Thursday, May 31, 2012

May an unhappy month for gold (down 5%) and silver (down 10%)

Gold and silver "finally decouple" from euro, stocks & commodities but still end May sharply down

The price of gold rose Thursday lunchtime in London, extending yesterday's sharp jump and cutting this week's 2.5% drop by more than two thirds even as the Euro currency again slipped through $1.24 for the second day running.

Trading near $1564 per ounce, however, Dollar gold prices headed towards their fourth monthly drop in succession, losing some 5.3% in May.

Silver bullion neared the end of May more than 10% lower from end-April, despite rallying above $28 per ounce Wednesday afternoon in London when the Euro first slipped to those fresh two-year lows.

US crude oil was on track for a monthly drop of 16% says Bloomberg, its worst fall since December 2008.

The MSCI index of global stock markets has shed nearly 9% in May.

"Gold and to a lesser extent silver decoupled from the rest of the [commodities] group on Wednesday and started to head higher," says a US analyst.

"Finally gold is behaving 'normally' and is 'profiting' from the fears surrounding the Euro," agreess Commerzbank analyst Eugen Weinberg, "[resisting] the general downswing experienced by commodities and equities.

"Gold is proving to be good 'risk insurance' [but] we believe there may still be downside risks if the US Dollar continues to remain strong."

Standard Chartered also "see downside risks for the short term but remain long-term bulls," they said in a note.

May has "definitely seen a flight to the Dollar rather than gold," says Chinese brokerage CITIC Futures' chief investment strategist Wang Xiaoli, adding that "the crisis in Europe doesn't look like it will abate soon."

So-called "safe haven" US Treasury bonds rose sharply again on Thursday, driving 10-year yields down to new all-time lows beneath 1.60%, following weaker-than-expected US payroll data from the private ADP group.

Ten-year Spanish bond yields meantime held near 6%, the level which Portuguese yields reached just before its ECB, IMF and European Union bailout.

Speaking to the European Parliament Thursday morning, the 17-nation Eurozone's chief central banker Mario Draghi accused Spain and other member states of trying to deal with their domestic banking crises in "the worst possible way."

Spain last week announced a fresh €19 billion injection of state funds into the part-nationalized Bankia lender.

"There is a first assessment, then a second, a third, a fourth," said Draghi. "Everyone ends up doing the right thing, but at the highest cost."

Across in Ankara, the Turkish Central Bank today said it may "gradually" raise the percentage of required reserves which commercial banks can hold in physical Gold Bullion to 30%.

The news comes only 1 months after the limit was raised to 20%, and only 2 months after Turkish banks were first allowed to hold a portion of their required reserves in gold. (Read about
Turkey's new gold policies
here...)

The world's biggest trade credit insurer, Euler Hermes, meantime suspended cover for goods being shipped to Greece, saying that until there's "clarity" after 17 June's Greek election, it cannot be sure debts will be paid in the event of Athens quitting the Euro.

Over in Hong Kong today, London-based luxury jeweler Graff abandoned its $1 billion stock-market IPO scheduled for tomorrow, blaming "consistently declining stock markets."

India's Rajesh Exports - which forecast in Sept. 2009 that rising gold prices could dent Indian demand, only to see the world's #1 buyer grow its private consumption for the next two years running - today warned that Indian gold demand could fall hard in 2012 due to the weak Rupee.

In Dollar terms, "Gold prices remain within a sideways consolidation," says Mumbai-based RiddiSiddhi Bullions, pointing to support at $1526 and resistance at $1600.

"We are neutral gold until it makes a larger directional move outside of those levels. The trend remains bearish."

Source: BullionVault,

New gold deposit shaping up for Sandspring in Guyana

As Sandspring pushes Toroparu project towards feasibility, it drills a nearby satellite deposit with some intercepts over 100 metres long and around a gram gold in grade.

About a kilometre southeast of its multimillion ounce Toroparu deposit in Guyana, Sandspring Resources (TSX-V: SSP) has started to flesh out a satellite gold zone. It is a recent discovery for Sandspring that, as described in a series of drilling results it released over the past few months, could prove to hold additional resources for the already sizeable Toroparu gold project.
Toroparu is Sandspring's chief asset and lies in western Guyana, a Caribbean nation on the northeast coast of South America. Toroparu holds some six million ounces in measured and indicated resources @ 0.78 g/t gold and then about four million ounces inferred @ 0.69 g/t Au. Around these gold ounces Sandspring has outlined a mining project, to cost nearly $500 million to build, that would produce about 250,000 ounces gold a year over a 14-year minelife from mine feed grading 1.06 g/t Au - a fair bit better than overall resources.

Clearly the main Toroparu deposit remains Sandspring's main focus. It is moving Toroparu towards a feasibility study. But this new discovery could nonetheless lead to some interesting options for Sandsrping were it to define additional resources. For instance, while projected mine life at Toroparu is 14 years, the total project life is 22 years as Sandspring aims to stockpile lower grade feed and then process it over nearly a decade after the Toroparu open pit, as currently conceived, is exhausted. Though it's far too early to say with confidence there will be any, additional resources beyond the pit could shore up those grades in the latter years of Sandspring's current production scenario at Toroparu.

Alternatively, Sandspring might decide to pull in such hypothesized extra feed into its mining schedule earlier, increasing the scope of the project in the intitial mining years.

Such speculation may be putting the cart before the horse. But still, the prospect of more near surface resources beyond Toroparu surely has Sandspring management and directors thinking similar thoughts. So far Sandspring has drilled Toroparu-like gold mineralization at the new satellite deposit over some 200 to 300 metres in depth and 400 metres or so of strike length. And there have been some impressive drilling results over intercepts ranging between from 20 to 100 metres or so in width. Some highlights include as much as 107 metres @ 0.97 g/t gold and 87 metres @ 1.6 g/t Au.
Of course, at this point the disc

overy is no where near the main Toroparu deposit in size, which runs over two kilometres of strike length. But the satellite deposit has yet to be fully defined, Sandspring indicates, so there appears to be some room to grow. The main question now in terms of exploring the new discovery is whether gold mineralization continues to the east, in which direction Sandspring says the deposit is still open.

Copper continues retreat, closes at US$3.409/lb

Copper closed Thursday at US$3.409/lb cash on the London Metal Exchange, retreating from the previous day's US$3.422/lb and extending a downtrend from a five-month high of US$3.422/lb on February 28.

The red metal continued to suffer from concerns regarding GDP growth in China, and news that the nation's stimulus package was likely to be more modest than expected also had a negative impact on market sentiment.

China's official Xinhua news agency said on Wednesday the country was not going to replicate the powerful stimulus measures used during the global crisis in 2008, further undermining investment sentiment in Asian markets.

"Market sentiment is still shaky and the complex is expected to continue to turn to the euro for direction," Kathleen Retourne from FastMarkets said.

At the same time, ratings agency Egan Jones downgraded Spain's credit rating to B from BB with a negative outlook, the third downgrade in less than a month.

"In the absence of production cutback news, or concrete action to alleviate the current woes in Europe, we expect prices to continue to work lower," analyst William Adams from FastMarkets said.

With Thursday's close, copper averaged US$3.592/lb in May and US$3.728/lb so far this year.

In precious metals, gold closed Thursday at US$1,567.50/oz on the London Bullion Market, up from the previous day's US$1,548.75/oz.

Silver closed Thursday at US$28.10/oz, up from the previous session's US$27.68/oz.

Southern Copper evaluating construction of hydroelectric plant in Peru

Southern Copper Corp. (NYSE:SCCO) is evaluating the construction of a hydroelectric plant in Peru to mitigate the impacts that the energy crisis in the second world producer of copper may have in its operations, said the company’s president Oscar Gonzalez.

According to local financial newspaper, Gestión, Gonzales said the company’s mines located in southern Peru are currently benefiting from an electricity supply contract with Enersur, a subsidiary of the French group GDF Suez, which expires in 2017.

The paper blames the lack of investment and poor long-term planning as the main causes of the energy crisis is threatening billionaire mining projects in the number two copper producing country.

Southern Copper, the largest copper producer in Peru and Mexico, is also in talks with Ecuadorean and Argentinean investors to finance an expansion into those countries, Southern Copper’s legal subdirector, Luis Echevarria told Bloomberg on Thursday.

The miner has signed an agreement to take 70% participation in a project with miner Dos Rios to explore near Guayaquil, Ecuador, and has opened an office in Neuquen, Argentina.

The company, controlled by Grupo Mexico, hopes to boost output this year by expanding exploration activities in Argentina and through its concessions in Chile, the main copper producer in the world.

Peru needs to spend at least $1 billion a year to extend its current power network so it continues to meet a growing demand, fed mainly by the country’s avid mining industry, which is expected to bring $50 billion investment in new mines and expansion projects over the next decade.

Gold’s “contrarian moment”

Glancing at the news most days, it's hard not to feel like Bill Murray's character in Groundhog Day. In the event you are unfamiliar with the movie, in it Murray's character becomes trapped in the same day… day after day.

In the current circular condition, we have the powers-that-be assuring us that the next high-level meeting will finally produce a permanent fix to the broken economy, essentially solving the sovereign debt crisis. Then, in no more than a few days, or at most a couple of weeks, the fix is revealed to be flawed and the crisis again sparks into flames… followed shortly thereafter by yet another high-level meeting – and the cycle begins anew.

While the characters may change – one week it is Greece, the next it is Spain, the next it is France, the next it is the US, the next it is Greece again, etc., etc. ad nauseam – the detached observer can only come to the conclusion that we are now well outside of the bounds of the normal business cycle.

As we at Casey Research have written on this topic at great length, I don't intend to dwell on this topic, but I did want to loop back in just long enough to comment on the recent price action in commodities, especially gold, in the face of the continuing crisis.

Today, a glance at the screen reveals that gold is trading for $1,565. For comparative purposes, as revelers warmed up their vocal cords to sing in the New Year on the last trading day of 2011, gold exchanged hands at $1,531. And exactly one year ago to the day, gold traded at $1,526 for a one-year gain of a modest 2.6%.

A year ago, the S&P 500 traded at 1,325, while today it trades at 1,318, a small loss. Yet, have you noticed we don't hear much about the imminent collapse of the US stock market, as we do about gold? This perma-bear sentiment about gold on the part of what some people lump together under the label "Wall Street" is especially apparent in the gold stocks.

Using the GDX ETF as a proxy for the sector, we see that the shares of the more substantial gold producers are off by an unpleasant 24% over the last year.With that "baseline" in place, let's turn to the current outlook for gold, and touch on some of the other commodities as well.

Gold. In the context of its secular bull market, and given that absolutely nothing has gotten better about the sovereign debt crisis – only worse – gold's correction is nothing to be concerned about.

I know the technical types will point to levels such as $1,500 as important resistance points – and there's no question that if gold was to break decisively below that level that a lot of autopilot trades would kick in and put further pressure on gold.

Yet, when you view the market through the lens of hard realities, which is to say, by focusing on the intractable mess the sovereigns have gotten the world into… in Europe, in Japan, in China and here in the US… then viewing gold at these levels as anything other than an opportunity is a mistake.

Gold Stocks. As far as the gold stocks are concerned, I consider today's levels to be extraordinarily compelling for anyone looking to build up a portfolio or to average down an existing portfolio.

I say this for a number of reasons, starting with the contrarian perspective that this may now be the most unloved sector of the stock market. No one wants anything to do with gold stocks, and hasn't for some time now. As a consequence, the sellers will soon dry up, leaving almost nothing but buyers to push the sector back to the upside.

This contrarian perspective is important because finding an honest-to-goodness opportunity to bet against the crowd is no easy thing in a world where literally thousands of competent equities analysts plop down at the desk each trading day with the sole purpose of searching for prospective investments. Many of these analysts are backed by huge firms with billions of dollars at risk in the markets, and so are armed with high-powered computational tools of the sort that was unimaginable even a few years ago. All of these analysts, armed with all their computational power, habitually scan a universe that totals about 4,000 publicly traded companies. Realistically, however, even a thin analytical screen will weed out all but perhaps 400 of those companies as being potentially suitable for investment.

Thus, you have thousands of high-priced and well-armed securities analysts crunching pretty much the same data on a very small universe of possible investments. Given this reality, is it any surprise that securities are so tightly correlated? Which is to say, is it any surprise that these securities all trade right in line with the valuations that the analytical screens ultimately derive that they should? Which means there are really only two possible circumstances under which any of these stocks move up, or move down, by any significant degree

  1. Broad market movements. The saturated levels of analysis mean that, within a fairly tight range, all the stocks now move more or less together. Thus, with few exceptions, a big upswing or downswing in the broader market will send almost all stocks up or down together. To help make the point, I randomly pulled a chart of IBM and compared it against SPY (the S&P 500 tracking ETF) for the last year. Note the lockstep price movements: OK, IBM is a big company, so it will have a lower beta than many companies, but the point remains that saturated coverage of the stocks greatly reduces the odds of any one issue breaking free from the larger herd, unless there is…
  2. A surprise. All of these analysts, and all of their computerized analysis, help form a certain future price expectation for each security based on past financial metrics (earnings growth, return on equity, and so forth). Other than the broad market movement just referenced, or moves in line with a sub-sector of the larger market (e.g., if oil rises or falls, oil-sector stocks will tend to move up or down in sync), for a company to deviate in any substantial way from analyst expectations, by definition requires a "surprise" to occur.

Of course, such a surprise can be positive, but because these companies are so closely watched, it is more likely to be negative. In the former category, a positive surprise might come in the form of an unexpectedly strong new product launch á la the iPad. In the latter, less happy category of surprise, it can be the blow-out of a big well in the Gulf of Mexico… or any one of a million other unanticipated vagaries of fate.
As investors, recognizing these fundamental realities is important because it points to where above-average market opportunities are most likely to be found (or not). And that brings us back to the whole idea of being a contrarian.

As mentioned a moment ago, "Wall Street" has never much liked the precious metals, and by extension the gold stocks. Given the length of the gold bull market – which, in our view, reflects systematic risk in all the fiat currencies, but which Wall Street views as an indication of a fatiguing trend confirmed by the underperformance of the gold stocks – traditional portfolio managers are unhesitant in giving the boot to the few gold shares that somehow made it into their portfolios against their better judgment.

If our thinking is not clouded by our own bias, then it would behoove us as good contrarians to buy these shares from the eager sellers at such unexpectedly favorable prices. By doing so, we are able to position ourselves to make a killing once the broader financial community realizes that the problems associated with fiat money, dramatically underscored by the intractable sovereign debt crisis, are only going to get worse. At that point gold is going to head for new highs and gold stocks to the moon.

That said, as we always should do, let's quickly assess whether our own bias is leading us astray in believing in gold and gold stocks when virtually the entire army of analysts won't even consider them. Some inputs:

Gold prices remain near historic highs – and that has a significant impact on the bottom line of the gold producers. Barrick Gold Corp. (ABX), for example, currently boasts a profit margin of over 30%, better than twice that of IBM and almost ten times that of Walmart. While ABX sells for just 1.6 times its book value, IBM sells for 10X.

Interest rates remain at historic lows, producing a negative real return for bond holders. Unless and until investors are able to capture a positive yield – a potential stake through the heart of gold – there is no lost-opportunity cost for holding gold. And bonds are increasingly at risk of loss should interest rates be pressured upwards, as they inevitably will be.

Sovereign money printing continues – because it must. In today's iteration of Groundhog Day, the Europeans are once again meeting in an attempt to fix the unfixable, but the growing consensus – because there is no other realistic option left to them – is that they will have to accelerate, not decelerate the money printing. Ditto here in the US, where a fiscal cliff is fast approaching due to the trifecta of the expiring Bush tax cuts, mandated cuts in government spending from the last debt-ceiling debacle and the new debacle soon to begin as the latest debt ceiling is approached. The problems in important economies such as China and Japan are as bad, and maybe even worse.

Debt at all levels remains high. With historic levels of debt, rising interest rates are a no-fly zone for governments, because should these rates go up even a little bit, the impact on the economy and on the ability of these governments to meet their obligations would be dramatic and devastating. This fundamental reality ensures a continuation of policies aimed at keeping real yields in negative territory, meaning that the monetization/currency debasement in the world's largest economies will continue apace.

To get a sense of just how bad things are and how soon the wheels might come off, sending gold and gold stocks to the moon as governments throw all restraint in money printing to the wind to save themselves and their over-indebted economies – here's a telling excerpt and a chart from a recent article by Standard & Poor's titled The Credit Overhang: Is a $46 Trillion Perfect Storm Brewing?

Our study of corporate and bank balance sheets indicates that the bank loan and debt capital markets will need to finance an estimated $43 trillion to $46 trillion wall of corporate borrowings between 2012 and 2016 in the U.S., the eurozone, the U.K., China, and Japan (including both rated and unrated debt, and excluding securitized loans). This amount comprises outstanding debt of $30 trillion that will require refinancing (of which Standard & Poor's rates about $4 trillion), plus $13 trillion to $16 trillion in incremental commercial debt financing over the next five years that we estimate companies will need to spur growth (see table 1).

You can read the full article here. While the authors of the S&P report try to find some glimmer of hope that roughly $45 trillion in debt will be able to be sold off over the next four years – even their base case casts doubt on the availability of the "new money" shown in the chart above. Note that this is the funding they indicate is required to fund growth. Which is to say that should the money not be found, the outlook is for low to no growth for the foreseeable future.

It is also worth noting that the analysis assumes that something akin to the status quo will persist – which is very unlikely given the pressure building up behind the thin dykes keeping the world's largest economies intact. The landing of even a small black swan at this point could trigger a devastating cascade.

We have said it before, and we'll say it again: there is no way out of this mess without acute pain to a wide swath of the citizenry in the world's most developed nations. While this pain will certainly be felt by sovereign bond holders (and already has been felt by those who owned Greek issues), it will quickly spread across the board to banks, businesses and pensioners – in time wiping out the lifetime savings of anyone who is "all in" on fiat currency units.

In this environment, gold isn't just a good idea – it's a life saver. And gold stocks are not just a golden contrarian opportunity, they are one of the few intelligent speculations available in an uncertain investment landscape. By speculation, I mean that, at these prices, they offer an understandable and reasonable risk/reward ratio. Every investment – even cash – has risk these days. With gold stocks, you at least have the opportunity to earn a serious upside for taking the risk… and the risk is much reduced by the correction over the last year or so.

Now, that said, there are some important caveats for gold stock buyers.

With access to capital likely to dry up, any gold-related company you own must be well cashed up. In the case of the producers, this means a lot of cash in the bank, strong positive cash flow and a manageable level of debt. (Our Casey BIG GOLD service – try it risk-free here – constantly screens the universe of larger gold stocks for just this sort of criteria, then brings the best of the best to your attention.)

In the case of the junior explorers that we follow in our International Speculator service (you can try that service risk-free as well), the companies we like the most have to have all the cash they need to clear the next couple of major hurdles in their march towards proving value. That's because a company can have a great asset but still get crushed if it is forced to raise cash these days… and the situation will only get more pronounced when credit markets once again tighten as the global debt crisis deepens.

Beware of political risk. Despite the critical importance of the extractive industries to the modern economy, the industry is universally hated by politicians and regular folks everywhere. If your company – production or exploration – has significant assets in unstable or politically meddlesome jurisdictions, tread carefully. And it's important to recognize that few jurisdictions are more politically risky than the US. This doesn't mean you need to avoid all US-centric resource stocks – but rather that you need a geopolitically diversified portfolio that you keep a close eye on at all times (something we do on behalf of our paid subscribers every day).

Know your companies. Some large gold miners are also large base-metals miners. And at this juncture in time, personally I'm avoiding base-metals companies like a bad cold. While most base-metals companies have already been beaten down – and hard – over the last year and a half, the fundamentals remain poor. Specifically, they not only have the risk of rising production costs and political meddling, but unlike gold – where the driving fundamental is its monetary role in a world awash with fiat currency units – the base-metals miners depend on economic growth to sustain demand for their products. In a world slipping back into recession – or perhaps, in the case of Japan and China, tripping off a cliff – betting on a recovery in growth is not a bet I'd want to make just now.

While it is hard to accurately predict the timing of major developments in any one economy, let alone the global economy, there are a number of tangible clues we can follow to the conclusion that the next year will be a seminal one in terms of this crisis.

For starters, there is the next round of Greek elections on June 17, the result of which could very well be the anointment of one Alexis Tsipras as the head of state. An unrepentant über-leftist whose primary campaign plank is to tell the rest of the EU to put their austerity where the sun doesn't shine, the election of Tsipras would almost certainly trigger a run on the Greek banks, followed by a cutoff of further EU funding and Greece's exit from the EU. And once that rock starts to slide down the hill, it is very likely that Spain and Portugal will follow… after that, who knows? As I don't need to point out (but will anyway), June 17 is right around the corner, so you might want to tighten your seat belt.

A bit further out, but not very, here in the US we can look forward to the aforementioned fiscal cliff. Or, more accurately, the political theatrics around the three colliding co-factors in that cliff (the approach once more of the debt ceiling, the expiring tax cuts and mandated government spending cuts). While the outcome of the theatrics has yet to be determined, it's a safe bet that the government will extend in order to pretend while continuing to spend – and by doing so, signal in no uncertain terms that the dollar will follow all of the sovereign currency units in a competitive rush down the drain.

Bottom line: Be very cautious about industrial commodities as a whole, at least until we see signs of inflation showing up in earnest, but don't miss this opportunity to use the recent correction to fill out that corner of your portfolio dedicated to gold and gold stocks.

Southern Copper says Peru investments to rise 15-20 percent

Southern Copper (SCCO.N) expects rising costs to drive up total investment in all its Peru projects by between 15 and 20 percent, the company's chief executive said on Wednesday.

Delays from social conflicts in Peru, the No. 2 copper producer, have not deterred Southern Copper, and the company is moving ahead with its $1.2 billion Tia Maria project despite higher costs, Chief Executive Oscar Gonzalez said.

"Everything has gone up, not just equipment, I mean trucks, drills, tractors ... also projects, engineering and the cost of supplying the plants," he told the Reuters Latin America Investment Summit.

Gonzalez said sales have not been affected by economic turmoil in Europe, where it sends around 20 percent of its copper. The company does not have a contingency plan in case debt woes in the European Union grow worse, he said.

"We haven't been affected because we have annual contracts with small (European) clients that keep producing," he said, adding the company plans to renew those contracts in October.

Despite uncertainty in Europe, global copper prices should rise in the second half of the year due to low inventories of the red metal and sustained demand from China, he said.

"We don't see what other contingency measures we can take beyond producing at the lowest cost possible and producing the highest volume we can," he said.

As it tries to boost output, Southern Copper, a top global supplier, hopes to begin exploration in Ecuador and Argentina and has concessions in Chile, the world's No. 1 producer.

The company has signed an agreement to take 70 percent participation in a project with miner Dos Rios to explore near Guayaquil, Ecuador, and has opened an office in Neuquen, Argentina, a province Gonzalez described as pro mining.

HUMALA BACKS TIA MARIA

In Peru, Southern Copper, a unit of Grupo Mexico (GMEXICOB.MX), expects to finish a feasibility study for its $1.6 billion Los Chancas project later this year.

"We're going a bit slower than we thought. Here the problem is infrastructure because it's in a topographically difficult zone at the foot of an important river," Gonzalez said.

A new environmental impact study for the stalled $1.2 billion Tia Maria mine should be complete in five months, he said. Tia Maria is expected to produce 120,000 tonnes of copper per year but has faced steep opposition from local farmers.

"We have the support of the ministry of energy and mines and of the very president of the republic, what he wants is for the project to be completed," Gonzalez said.

President Ollanta Humala, a one-time leftist radical, has supported private investment in Peru's vast mining sector since taking office in July, even when local community groups have protested against new projects.

Southern Copper has also faced opposition to a $960 million expansion to its Toquepala mine from local authorities who want to cancel the company's water license. The expansion will probably open in early 2015 rather than 2013, Gonzalez said.

The company has previously said it would participate in negotiations with townspeople in the southern city of Tacna hosted by the central government, but insists the expansion will not increase Toquepala's water use.

"We haven't asked for a new public audience. The audience we had planned followed all the existing regulations but it was canceled due to pressure from the regional government," he said.

Once such expansions and new mines open, Southern Copper's total output could rise to 1.25 million tonnes from 587,491 tonnes of copper produced last year, counting its operations in Mexico, Gonzalez said.

As it plans to double output, Southern Copper is researching potential sales to Asia via Japan's Mitsui (8031.T).

"Once we have our expansions at Toquepala and Cuajone and our new Tia Maria mine, we will look to Asian markets to sell additional volume," Gonzalez said.

Codelco, Anglo American in talks on AAS dispute

Chilean copper producer Codelco has started start talks with London-based Anglo American (LSE: AAL) to negotiate an agreement to a dispute about the former's central Chile assets, known as Anglo American Sur (AAS), the state company said in a statement released Wednesday afternoon.

Codelco CFO Thomas Keller, who is scheduled to take over as CEO on June 1, traveled to London to initiate talks with the multinational firm's representatives.

"Negotiations are taking place today and there's a confidentiality contract, so we can't comment any more," current CEO Diego Hernández said.

Legal proceedings concerning the dispute were suspended until June 22 at the request of the companies.

Codelco filed a lawsuit against Anglo American in January to force the latter to comply with an option contract for a 49% share in AAS.

Codelco has recognized that it is open to acquiring a lower stake in AAS, if properly compensated, according to local press.

The original option was granted to state minerals company Enami when the assets, then known as Disputada de Las Condes, were privatized in 1978 and bought by Exxon (NYSE: XOM), which sold Disputada to Anglo in 2002.

Last October, Codelco announced its intention to exercise the option. However, one month later Anglo American sold a 24.5% stake in the assets to Japan's Mitsubishi for US$5.39bn, a proportionately higher value than Codelco would pay under the option terms. The move was interpreted by Codelco as an attempt to block its option.

AAS's assets include the Los Bronces and El Soldado copper mines and Chagres smelter.

Usiminas' Cubatão steel plant fully operational despite strike

Brazilian steelmaker Usiminas' (Bovespa: USIM5) Cubatão flat rolled steel plant in São Paulo state is fully operational despite workers having gone on strike, a company press official told BNamericas.

Local steelworkers began a strike on Tuesday afternoon, after the company decided to reject a union proposal to increase salaries at the plant.

"About 25% of workers are already inactive. We have lowered the requested salary adjustment from 16.2% to 12%, but the company refused to negotiate," steelworkers union's president Florencio Rezende de Sá told local paper A Tribuna.

However, the company is willing to talk openly and transparently with the union, the Usiminas press official said, adding: "We will continue to negotiate the collective agreement."

The union is expecting 100% of the workers to join the strike. "During shift changes, we will inform workers seeking for a greater adherence to the movement."

Minas Gerais state-based Usiminas is the largest fully integrated flat steel manufacturer in Latin America, with crude steel capacity of 9.5Mt/y.

Wednesday, May 30, 2012

Argentina tightens trade restrictions screws on mining operators

In an effort to protect local industries and businesses, the Argentine Mining Ministry is steadily increasing the regulatory trade burden on mining operators doing business in the country.

Argentina's Mining Ministry this week ordered mining companies to prioritize the purchase of local products and services, as well as seek prior government approval 120 days before making overseas purchases of goods and services.

Since February of this year, Argentina has subjected the import of all goods to a pre-registration and pre-approval regime, called the Declaración Jurada Anticipada de Importación. More than 600 product types must now obtain an import license, such as mining machinery and chemicals.

The European Union estimated the import license affected EU exports worth about EUR 500 million last year.

As of this week, mining companies will have to submit quarterly estimates of their purchasing needs, which will be approved by a special working group at the Mining Ministry.

It is feared the government review process could delay the deliveries of mining inputs by an additional six months. Since February companies have had to obtain approvals from a number of government agencies before they can import goods or buy offshore services.

Mining companies must also create a separate purchasing department dedicated to substituting imported goods and services with Argentinian products and services. Currently it is estimated that as much as 70% of inputs used by the mining industry are imported.

Argentina's government has also insisted that mining companies use local transportation companies for exports.

However, the Argentine newspaper La Nacion reports a political fight has sprung up between the Secretary of Mining and the Minister of Energy, each eager to impose its own plan of import substitution.

Argentina also requires that importers not transfer revenues abroad. McEwen Mining says Argentina's repatriation law could impact the company's internal funding model for the El Gallo Project in Mexico.

Repatriation requirements for McEwen Mining's San Jose mining joint venture with Hochschild Mining in Argentina is expected to have an annual pre-tax cost of $2 million for the partnership. Once the metal from San Jose is sold, the funds will be repatriated to Argentina and converted into pesos. McEwen executives are uncertain if the Argentine regulations will prevent the flow of the converted funds out of Argentina.

Despite the aforementioned concerns voiced by mining companies, the government insists that the mining controls are necessary to preserve Argentine manufacturing, create new job opportunities and improve the process of import substitution.

The administration of Argentine President Cristina Fernández de Kirchner estimates that replacing imported goods will increase the country's trade balance by US$1.5 billion.

However, the European Union is challenging Argentina's import restrictions, seeking the opinion of the World Trade Organization. Under WTO procedures, the EU must first request consultation with Argentina in an effort to have these measures-"which negatively affect the EU's trade and investment lifted."

"Argentina's import restrictions violate international trade rules and must be removed," said EU Trade Commissioner Karel De Gucht. "The trade and investment climate in Argentina is clearly getting worse. This gives me no choice but to challenge Argentina's protectionist import regime and ensure that the rules for free and fair trade are upheld."

Argentina's restrictions have mining companies reconsidering projects in the country, partly because of concerns of political uncertainty related to import control and the country's recent nationalization of Spanish energy company YPF. Reuters reports that Vale is reviewing the $5.9 billion Rio Colorado potash project in the country.

Other major mining companies active in Argentina include Pan American Silver, Coeur d'Alene Mines, Agnico-Eagle, AngloGold-Ashanti, Anglo American, Barrick, Goldcorp, Rio Tinto, Xstrata and Yamana, among others.

The fear factor in gold equities: Robert Cohen

The market is like a kid that can only ride a bike with training wheels on it, according to Robert Cohen of GCIC Ltd. As portfolio manager of the Dynamic Precious Metals Fund and the Dynamic Strategic Gold Class Fund (sold in Canada) and the Dynamic Gold & Precious Metals Fund (sold in the U.S.), Cohen is expecting a new set of training wheels in the form of a third round of quantitative easing. In this exclusive interview with The Gold Report, Cohen suggests that, as fear among investors continues to drive down stock prices, the market is now primed for patient accumulation.

The Gold Report: Robert, British Prime Minister David Cameron said that the European debt crisis could "get a lot worse." What's your view on the likely outcome?

Robert Cohen: I think he's right. It has the potential to get worse before it gets better. Europeans are going to have to deal with some sort of Eurozone fracture. Greece could certainly exit the euro within weeks rather than years. It has an election on June 17, and it will probably be bankrupt by the end of June.

TGR: Can the Eurozone survive without Greece?

RC: It can survive, but other countries could leave or it could break into two parts, like a northern Eurozone and a southern Eurozone.

TGR: Is the debt crisis in Europe a continuation of the 2008 market meltdown?

RC: Absolutely. It's just another chapter of the global financial crisis. There's been a buildup of global foreign exchange reserves. I think that's the root cause of a lot of the problems in the Western world. The foreign exchange reserve buildup globally, probably generated out of China and Organization of Petroleum Exporting Countries, circulated into the developed bond markets of the world.

The whole notion of the Eurozone was poorly planned. It doesn't give individual central banks the ability to manage their balance sheets to debase their own currencies. Different countries with different economies have the equivalent of one Fed. It's hard to get decisions made in Europe swiftly and effectively. It's dysfunctional.

TGR: How long before it spreads to North America—or does it?

RC: We're all connected to the global economy. It can spread very quickly depending on how interconnected the financial systems are with one another.

TGR: Was JPMorgan's $2 billion loss related?

RC: I think that was just a rogue trader. However, it still has to be investigated.

Gold hits one-week low on euro weakness

Gold dipped to a one-week low on Wednesday, tracking a weaker euro on heightened worries about the euro zone debt crisis as Spain's borrowing costs spiralled towards unsustainable levels.

Gold has recently been moving in lockstep with the single currency, which fell to its lowest level against the dollar in nearly two years as investors continue to fret about Spain's vulnerable fiscal conditions.

"Continuous weakness in other currencies and strength in the dollar have kept gold, precious metals and commodities generally depressed," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

Investors are waiting for central banks to respond with more monetary measures to help shore up the economies, which would help keep funding costs low and raise the inflationary outlook -- factors that will benefit gold, he said.

But political uncertainty in Greece will keep investors on edge for now. Though pro-bailout conservatives have topped recent opinion polls, analysts said the vote on the June 17 elections was still too close to call.

"Policymakers are waiting for clear commitments from some of the peripheral countries before they allow accommodation to support growth," Friesen added.

Until the market is convinced of that intention, gold could remain in a directionless drift.

Spot gold lost 0.4% to $1 547.76/oz by 03:36 GMT, extending a decline of more than 1% in the previous session. Prices are poised for a monthly loss of 7% and a fourth month of decline.

US gold inched down 0.1% to $1 547/oz.

The Indian rupee currency softened towards a record low hit last week. The weakness in the rupee has dented demand from one of the world's top gold consumers this year, and buying is likely to stay muted until the monsoon season ends in September.

The price drop in global markets has yet to trigger interest from Asia's bullion buyers, dealers said.

"At this stage we've only got enquiries, and buyers are probably eyeing $1 530/oz, which has been a support level recently," said a Singapore-based dealer.

Among other precious metals, spot silver lost 0.4% to $27.70, on course for its third consecutive session of losses.

Holdings of the iShares Silver Trust, the world's largest silver-backed exchange-traded fund, dropped nearly half a percent from the previous session to 9 619.03 t by May 29, the lowest in nearly two weeks.

Source: Reuters

Gold producers, Indian cutters might fund Canada’s newest diamond mines

With positive feasibilities studies in hand, companies aim to start building at least three new diamond mines in Canada by the third-quarter of next year, at a combined cost of around $3.4-billion.

First the hopefuls, including Mountain Province, Shore Gold and Stornoway, need to raise the finance to do so, and analysts say they may have to look to non-traditional sources, given the rocky shape global markets are in.

Despite glowing prospects for diamond demand and prices, Canadian juniors readying to start developing their mines have been receiving a cool reception.

The European financial institutions that traditionally provide project funding to build gem mines have been whacked by both new European banking rules upping the reserve ratios they are allowed, as well as the broader market funk in the continent, and the continuing fears of a Mediterranean state’s default.

And, with share prices dwindling near two-and-a-half-year lows, equity financing is mostly out of the question for Stornoway and Shore Gold.

National Bank Financial analyst Eldon Brown said that the three diamond pretenders would likely have differing fortunes.

“Shore Gold is in a bit of a jam. I think they’re blocked out for this cycle for the time being,” he said in an interview.

The biggest problem for the company is the whopping $2-billion its Star-Orion South diamond project will cost to build. Given that it is a super-sized open pit project in Western Canada, where the company will be competing for skills with burgeoning oil, potash and uranium sectors, cost inflation is likely.

Star-Orion South would be Saskatchewan’s first diamond mine, with Shore Gold in a race to find funding before the planned construction start date in the third-quarter. The mine is set to produce an average 1.72-million carats yearly, starting in 2017.

In March, the company took the drastic step of cutting its headcount by around one-third to 15 people in a bid to conserve cash.

The TSX-listed firm said at the time it had been in advanced talks with a potential partner, before the European debt crisis came along and derailed the deal.

Mountain Province, which has diamond giant De Beers as a partner at its Gahcho Kué project in the Northwest Territories, and Stornoway, boasting the Quebec government as a 25% shareholder, are, perhaps, not faced with such an uphill battle.

“For projects with shorter payback periods the prospects of raising money are probably going to be a little easier,” BMO Capital Markets analyst Edward Sterck said in an interview, adding that having a strong joint venture partner would also greatly assist.

Gahcho Kué is set to start producing in 2014, at a capital cost of C$600-million – though Mountain Province’s share, with its 49% ownership, sits close to C$300-million.

The project, located 280 km northeast of Yellowknife and 80 km east of De Beers’ existing Snap Lake mine, will produce around 4.5-million carats yearly, with pre-construction work underway this year.

Stornoway’s Renard project, which would be Quebec’s first diamond mine, has a higher capital figure of $800-million, and will produce an average 1.7-million carats yearly, according to the results of a feasibility study the company announced in November 2011.

First output is pencilled in for 2015.

Both Stornoway and Mountain Province outlined plans this month to start spending millions of dollars on predevelopment at thier projects.

OFFTAKE

Where will these companies likely find the money to build their mines?

Indian cutting and polishing centres and large jewellery retailers, Sterck said.

Diamond processing firms in India, particularly small and medium sized ones that are not De Beers sight holders, can find it difficult to get their hands on rough stones.

Providing financing to build either Stornoway’s or Mountain Province’s share of its mine in return for off-take could be of mutual benefit, he commented.

Indian cutters and polishers recently visited Canada scouring for opportunities to secure rough supply, as they also compete with an emerging Chinese industry.

Retailers such as US-based Tiffany’s have also in the past injected capital into diamond mines to get ensure supply.

Stornoway CEO Matt Manson told Mining Weekly Online in September the company would consider selling marketing rights to help fund Renard.

The other doors juniors should be knocking on are those of gold producers, said Brown.

Toronto-based Agnico-Eagle Gold already owns 10.8% of Stornoway, making it the second-biggest shareholder, and Canada’s number-three producer Kinross in 2009 bought into Harry Winston and took on part of its stake of the Diavik mine it owns with Rio Tinto.

Harry Winston subsequently bought the ownership back in two separate deals in 2010 and 2011.

Some gold companies have been looking to diversify into copper, such as leading producer Barrick, but the market has punished them for doing so. Diamonds, as a luxury good, may make more sense for investment, as long as gold miners “don’t bet the farm” on a deal, Brown commented.

Harry Winston itself has expressed interest in increasing its exposure to Canadian diamond production through investing in projects.

There are also other potential contenders.

“The dark horse is De Beers and Anglo American,” said Brown, referring to the deal whereby Anglo American agreed to buy the Oppenheimer’s 40% stake in the diamond giant for $5.1 billion.

“Obviously Anglo has an interest in increasing exposure to the sector.”

There has been speculation as to whether anti-trust authorities would allow De Beers to make diamond acquisitions, given its historical market dominance, though the dynamics have changed in recent years.

Russia’s Alrosa is now the biggest-volume diamond producer, while De Beers holds the title of being the biggest producer by value.

“De Beers is not, and never has been, prevented from buying producing diamond assets by the EU anti-trust laws,” spokesperson Lynette Gould told Mining Weekly Online in March. That implied the company could also snap up development projects.

Another significant factor in the market is that global mining gargantuans Rio Tinto and BHP Billiton have announced they are looking to sell their diamond mines, as they are too small compared to their other divisions.

Rio owns 60% of the Diavik mine and BHP 80% of Ekati, also located near Yellowknife.

Neither sale would likely sap capital from the juniors hoping to build their mines in Canada, Sterck and Brown said.

“I think there are different kinds of buyers [for Ekati and Diavik],” commented Brown.

Source: Creamer Media Reporter

Gold Forecast Triple bottom? A Base or a Trap?

The pain in Spain falls mainly on it's credit rating, which is to blame.

As the sovereign debt crisis in the European Union accelerates, today we witnessed another nation of the E.U. have its credit rating lowered. This action put substantial pressure on the euro, which traded close to a two-year low, spurring the U.S. dollar to continue its rally. Eagan-Jones downgraded Spain's credit rating and one of Spain's largest banks, Bankia, was in such immediate peril that it was given a significant infusion of cash over the weekend in order to keep it solvent. These new developments come on the heels of heated concerns as to whether Greece will remain part of the E.U., or exit the union, dumping its financial obligations and the euro in one fell swoop.

There was an abundance of safe haven buying, but the focus was in U.S. dollar backed investments and not traditional safe haven vehicles such as the precious metals. The dollar is currently trading at a 21-month high, and continues to strengthen as uncertainty in the EU grows.

Reports surfaced last night that China may in fact introduce new monetary stimulus measures in order to boost their economy. However, it needs to be noted that the Chinese economy has been running in overdrive and even in its current slowdown still maintains a vigorous pace. Any monetary stimulus measures, whether implemented by the United States, the E.U., or China, could very well have a strong bullish effect on the precious metals markets.

See Video:

Source: The Gold Forecast.com

Platinum surplus diminishing as bear market approaches

Barclays Plc estimates the metal's 17% plunge to $1,433.50 since late February leaves it within 3 percentage points of the common definition of a bear market.

The first drop in platinum mine supply in four years and record car sales, the biggest source of demand, are reducing a surplus of the metal and shoring up prices on the brink of a bear market.

Output will drop 4 percent to 6.14 million ounces this year as labor strikes and safety concerns disrupt mining in South Africa, the biggest producer, Barclays Plc estimates. That will diminish the annual glut by 90 percent to 37,000 ounces, the bank predicts. Prices will average $1,750 an ounce in the fourth quarter, 22 percent more than now, the median of 13 analyst estimates compiled by Bloomberg shows.

The metal, used to make autocatalysts and jewelry, slid 16 percent in the past three months and hedge funds are now their least bullish since at least 2009 on speculation that slower global economic growth will curb demand. Prices are now within about 1 percentage point of average production costs, which continue to rise as companies dig as deep as 1.3 miles to find ore and face surging wage and energy bills.

"Platinum is very, very cheap at the moment," said Thorsten Proettel, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany and the third-most accurate forecaster of platinum prices in Bloomberg Rankings in the two years through December. "It's more the supply side which could help the platinum price accelerate because supply is very tight."

Bear Market

The metal's 17 percent plunge to $1,433.50 since late February leaves it within 3 percentage points of the common definition of a bear market. The slump pared this year's gain to 2.3 percent, still beating the performance of gold and palladium. The Standard & Poor's GSCI Spot Index of 24 commodities fell 3.5 percent since the start of January and the MSCI All-Country World Index of equities rose 0.6 percent. Treasuries returned 1.2 percent, a Bank of America Corp. index (MXWD) shows.

It costs an average $1,437 to extract an ounce of platinum, according to Proettel. The slide in prices is eroding earnings, discouraging the development of new mines or expansions. Impala Platinum Holdings Ltd. (IMP), the second-biggest producer, will report a 21 percent drop in net income in 2012 while London-based Lonmin Plc, the third largest, will make 72 percent less profit in its fiscal year ending in September, analysts estimates compiled by Bloomberg show.

Hedge funds and other large speculators cut wagers on a rally by 70 percent to 6,200 U.S. futures and options in the three months through May 22, according to Commodity Futures Trading Commission data. Holdings in exchange-traded products backed by the metal dropped 11 percent to 41.1 metric tons valued at $1.9 billion since September, data compiled by Bloomberg show.

Electrical Goods

Rebounding prices may encourage more recycling, compensating for the decline in mine output. Scrap supply from autocatalysts, electrical goods and jewelry reached a record 2.05 million ounces last year, from 565,000 ounces in 2002, according to Johnson Matthey Plc, the maker of about one in three of all autocatalysts. Prices averaged an all-time high of $1,721 last year, compared with $541 in 2002.

The surge is encouraging carmakers to use more palladium in autocatalysts, canisters that have honeycomb-like surfaces and convert emissions into less harmful substances. Platinum's sister metal is trading at $601 an ounce. Palladium accounted for about 30 percent of the metal loaded into catalytic converters for diesel-power vehicles last year, up from 20 percent in 2009, London-based Johnson Matthey estimates.

Largest Car Market

Demand for platinum, which Barclays anticipates will grow 1 percent to 7.99 million ounces this year, may fall short of expectations as economic growth weakens. China, the world's largest car market, expanded 8.1 percent in the first quarter, the slowest pace in almost three years. About $4.3 trillion was erased from the value of global equities since April on concern that Greece will exit the 17-nation euro zone.

Global sales of cars and light commercial vehicles are poised to rise 5.5 percent to a record 79.4 million units this year, according to LMC Automotive Ltd., a research company in Oxford, England. Carmakers account for 38 percent of platinum consumption, Johnson Matthey estimates.

Prices may also rebound as supply becomes more constricted. Mining companies are contending with strikes by workers demanding higher wages. South African inflation rose to 6.1 percent in April, up from 3.5 percent at the end of 2010, government data show. Workers at Johannesburg-based Impala's Rustenburg mine in South Africa, the world's biggest, started a month-long strike over a pay dispute in January that cut more than 100,000 ounces of output. The company said May 24 that the latest labor unrest at the site cost 6,000 ounces.

Miners Killed

Work has also been suspended after 123 mining deaths and 2,918 injuries in South Africa last year, Mineral Resources Minister Susan Shabangu told reporters March 20. The platinum industry lost about 300,000 ounces of production last year because of safety stoppages, London-based Anglo American Plc said Feb. 17.

Mine disruptions in the first quarter drove platinum prices 17 percent higher, the best performance in three years. While most of that was erased in the subsequent slump, the metal's gain since the start of January compares with a 2.3 percent advance in silver, 0.8 percent increase in gold and an 8.2 percent drop in palladium.

Energy Prices

Lonmin extracted 4.4 grams of platinum-group metals from every ton of ore last year, 5.4 percent less than in 2010, according to the company's annual report. Production costs rose 11 percent because of wages, energy prices, safety stoppages and strikes.

The company will report net income of $77.3 million in the 12 months through Sept. 30, compared with $273 million a year earlier, the mean of 10 estimates shows. Impala will make 5.25 billion rand ($630 billion), compared with 6.64 billion rand in 2011, according to the mean of seven estimates.

That contrasts with Anglo American Platinum Ltd., the biggest producer, which is expected to post earnings of 4.35 billion rand this year, from 3.59 billion rand in 2010, the mean of six estimates shows. Shares of the Johannesburg-based company fell 9.4 percent this year, compared with an 18 percent drop for Impala and 24 percent retreat for Lonmin.

Shafts now extend down as much as 2,115 meters (6,940 feet) and temperatures at the rock face of Northam Platinum Ltd.'s Zondereinde mine in South Africa can reach as high as 162 degrees Fahrenheit (72 degrees Celsius). It uses as many as seven refrigeration units to pump chilled air into the mine, according to data on the company's website.

"For many producers the price is insufficiently high to sustain the industry," said Bart Melek, the head of commodity strategy at TD Securities Inc. in Toronto. "Given the fact that we're going to see some decent demand growth over the next several years, we're going to have to see expansion."

China's coal demand set to rebound

China's demand for coking coal imports appears to be robust. The Asian major is set to import as much as 50 million tonnes of coking coal in 2012. Imports have already jumped in April, as importers have taken advantage of cheap overseas supplies.
In April, China imported 25.05 million tonnes of coal of all types (lignite included), higher by 17.1% from a month earlier, and 90.1% higher than a year ago.
Data released by the General Administration of Customs showed that imports of anthracite amounted to 3.36 million tonnes, down 11.8% month on month and dropping 10.5% year on year, while that of coking coal (at 5.09 million tonnes), thermal coal (at 7.23 million tonnes) and lignite (at 5.18 million tonnes), rose 22.9%, 35.6% and 20.2% respectively, from a month earlier.
As compared to last year, coking coal was up 59.7%, thermal coal was up 312.5% and lignite was up 140.9%, allaying fears of a slowing economy.
China's General Administration of Customs has decided to include lignite into the categories of imported coal this year, to give a better reflection of China's coal imports. That means, excluding lignite, the imports of hard coal expanded 14.56% from a month ago to 19.87 million tonnes in April.
Data indicates that these figures are still 10.25% less than the record high seen last November.
The world's largest coking coal producer, China is said to have the world's third largest coal reserves at 114 billion tonnes. The country's coal output reached 838 million tonnes during the first quarter, up 5.8% year on year, official data showed.
Though the nation's coal demand has faltered since the fourth quarter of last year as economic growth decelerated, Wang Xianzheng, chairman of the China Coal Industry Association, said at a meeting that supply and demand would continue to be roughly balanced during the second quarter.
At a Coaltrans conference in Beijing recently, industry players said they expect a 10% jump in imports from a year ago. Most of the rebound is seen coming through early fourth-quarter, as the impact of more monetary policy easing and economic rebound starts to flow through, Sun Xuefeng, manager at Sinosteel Raw Materials was quoted by agencies as saying.
China imported 44.6 million tonnes of coking coal in 2011, a 5.5% decline from a year ago, as the government's year long clampdown on the property sector hammered steel producers.
April has also seen higher imports from the Guangdong province, the economic hub in southeastern China. The area recorded a surge in coal imports during the first four months of the year, despite a slowdown in demand as impacted by a faltering domestic economy.
Guangdong imported 19.91 million tonnes of coal in the January to April period, growing 87.5% year on year, according to data recently released by the National Development and Reform Commission. The volume represents 34.23% of the province's total coal purchases during the same period.
The country is on a drive to rationalise the coal industry and develop cleaner and more advanced technology to reduce carbon emissions for the sector by spending more than $79 billion a year during its 12th Five-Year Plan period (2011-2015).

Indonesian Lower-Quality Coal Swaps Slide; China Rises

Swaps contracts fell for lower- quality thermal coal from Indonesia, the world’s biggest exporter of the fuel, according to Ginga Petroleum Singapore Pte Ltd. China prices rose.
The price for Indonesian sub-bituminous coal with a heating value of 4,900 kilocalories a kilogram for loading in June fell 75 cents to $68.35 a metric ton on a net as-received basis May 25, the energy broker said. The contract for the third quarter dropped 80 cents to $67.50 a ton.
Coal with a calorific value of 5,500 kilocalories a kilogram on a net as-received basis for shipments to South China for June rose 10 cents to $90.20 a ton, Ginga said. The swap for the third quarter was unchanged at $90.25 a ton.
A commodity swap is a financial agreement whereby a floating, or spot price, is exchanged for a fixed rate over a specified contract period.
Power-station coal will stay under pressure until seasonal demand increases next quarter in China, where domestic stockpiles are high and imports are being deferred, according to Australia & New Zealand Banking Group Ltd. (ANZ)
“Price activity will remain subdued” until the end of the third quarter, when Chinese demand should start to reduce inventories, Mark Pervan, the head of commodity research at ANZ in Melbourne, said in a note today. Thermal-coal prices at the Australian port of Newcastle, the benchmark contract for Asia, fell below $100 a metric ton last month for the first time since October 2010.
About 60 percent of Indonesia’s coal is classified as sub- bituminous. The grade is typically softer, with a dull, earthy appearance, according to the London-based World Coal Association. Higher moisture levels and a lower carbon content reduce the heating value compared with grades with a better quality stock. Sub-bit coal has kilocalories of less than 6,100 per kilogram, according to the Indonesian Energy Ministry.

Source: Bloomberg

Coal India quarterly consolidated profit falls 5%

Coal India Ltd. posted a 5% fall in its fiscal fourth-quarter consolidated net profit, due mainly to high wage costs.
Net profit for the three months through March slipped to INR40.13 billion ($727 million) from INR42.21 billion a year earlier, the world's largest coal producer said.
Sales rose 29.41% to INR194.19 billion from INR150.05 billion.
The figures topped the average of estimates in a Dow Jones Newswires poll of 10 analysts, which had pegged a net profit of INR39.89 billion.

Coal India's staff expenses rose to INR90.69 billion from INR48.06 billion a year earlier.
Earlier this year, Coal India agreed to raise the wages of its about 365,000 mine workers by 25% and pay higher allowances, a move that increased its staff costs by INR65 billion annually. The wage agreement was with retrospective effect from July 1, 2011.

Source: Market Watch

Tuesday, May 29, 2012

State of emergency in Peru after two anti-Xstrata protestors died in clashes with police

Peru's government declared a 30-day state of emergency on Monday night after two people were killed and dozens of police officers injured in violent anti-mining protests against Swiss based-Xstrata near Cuzco, in south eastern Peru.

The protesters, reports local paper El Comercio, accuse the Tintaya copper mine, owned by world's fourth-largest copper producer Xstrata, of polluting local water supplies and killing farm animals.

Peru’s president of the cabinet, Oscar Valdés, said in an official statement the government was urgently seeking to restore dialogue.

“These protesters are very radical and opposed to dialogue and so to ensure safety we are declaring a state of emergency,” he said.

Until negotiations are restored, Peru’s army and security forces will have special powers to quell protests and clear roadblocks that have cut off the mine.

The Guardian reports an environmental study commissioned by the local Roman Catholic Church and done last August and September apparently found elevated levels of arsenic, copper, mercury and other heavy metals in soil and water samples.

Xstrata, through its operations director for Peru, Luis Rivera, denies it is polluting, adding the company remains committed to a $1.5 billion expansion of the Tintaya mine.

Interviewed by Peru21, Rivera defended Xstrata’s environmental record and suggested radical elements were behind the protests.

This is the second time the Peruvian government has issued a state of emergency in the last six month. The last time was in December, in an effort to quell protests against Newmont Mining's Conga gold project that caused the company to halt its operations.

Peru is the world's second biggest producer of copper and silver and a major producer of gold, zinc, lead and other minerals. The country’s extractive sector, which accounts for some 60% of the economy, is expected to bring Peru $50 billion in future investment over the next decade.

Rival to China iron-ore platform to launch Wednesday

A second major physical iron-ore trading platform backed by big miners and Chinese steelmakers will debut on Wednesday, going head to head with China's own platform in a race to create an industry price benchmark.

Singapore-based GlobalOre kicks off less than a month after top iron-ore market China launched its first iron-ore physical trading platform in a bid to boost its price-setting influence in its biggest commodity import by volume.

Top miners Vale, BHP Billiton and Rio Tinto and giant Chinese steelmaker Baoshan Iron and Steel which are also members of the Chinese platform run by the China Beijing International Mining Exchange (CBMX), have signed up for GlobalOre, GlobalOre said on its website.

Other founding shareholders of GlobalOre include Glencore and China's Hunan Valin and Minmetals , it said.

Like CBMX, GlobalOre will be using an online trading tool with which members will be able to buy or sell iron ore in a range of product specifications.

And like CBMX, the Singapore-based platform is launching at a time when Chinese appetite for iron-ore is sluggish along with soft steel demand, leading to only few traded transactions on China's platform since it began on May 8.

At just above $130 a ton, spot iron-ore prices have lost more than 10% this month, forcing Chinese steel mills to defer deliveries and traders to skip cargoes to avoid further losses as China's slowing economy drags down steel prices.

"It's not a question of which platform is better, it's a question of the market uncertainty which is affecting volumes at CBMX," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.

While it's "difficult to say which platform will emerge the winner" Liu said it was clear platform operators wanted to ride on China's robust demand for iron ore, with imports last year reaching a record high 686 million tonnes.

Liu said it would take time for each platform to establish liquidity flows necessary to create price benchmarks.

CBMX will only realise its price discovery function when its annual trade volume hits 100-million tons or even 200-million tons, an exchange official said at the launch this month.

Source: Reuters

Kinross sells Crixas stake to AngloGold for $220m

Canada’s third-largest gold miner Kinross Gold has agreed to sell its stake in the Crixas gold mine (Serra Grande), in Brazil, to South Africa’s AngloGold Ashanti.

AngloGold, which already owns the other half of the property and operates the mine, bought Kinross’ interest for $220-million.

"Crixas is a nonoperated, noncore asset for Kinross," Kinross CEO Tye Burt said in a statement.

He added that the property’s divestiture was part of the company’s strategy of portfolio optimisation, and focusing its resources on its core operations and priority projects.

Earlier this month, Kinross reported a 58% drop in first-quarter earnings to $105.7-million, mainly owing to a once-off $110.3-million remeasurement of deferred tax liabilities, as a result of an increase in the Ghanaian corporate income tax rate from 25% to 35%.

The company also said earlier it would take a massive $2.94-billion noncash goodwill impairment charge related to its acquisition of the Tasiast mine in Mauritiana, and the Chirano mine in Ghana, which it bought for $7.1-billion from Red Back Mining in 2010.

Kinross said its share of Crixas' proven and probable gold reserves was about 375 000 oz as at December 31, and its share of forecast production for the year was about 70 000 oz of gold-equivalent ounces. The company expects to provide updated production guidance for the year with its second-quarter earnings announcement.

In 2011, the Serra Grande mine produced 134 000 oz of gold at an average cash cost of $767/oz. The Serra Grande operation comprises three underground mines, namely Mina III, Mina Nova and Mina Palmeiras, and one openpit mine on the outcrop of the Mina III mineralised zone, as well as a single dedicated processing plant.

To date, the Serra Grande mine has produced 3.4-million ounces of gold.

AngloGold Ashanti said it expects full ownership of the mine to bring its yearly production from Brazil to more than 500 000 oz and the contribution from the Americas region as whole to more than one-million ounces.

“This deal further simplifies our portfolio and gives us greater exposure to Brazil, where we have had significant success in growing our production, as well as our reserve and resource base. We see long-term, lower-risk potential from Serra Grande, which is a key component of our strategy to grow the contribution from the Americas,” AngloGold CEO Mark Cutifani said in a statement.

The transaction is expected to close by the second quarter, pending regulatory approval.

Source: Creamer Media Reporter

Selwyn more than halves output plans for its 8,000t/d Yukon zinc-lead mine

Selwyn to look at 3,500 tonne per day option for the Selwyn zinc-lead project in the Yukon as it also looks to make a deal happen on all or part of its assets.

Selwyn Resources (TSX-V: SWN) may need to rethink its corporate slogan "A Zinc-Lead Giant in the Making" following a massive downsizing of its namesake project in the Yukon.

Selwyn said on Monday the Selwyn project would not fly as an 8,000-tonne-per-day mine given the results of a feasibility review by the joint venture company - between it and Chihong Mining - that owns the project. Selwyn stated that given such factors as zinc and lead prices and market conditions the 8,000-tonne-per-day Selwyn project "will not provide an economic return."

Now in lieu of that scenario Selwyn said it would consider the project at less than half the rate, 3,500 tonnes per day, in ongoing feasibility work.

It is the second time Selwyn has cut the project scope down so drastically. Selwyn initially proposed the project as a 20,000-tonne-per-day open pit project in a 2007 scoping study. But then in 2010 it shifted gears to take a look at an underground operation - the 8,000 tonne per day case - that would tackle higher grade portions of the numerous deposits that make up the Selwyn project.

Now with 8,000-tonnes-per-day scratched off the drawing board, Selwyn said the new 3,500-tonne-per-day permutation "has a good probability of providing a satisfactory economic return."

In the same press release outlining the change to project scope, Selwyn also said it had engaged Cutfield Freeman to advise it "in evaluating its financing and strategic options in relation to the Selwyn Project and the ScoZinc mine (its other chief asset)." Selwyn said it would consider debt, equity and other ways of financing and that it had given Cutfield Freeman the green light to talk to buyers interested in Selwyn.

The project comes with sizeable zinc-lead resources in a series of deposits that also contain notable high-grade pockets. In all indicated resources are 181 million tonnes @ 5.25 percent zinc and 1.83 percent lead about the same again in inferred resources. Within that, however, there are some 16 million tonnes @ 10.25 percent Zn and 4.23 percent Pb, in indicated resources, and 28 million tonnes @ 8.71 percent Zn and 2.74 percent Pb, in inferred resources.

The larger resource may not, however, be as much an attraction anymore. Selwyn made clear its original scoping that covered the larger open pit operation was no longer relevant. "Since the initial PEA (scoping study) was prepared there have been significant movement in exchange rates, metal prices and capital and operating cost assumptions that would make the development plan described in the PEA no longer viable and investors should not rely on the findings of that economic evaluation," Selwyn stated

On news of the change in project scope Selwyn's shareprice was down 17 percent as of presstime to C$0.10 on moderate trading volume.

$6.4 billion Alpha Coal Project given go-ahead

The Newman Government has given the green light to what will be one of Australia’s biggest mines, the $6.4 billion Alpha Coal Project in Queensland’s Galilee Basin.

Queensland’s Coordinator-General has provided conditional approval for the mine – the first in the untapped coal rich Galilee Basin.

Minister for State Development, Infrastructure and Planning Jeff Seeney welcomed the decision and said the project would produce significant economic benefits for the state and nation.

“There’ll be an estimated $11 billion boost to the economy during the mine’s three year construction phase. 80 per cent of that will be retained in Queensland,” Mr Seeney said.

“Once operational, Queensland’s economy should see an economic boost of $1 billion per year from this mine alone.

“Australia can expect an $80 billion dollar rise in exports over the life of the mine.”

Mr Seeney said the Coordinator-General had approved the mine with strict conditions and the move was a major step towards opening up the Galilee Basin’s coal deposits.

“The proposal is for a 30 million tonnes per year open-cut coal mine and a 495km railway line from the mine to the Port of Abbot Point near Bowen,” he said.

The project is expected to generate up to 3600 construction jobs and 990 operational jobs.

The mine site is 130km south-west of Clermont and about 360km south-west of Mackay. The expected life of the mine is 30 years, with sufficient resources to potentially extend the project life beyond that time.

Despite the Coordinator-General completing Queensland’s assessment, the Federal Minister for Environment is yet to complete his assessment under Commonwealth environmental legislation.

“The Coordinator-General has thoroughly assessed Hancock Coal’s Environmental Impact Statement and associated materials, including 60 public submissions, and its Supplementary Environmental Impact Statement (SEIS),” Mr Seeney said.

Coordinator-General Barry Broe said his 393 page report contains 128 conditions.

“Conditions and recommendations in my report will ensure that impacts are well mitigated and managed through environmental management plans, environmental licences, development permits and a social impact management plan,” Mr Broe said.

The mine plan comprises six separate open-cut pits, with a total strike length of 24 km in a north-south direction.

Hancock Coal anticipates the construction period to occur between 2013 and 2016, subject to relevant approvals being granted for the project.

Argentina targets mining firms in import crackdown

Argentina's government tightened controls on imports of equipment and supplies by mining companies on Monday in a new measure to boost the trade surplus and foreign currency stocks.

Mining companies operating in the South American country, which include Xstrata, Barrick Gold Corp and AngloGold Ashanti, will have to get prior approval for overseas purchases and submit import plans 120 days in advance.

They will also have to consider swapping imports for locally produced goods, a government statement said.

"(The controls will help) safeguard jobs, create new employment opportunities and intensify the import substitution process," it said.

Earlier this year, President Cristina Fernandez's center-left administration launched a new system to pre-approve, or reject, nearly every purchase from abroad.

Latin America's No. 3 economy has also been pushing importers to match their purchases abroad with exports, leading to quirky deals such as one whereby carmaker BMW exports rice.

Fernandez says such policies are needed to protect a local manufacturing industry gutted during a burst of free-market policies in the 1990s.

They are drawing intense criticism from abroad, however, and the European Union filed a suit against the import restrictions with the World Trade Organization on Friday.

Mining companies had been working with the government on a program of import substitution, but an industry source said Monday's resolution was unexpected.

The latest measure could deepen uncertainty among potential investors.

Brazil's Vale SA is reviewing a $5.9 billion potash project in Argentina, partly due to concerns about political uncertainty related to import controls and the recent renationalization of energy company YPF.

It is one of the biggest investments planned by Vale, the world's second-largest mining company, which declined to comment on the latest government measure.

Compared with neighboring Chile or Peru, Argentina's mining industry is relatively undeveloped. That has drawn interest from global companies in recent years and overall investment reached a record $2.6 billion in 2011.

Soon after her re-election last year, Fernandez ordered energy and mining firms to cash in export revenues in the local market and ordered tax officials to approve dollar purchases on a case-by-case basis.

Both measures were designed to counter galloping capital flight and bolster the central bank's foreign currency reserves, which the government has earmarked for debt repayments for a third straight year

Peru Protests Against Xstrata Mine Leave Two Dead

Peru declared a state of emergency in the southern Andes region after two people died in protests against Xstrata Plc (XTA)’s Tintaya copper mine.

The measure will last 30 days as authorities seek talks with residents who have been demanding compensation for alleged mining pollution since May 21, Cabinet Chief Oscar Valdes said today in comments transmitted by state television.

Protesters in Espinar near Cuzco burned company offices and took a local official hostage, according to Lima-based Radioprogramas. Environmental protests have halted mining projects by companies including Newmont Mining Corp. (NEM), Anglo American Plc (AAL) and Southern Copper Corp. (SCCO) over the past year.

“These are extremists who have attacked authorities,” Valdes said from the Presidential Palace. “The state will remain firm as it has done from the beginning of this government.”

The mine meets environmental standards, the Zug, Switzerland-based company’s Tintaya unit said today in an e- mailed statement. Xstrata has financed 800 projects in the area such as a school, hospital and dairy plant and is willing to improve its social programs, it said.

“Tintaya rejects violence of any kind and invokes authorities to facilitate dialog that could lead to a solution,” Xstrata Tintaya said. “The social instability in the provincial capital is spurred by some leaders who are stirring up violence and causing the death of innocents.”

Xstrata, the world’s fourth-largest copper producer, didn’t immediately respond to an e-mailed request for comment sent outside of normal trading hours

Monday, May 28, 2012

Metals Economics Group Pipeline Activity Index, May 2012

Metals Economics Group (MEG) Pipeline Activity Index (PAI) reached its highest 2012 level in March before declining again in April on lower financings and drilling. The number of initial resource announcements continues to be strong in 2012, increasing in both March and April. Drilling activity remains lower than the highs of 2011 as adverse markets continue to make financing very difficult for early-stage explorers. Many junior explorers are reporting sufficient cash on hand to continue work, but some will likely scale back their programs to conserve cash.

The industry’s aggregate market cap dropped in March and again in April, after showing good gains in the first two months of 2012. Market caps finished April at an aggregate $1.82 trillion, the lowest total since December 2011.

MEG Pipeline Activity Index (PAI), March 2012

Pipeline Activity Index, May 2012

Although still relatively strong, the number of significant drill results appears to be stalling. Gold drilling has remained flat since peaking in November 2011, while base metals results appear to have settled at levels similar to late 2010-early 2011 after a moderate spike in February. As long as adverse markets continue to make equity funding scarce, particularly for early-stage explorers, drilling activity will likely remain below the highs of late 2011.

The number of initial resource announcements in both March and April is easily the bright spot for the period. It is the first time since early 2009 that there were 15 announcements in a single month, and the two-month total of 30 is the highest since July-August 2008.

Significant Drill Results Announced

Significant Drill Results PAI May 2012

Junior and intermediate companies completed 137 significant financings (US$2 million minimum) in March-April for a total of $2.6 billion—up 17% from the previous two-month period. Gold financings remained relatively steady, although the $712 million in debt secured during the period is almost quadruple January-February and is the highest two-month debt total in the Industry Monitor’s four-year history. Debt accounted for three of the four largest gold raisings, including $302 million of senior notes issued by New Gold to repay higher interest debt due in 2017. The almost $800 million raised for base metals is up, but more than half was debt, including $200 million for intermediate copper-producer Capstone Mining.

The MEG Pipeline Activity Index (PAI) measures the level and direction of overall activity in the supply pipeline, incorporating significant drill results, initial resource announcements, project development milestones, and significant financings into a single comparable index. The PAI is featured in the MEG Industry Monitor—a series of comprehensive graphs and charts, with related commentary, illustrating MEG's analysis of monthly changes and emerging trends in the base and precious metals pipelines. Using information only available from MEG through MineSearch, Exploration Activity Services, and Acquisitions Services, the Industry Monitor tracks developments based on announcements over the past 26 months of significant drill results, initial resources, project development milestones, significant financings, and acquisitions.

To purchase a copy of this month’s edition of the Industry Monitor visit MEG's online store.

Related MEG services

Brazil's Vale to sell Colombia coal mines

The miner has agreed to sell its El Hatillo and Cerro Largo coal mines in the department of Cesar to a unit of Colombian Natural Resources for $407 million.

Brazilian miner Vale said on Monday it agreed to sell its coal assets in Colombia to CPC, a unit of Colombian Natural Resources, for $407 million.

The deal is subject regulatory approval.

Vale, the world's second-biggest miner, said it will sell 100 percent of its thermal coal mines El Hatillo and Cerro Largo in the department of Cesar, and its port terminal Sociedad Portuaria Rio Córdoba on the Atlantic coast.

Vale will also sell its 8.43 percent participation in the Ferrocarriles Del Norte de Colombia railway that holds the concession to operate the railway between the mines and the terminal.

The company said the sale is part of Vale's plan to optimize its asset portfolio.

The euro and the gold price - potential fallout consequences

Recently the gold price has largely been declining alongside the euro in US dollar terms. An examination of the likelihood of this continuing from Julian Phillips.

For many years now gold and silver -by its pattern of following gold wherever it goes- have been treated by traders, investors and central banks as a 'counter to the U.S. dollar' and quite rightly so; this definition, however, applies primarily to the long-term value of the dollar and not simply to the daily gyrations of the dollar's exchange rate.

For many months now, gold and silver have not simply acted as a counter to the dollar but linked on a day-to-day basis with the euro. It's reasonable, one would think, for them to have that relationship because the euro is the second most important currency in the world. But when the euro itself has problems with its value then the relationship must surely become suspect?

What we've seen lately is gold and silver prices moving with (and often faster, both ways) than the euro, but the link remain solid. With concern for the future gold and silver prices in mind, it's time to examine this relationship to see where it's taking these precious metals. With the Eurozone crisis moving to potential 'runs' on Greek and Spanish banks, the future of the euro is now on the line. A look at a precipitous fall in the euro and the potential for gold and silver to follow is warranted. Investors should be prepared for very volatile and surprising gold and silver price moves.

MEANING OF 'COUNTER TO THE DOLLAR'

It would have been better had the saying included currencies in general. With gold respected worldwide as alternative money to currencies, the presence of the two in national gold and foreign exchange reserves enabled the balance of changing values in the two to allow the net value to remain relatively constant. As the gold and silver prices fell against currencies, so the value of currencies rose. Central bankers hold these reserves to ensure that a nation has reserves with which to continue trading internationally in the event of a national disaster preventing international dealing by the state. The maintenance of their value in all weathers is a fundamental necessity.

With the U.S. dollar being around 63% of global reserves, it's appropriate for European nations to hold gold in large quantities. The table below shows the percentages that the developed world holds as a percentage of their reserves:

World Official Gold Holdings as at May 2012

COUNTRY TONNES HELD % OF RESERVES

United States 8,133.5 75.9%

Germany 3,396.3 72.8%

Italy 2,451.8 72.6%

France 2,435.4 72.6%

Switzerland 1,040.1 17.5%

Netherlands 612.5 60.9%

E.C.B. 502.1 33.85%

Portugal 382.5 90.9%

Spain 281.6 31.3%

Austria 280.0 56.6%

Greece 111.7 82.2%

The gold holding will only have significance when the financial weather turns very stormy, not on a day-to-day basis. That's why when central bankers buy, they are relatively price insensitive. Their target is to acquire volumes of gold because it's that volume or the number of ounces that counts when push comes to shove. When they buy they simply accept direct offers of gold that the market makes to them. Chasing prices is out. The long-term steady acquisition of ounces and tonnes is the objective. A look at the figures in this table again highlights what we mean in a market that supplies only around 4,400 tonnes a year. Of this 36% is recycled gold, which can prove a heavy variable. Another 700 tonnes never leaves its country of origin. Thus the daily gold price depends upon less than half of the annual gold supply reaching the international gold market. So central banks are cautious, price insensitive buyers.

As we have seen in the market place, traders mainly have been linking the euro to the gold price's moves. There's a danger that readers of this article and subscribers will think it right to make decisions on the basis of the moves in the euro against the dollar only. To do so from now on may be the wrong moves.

TIED TO THE EURO?

The Eurozone crisis has seen remarkably little change in the €: $ exchange rate considering the extent of the sovereign debt crisis inside the Eurozone. Its peak was at €1: $1.40 and its low today at €1: $1.2550. This is only a move of 10%. Much of this narrow range of movement has to do with the swap arrangements between the Federal Reserve and the European Central Bank who have actively 'managed' the exchange rate to ensure as much stability as they can. If it had been left entirely to market forces, the picture would have been very different.

If a financial panic ensues in the Eurozone's banks, it's possible that we see the euro fall back to its start point around €1: $1. Will the gold price follow it down? Take a look at the second table below and see what happens to gold if it follows the euro.

€1: $ rate $ Gold Price € Gold Price

€1: $1.2535 $1,560 €1,244.52

€1: $1.2000 $1,493.42 €1,244.52

€1: $1.1750 $1,462.31 €1,244.52

€1: $1.1500 $1,431.20 €1,244.52

€1: $1.1250 $1,400.09 €1,244.52

€1: $1.1000 $1,368.92 €1,244.52

€1: $1.0750 $1,337.86 €1,244.52

€1: $1.0500 $1,306.75 €1,244.52

€1: $1.0250 $1,275.63 €1,244.52

€1: $1.0000 $1,244.52 €1,244.52

Let's take the current gold price of $1,560 as the start point for the projections and move the gold price with the decline of the euro.

Please note that it's the euro that's falling alongside all those currencies that look to the Eurozone as their key trading partner and to whose currency they are determined to adhere in a tight trading band (by interference if necessary). This does not reflect U.S. dollar strength; the dollar has been steady against other currencies and will likely remain so.

Before we answer the question, 'Will gold follow the euro down?' it's good to ask what the gold prices have been in both the euro and the dollar over the last decade.

In 2005 the gold price in the U.S. dollar was around $300 and around €240.

Today we see the gold price in the U.S. dollar at $1,560 or over five times higher than it was then. As to the euro price the same multiplier of over five times is true again at €1,244.52.

So our dilemma is that traders who have been driving the gold price of late will attempt to move the gold price with the euro's fall. Will investors from other nations follow suit?

To answer this we have to look closely at other buyers using other currencies. USD investors look at their dollar based Technical analysis and project price patterns in the dollar gold and silver price.

With somewhere close to 60% of the world's gold demand coming from China and India, we must recognize that those investors look at the gold price in the Indian Rupee and the Chinese Yuan.

The Chinese government wants their people to buy gold so are not happy to see the Yuan appreciate, or see their own people's gold investments suffer losses in the Yuan.

In India, the scene is different -the Rupee has been very weak, having fallen over the last year from Rs.42: $1 to Rs.56: $1 a fall of 33%. Accordingly gold prices in the Rupee have risen as the dollar gold price has fallen.

Right now, Indian demand is weak, being supplied mainly by sales of locally held gold, suffocating gold imports, so Indian demand is almost absent from the international market, at the moment. This leaves the weight of demand on Central banks and the Chinese with developed world demand at present lows.

This gives traders the reins over the gold prices on a daily basis but for how long and at what price?

Indian gold investors are very price conscious. Their buying pattern is to wait for a floor to be established so that when they buy, they won't see prices fall afterwards. They believe that the gold price in the Rupee will go up after that. They are not so wise, yet, to see that the Rupee's value is not likely to increase, bringing Rupee gold prices down. All they see are Rupee prices rising, as the Rupee falls.

What we will see if the above table is seen in the next few weeks is the gold price in the dollar falling faster than Rupee gold prices are rising. This will give the appearance of a Rupee 'floor' price and they will enter the market and support Chinese and central bank buying.

If the Reserve Bank of India does succeed in halting the fall of the Rupee this probability will happen faster. If they succeed in strengthening the Rupee by 'managing' (i.e. interfering in the forces driving the Rupee) it then Rupee gold prices will fall. That will bring out Indian buyers for sure.