Fool's Gold Report: Metals Climb on Russia Tensions; Goldcorp Asks Questions About the Yamana Deal

Precious metals advanced in unison Monday as Ukraine and Russia continue to maneuver for position. Find out what Goldcorp thinks Yamana should answer.

Dan Caplinger
Dan Caplinger
Apr 14, 2014 at 6:36PM

Last week, a plunging stock market helped gold and other precious metals climb somewhat. Yet even as the stock market recovered today, gold continued upward, with continuing trouble in the eastern part of Ukraine pointing to the potential for further escalation in the nation's conflict with Russia. Even though major speculative traders cut back on their long future positions last week, the prospects for supply disruptions or other bullish catalysts pushed SPDR Gold Shares (NYSEMKT:GLD) up 0.7% on Monday, while silver, platinum, and palladium added gains of their own. Again, Goldcorp (NYSE:GG) made news by releasing questions demanding information from Yamana Gold (NYSE:AUY) in order to help investors evaluate their competing proposals for Osisko Gold.

Canadian Malartic mine. Source: Osisko.

How metals moved today
June gold futures climbed $8.50 per ounce to $1,327.50, adding to last week's gains. closing the week with a solid gain. May silver futures rose a less impressive $0.06 per ounce to $20.01. Mining stocks generally performed well, with Market Vectors Gold Miners ETF (NYSEMKT:GDX) gaining 1.25% on the Monday.


Today's Spot Price and Change From Previous Day


$1,327, up $8


$19.97, up $0.01


$1,462, up $10


$808, up $6

Source: Kitco. As of market close.

Russia and Ukraine took center stage in the precious-metals market today, with observers looking at events over the weekend and raising their assessments for the potential for further trouble in the region. Those who believed that the annexation of Crimea would satisfy Russia appear to be having second thoughts now, as unrest in other areas of the eastern part of Ukraine shows just how little the Crimean secession changed the dynamics and the capacity for civil war in the divided nation. A phone conversation between U.S. President Barack Obama and Russian President Vladimir Putin Monday showed the seriousness of the situation, but it failed to develop any clear solutions.

As a result, investors are trying to develop contingency plans for all eventualities. Certainly, the rise in platinum-group metals seems directly tied to Russia, with the ongoing strike in South Africa making Russian sources for those metals an essential part of world platinum and palladium production. More broadly, though, economic sanctions could have a big impact on Europe, even as rising temperatures could decrease somewhat the continent's dependence on Russia for natural gas -- at least for essential purposes. Those sanctions could in turn hurt businesses and consumers in Europe, affecting stock markets and leading investors to flee toward hard assets like gold and other precious metals to preserve capital.

More drama for Osisko
Meanwhile, the ongoing saga between Yamana Gold and Goldcorp had a new chapter Monday, as Goldcorp came out with a list of what it called unanswered questions about the Yamana deal. Most of the questions focus not on Yamana Gold's role in buying 50% of Osisko's assets but rather on two Canadian pension funds that are helping to supply financing for the deal. Specifically, Goldcorp wants to know the full extent of the gold-streaming option that the Canada Pension Plan Investment Board will have, as well as any debt-repayment triggers affecting the company and warrants or other equity positions that the pension funds could take. Goldcorp also asked for details on the tax consequences of the deal, as well as payments to Osisko executives and the overall impact on cash flow to the company after the transaction.

It's true that the involvement of the pension funds makes Yamana's asset purchase offer much more complicated than just a 50-50 joint venture. The question that Osisko shareholders will have to answer is whether a complete takeover by Goldcorp is their best way to unlock the value of the Canadian Malartic mine. If they'd rather hold onto a piece of that asset directly, then Goldcorp's questions aren't likely to change anything.