. There is a $42 million break fee attached. Kinross also agreed to purchase 15 million shares of Aurelian at a price of C$4.75 per share. The move would give Kinross the highly touted but politically troubled Fruta del Norte gold deposit in Ecuador. Aurelian ended the day up C$1.86 at C$6.31, while Kinross lost C$2.14 to close at C$18.70.

On the earnings front, Agnico Eagle Mines (NYSE:AEM) saw its second quarter profit fall 78% thanks in large part to lower zinc prices at its LaRonde mine. Net income tallied $8.3 million or $0.06 per share compared to $37.8 million or $0.27 per share in the year ago period. Agnico ended the session down C$5.02 at C$59.78.

Potash Corp of Saskatchewan (NYSE:POT) upped its 2008 forecast after posting a second quarter profit of $905.1 million, or $2.82 a share. That is more than triple its $285.7 million, or $0.88 per share profit tabled in the year ago period. Not good enough in a down market as Potash ended the session at C$196.85, for a C$5.38 loss.

Meanwhile, Teck Cominco (NYSE:TCK) saw its second quarter earnings rise a modest 2.5% to C$497 million from C$485 million a year earlier. Driving the gain was higher copper and coal sales. Teck ended the day down C$0.52 at C$38.66.

The bears have a firm grip on the resource-rich Canadian markets and without a storm or some political tensions the losses look set to accelerate. We will see what Friday trading has in store.

Source: Resource Stock Roundup: Friday, July 25th, 2008

So if the world’s major gold companies can’t find any new gold deposits in the ground, they’ll have to find them in the stock market…by buying companies that already possess proven reserves.

Therefore, forward-looking investors might want to take advantage of the current weakness in the gold share market to invest in some of the small mining companies that would be attractive takeover targets.

One of the most intriguing aspects of the current market is the dearth of major discoveries so far in this cycle. This despite record amounts of money spent on exploration since this bull market began in 2001.

Older and smarter minds than mine had predicted that the soaring price of gold would produce a new wave of exploration that would, eventually, produce a new wave of major discoveries.

But so far, as Barrick Gold’s CEO, Peter Munk, recently observed, “There have been virtually no new discoveries.” Only Aurelian (ARU: TSX) has landed a legitimate “elephant” deposit bagged. Unfortunately, the carcass of that particular elephant rests entirely within the sketchy outlines of the nation of Ecuador where the locals are currently circling like a pack of hungry hyenas.

It has been our contention that what was needed to light the fuse on the junior exploration stocks would be, in no specific order:

1. Sustained higher gold prices.

2. Improving financials and free cash flow of the major producers.

3. A discovery to heat the blood of the investing community.

So far, we have had (1) and we are beginning to see (2), but (3) has proved remarkably elusive.

Now, don’t misunderstand. You can have a whopper of a bull market in these stocks without the discovery — that was the case in the 1970s bull market. But a discovery that fires the imagination can jump-start things in a big way, no question about it.

Too bad nobody has found one recently.

In short, we appear to have reached the era of Peak Gold. Whereas a major discovery used to be 10 million ounces or more, the threshold for attention-getting discoveries these days has fallen to more along the lines of 1-3 million ounces…and even those are hardly falling off the trees.

Viewed from the perspective of an investor in the junior resource sector, this lack of discoveries means the fuse is lit — starting with straight-up supply and demand fundamentals — for a rocket shot tomorrow. Adding boosters to the rocket, we have a commodities bull market that shows no sign of ending anytime soon and, while the U.S. dollar will periodically rebound, it is not going to somehow reinvent itself as sound money in our lifetime.

Importantly, as you can clearly read between the lines in Chairman Munk’s words, once the majors get cashed up and get serious about replacing their reserves, they are going to have to look downstream to the juniors with discoveries…even if those discoveries are below the five-million-ounce threshold they previously required to even consider taking an ore body into production.

Of course, lowering the threshold on deposit size will require trade-offs. For example, in order to be considered for an acquisition, a smaller deposit will almost certainly have to be near surface and open-pittable. It will also have to be near good infrastructure, and located in a jurisdiction with good laws and reasonable taxation. There is, in this situation, an opportunity and a risk.

~~~~~~~~~~~~~Special~~~~~~~~~~~~~

The Next Bear Stearns

The horrible financial practices that have already taken down some top investment banks were not as rare as we may have hoped. In fact, shoddy bookkeeping and risky business maneuvers were being used in several financial institutions.

Now the next victim is about to be claimed. Which financial giant is going down next? Click here to find out…

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Starting with the latter, if your portfolio now includes companies going after deposits in the one- to five-million-ounce range, you need to make sure they are not in a remote location that would require a massive infrastructure investment.

As for the opportunity, while the odds and the amount of exploration spending still favor that we’ll see the discovery of at least one and maybe two monster deposits in this cycle (there are a couple of companies advancing projects with that potential), and early shareholders will make fortunes as a result, there has rarely been a better time to invest in junior exploration companies with modestly sized projects in good locations. That said, you should still be focusing only on projects with at least two million ounces, or the strong potential of same.

In other words, take the opportunity in these down markets to invest in the kinds of junior mining companies that major mining company might want to acquire… That’s where the big money will be made as the gold market gathers steam again.

Regards,
David Galland, Casey Research

Greg’s Endnote: If the falling dollar wasn’t enough to send the price of gold ever-higher, the idea of its relative scarcity certainly will. And what happens when the idea of peak gold hits the mainstream? Can $2,000 gold be that far behind? I don’t think so. Click here to see just why gold could soon be doubling in price…

Source: Where There’s Gold

The stock went from about 12c to $10 in under a year. It was called the Fruta Del Norte deposit and geologists will still be talking about it going to their graves.

The latest drilling shows there are almost 14 million ounces of gold in the ground. Given that an ounce of gold costs some $900, you get an idea of the fortunes that were to be made when that mine came into production: not just for everyone involved in the company, but also for the locals and indeed for the country. Unfortunately, that country was Ecuador.

The Ecuadorian authorities, in their infinite wisdom, passed a new mining mandate in April 2006, invoking an immediate 180-day suspension of all activities on virtually every mining concession in the country. What’s more, they abolished some 88% of existing concessions. In a single stroke those fortunes were all but wiped away.

Aurelian wasn’t alone: IMC, Iamgold, Dynasty, All Metals, Corriente, Lowell’s and Ascendant Copper were all hit.

The moral of the story is one I have banged on about many times: the risks in mining are enormous, whether it’s geo-political risk, currency risk or stockmarket risk, i.e. mining shares don’t always track metal prices. So to be sure, you must own the physical metal itself. And if you are going to speculate in junior mining stocks, it’s much better to do so in safe countries.

Where’s safe?

Once such place is Mexico. Her rock is famously rich in gold and silver and her people, who have been mining for centuries, are expert. Mining is deeply set in their culture. With an emerging middle-class and a stable government, respectful of property rights, it’s a reasonable place to do business. The peso is pegged to the US dollar, so thanks to the latter’s weakness, operating costs have been kept low.

It’s possible that, as output from the famous Cantarell oilfield declines, the Mexican government will turn to mining to replace lost revenue – particularly if the silver price ever does what we all hope it will – but for now it is comparatively safe.

The problem is there are more junior mining companies in Mexico than there are Dalmatians in a Disney film. So how do you find the right one?

Well, there are lots. One in particular that I like and recommended back in March as a buy below $4 is Gold Resource Corporation (US:GORO), run by the Reid family. Bill Reid used to run US Gold. He sold out to Rob McEwan, but kept a couple of assets back for himself, which he then rolled into GORO, a new company he set up with his son Jason and his brother David. He then raised some money and set to work developing those assets.

Typically, if you participate in a fundraising for a mining company, you will be given a share at a discount and a warrant. Many investors sell the share as quickly as they can and keep the warrant, thus getting their equity out while still getting the benefit from any serious upside. This process puts unnecessary selling pressure on the stock and, later on, should warrants get exercised, creates undesirable dilution for shareholders.

But Reid never issued a single warrant. What’s more he raised money from sources he believed would remain long-term investors, rather than short-term speculators. So GORO, despite the bear market elsewhere in junior mining stocks, has been tightly held, short of selling pressure and has maintained a nice steady uptrend since its listing at $1 back in 2006. It’s now trading at $6.

Reid’s family own a huge share position in the company, which means that when they act they do so in the best interests of shareholders. When the stock came under selling pressure earlier this year, Reid quickly found out who the seller was – a fund who had to get out to meet margin calls elsewhere – and set to work looking for a buyer, which he duly found. The selling pressure was relieved and the stock resumed its uptrend. The right guy to have on your side.

But that selling pressure meant that you had a chance to buy the stock as recommended below $4. If you did, congratulations. Last week the board announced the appointment of a top operations manager and followed next day with the best drill results to date. The stock cruised on up and you are now up 50% in just a couple of months. GORO remains on course to start production later this year or early next. Needless to say, I own stock.

Buy gold or buy oil?

Finally, a quick alert on the gold-oil ratio. It’s a very useful tool that a lot of traders use: how many barrels of oil will an ounce of gold buy? At the moment the ratio is about 6.85 barrels of crude per ounce of gold. Even with the gold price up so much since last summer, that’s an extreme. We’ve only been at these levels five times in history: during the oil crisis of 1920; in 1976, 1982, 2001, and 2005.

During the post 1929 fall-out, the ratio got to 70 barrels per ounce of gold. But the mean is about 15 barrels, and a reversion to the mean would entail the gold price, measured in oil, doubling from here. I wouldn’t dare to ‘short sell’ oil, it’s too risky a trade. Nevertheless history is telling us to take some of your profits on your oil trades and move them into gold.

Turning to the wider markets:

Weakness in Wall Street was the catalyst for Europe’s late afternoon fall, with the Dow Jones Industrial Average losing some 200 points from its four-month high to close 1.5% down 12829. Figures showing ‘core’ producer prices rising at their fastest pace since 1990 helped to spook traders, while oil prices continued to soar. But the broader S&P 500 and the tech-heavy Nasdaq both ended the day down just 1%.