Friday, August 31, 2012

Gold Market Report - 31 August

Gold Headed for Third Straight Monthly Gain, Bernanke Speech "Unlikely to Give Clear Policy Signal"

WHOLESALE prices to buy gold bullion  hovered close to $1660 an ounce Friday morning in London, around ten Dollars below where they started the week, while stock markets gained and US Treasuries sold off, ahead of today's much-anticipated speech by Federal Reserve chairman Ben Bernanke and Monday's Labor Day holiday in the US.

Silver bullion rose to $30.67 per ounce, slightly below last week's close, while other commodities were also broadly flat.

Based on London gold fix prices, Dollar gold bullion prices looked set for a third straight monthly gain by Friday lunchtime in London, trading around 2.3% higher than the final July fix price.

The gold price in Sterling looked set for a 1% monthly gain. Gold in Euros by contrast was trading slightly below where it ended last month, dropping to €42,358 per kilo (€1317 per ounce) during Friday morning's trading.

"For now, we have a bit of a cautious approach to the gold market," says Credit Suisse analyst Tobias Merath.

"Expectations for more [Fed] monetary easing would have to be fulfilled to break higher here."

Bernanke is due to speak later today at the annual Jackson Hole conference of central bankers.

"We believe that Bernanke will avoid sending a clear signal about Fed intentions for the September meeting," says a note from Barclays, referring to next month's Federal Open Market Committee meeting.

"The market's disappointment could have a modest negative effect on risk appetite in coming days."

"This is a speech, not an FOMC meeting," adds Michael Feroli, chief US economist at JPMorgan.

"We do not think Bernanke is inclined to front-run the Committee less than two weeks ahead of the next meeting."

Indian gold bullion importers were waiting for further falls in the gold price Friday, according to a report from newswire Reuters.

"There's not much sale of gold scraps," adds one dealer in Hong Kong.

Here in Europe, the European Commission has proposed that the European Central Bank be given supervisory authority over all Eurozone banks, removing such powers from many national bodies, the Financial Times reports.

Also writing in the FT, German finance minister Wolfgang Schaeuble counters that a supervisory body should only focus on those larger banks that "pose a systemic risk at a European level".

"This is not just in line with the tested principle of subsidiarity," writes Schaeuble.

"It is also common sense; we cannot expect a European watchdog to supervise directly all of the region's lenders – 6000 in the Eurozone alone – effectively."

Schaeuble adds that Europe "must eschew yesterday's light-touch approach for good and endow this supervisor with real and clearly defined responsibilities, coercive powers and adequate resources."

Germany has said the creation of a single Eurozone banking supervisor is a pre-requisite before Eurozone bailout funds can be loaned directly to banks. Currently, any government borrowing money to support its nation's banking sector must take that borrowing onto its own books, raising its national debt-to-GDP ratio.

In June, Spain agreed a €100 billion credit line to fund the restructuring of its banking sector. Despite this, Madrid is considering using its own money to support the country's biggest lender Bankia rather than use European Union money, in order to avoid forcing bondholders to take losses, news agency Bloomberg reports.

Eurozone inflation rose to 2.6% this month – up from 2.4% in July – according to data published Friday, while unemployment in the single currency area remained at 11.3%.

German Bundesbank chief Jens Weidmann has on several occasions considered resigning over ECB plans to intervene in sovereign bond markets as it went against the central bank's policy of not financing governments, according to a report in Friday's edition of tabloid Bild. Weidmann has however agreed to stay on the urging of the German government, the report says.

"Opposition [to ECB bond buying] from Weidmann and reservations from some other [ECB Governing] Council members will mean that ECB bond purchases would be highly conditional," says Holger Schmieding, economist at Berenberg Bank.

"[It would] be focused on the short end and would not aim to bring yields down quite as much as Italy and Spain might like to see."

Ben Traynor

BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Newcrest Mining eyes $4.6bn PNG site as key source

Newcrest Mining has lined up the $US4.8 billion Wafi-Golpu copper-gold project in Papua New Guinea as the next big growth opportunity to follow the completion later this year of its $US3.2bn expansion of its Lihir goldmine in PNG and its Cadia East gold-copper project development in NSW.

The Melbourne-based Newcrest and its South African partner, Harmony, yesterday confirmed Wafi-Golpu in PNG's Morobe province as a world-class copper-gold project, with a pre-feasibility study into a development of the larger Golpu showing it would be capable of producing copper at a cash cost of US54c a pound compared with the current price for the red metal of $US3.42 a pound.

Alternatively, applying copper revenue as a credit for gold production yields would result in an expected negative cash cost of -$US2150 an ounce at the base case production scenario, and a negative -$US1900 an ounce at an enhanced production scenario.

Developing Golpu comes with a world-class development bill. The $US4.8bn expected cost covers a mine capable of producing 400,000 ounces of gold and 250,000 tonnes of copper annually (base case), with first production possible by 2019 from the underground operation mine, 65km west of Lae.

The development cost is nevertheless below market expectations for a $US5bn bill and confirms that, on a copper equivalent basis, Wafi-Golpu will be one of the lowest cost copper developments in the world on a pound for pound basis. Its copper and gold grades are matched only by the Grasberg mine in Indonesia and Rio Tinto's Oyu Tolgoi mine in Mongolia.

Wafi-Golpu is owned 50:50 by Newcrest and Harmony. The PNG government can take up to a 30 per cent interest in the project at a price equal to the sunk cost and has signalled it will do so. Newcrest also indicated a willingness to buy Harmony out of the project but Wafi-Golpu is central to that group's strategic plan. Newcrest's 35 per cent end share would cost it $US1.68bn to fund.

The release of the study came with a new ore reserve estimate for the Golpu deposit. It now stands at 12.4 million ounces of gold and 5.4 million tonnes of copper. That is a rise of 11 million ounces of gold and 4.7 million tonnes of copper.

The Wafi-Golpu project area is hosted in a geological feature known as the Wafi Transfer Zone that can be traced for 25km. Two porphyry copper-gold deposits (Golpu and Nambonga) and the high-grade Wafi gold-silver epithermal deposit have been found to date, and more targets along the zone remain to be fully tested.

The total mineral resources outlined at Golpu, Wafi and Nambonga stands at 28.5 million ounces of gold, 9.06 million tonnes of copper and 50.6 million ounces of silver.

Despite its world-class status, Wafi-Golpu poses challenges. Infrastructure is nonexistent and the metallurgy is difficult, with the pre-feasibility study pointing to only 61 per cent recoveries for gold (93 per cent for copper). At today's prices, about 75 per cent of mine revenue would come from copper.

The pre-feasibility study estimated an initial mine life of 26 years with annual production of up to 580,000 ounces of gold and 300,000 tonnes of copper. Cash costs of production were said to be in the "first quartile" when applying the gold or the copper as by-product revenue.

Diving iron ore prices drag Aussie miners lower

A recent dive in iron ore prices spurred by China's slowing economy has dragged down the share price of major Australian miners.

Iron prices have plunged through the USD$120 bottom outlined by mining executives Nev Power of Fortescue Metals and Rio Tinto chief Tom Albanese earlier in the year, sliding to $US88.70 overnight to hit a three year low.

The USD$120 price level is considered by many such as Vale iron ore head Jose Carlos Martins to be the bottom threshold of profitability for miners, with USD$160 serving conversely as a ceiling for the profitability of steelmakers.

Leading Australian iron ore miners have taken in a beating in the past week as a result of iron ore's dive, with Rio Tinto (ASX:RIO) down 5%, Fortescue Metals Group (ASX:FMG) down almost 12%, BHP Billiton (ASX:BHP) down over 4% and Atlas Iron (ASX:AGO) down almost 17% over the past five days as of Friday afternoon.

According to the Australian ANZ analysts in Melbourne indicated following a site tour to China that the Chinese government is subsidizing both steel and iron ore production and that a price rebound may require a wait.

One commentator has recently speculated that China is behind a concerted effort to reduce iron ore prices due to the critical role of steel in the country's modernization push and its heavy dependence upon external suppliers.

The ongoing decline in Fortescue shares has also compelled Fortescue founder and chairman Andrew Forrest to raise his stake in the company by AUD$39 million.

Codelco CEO: $100 billion mining investment in Chile by 2020 unlikely

Chile's goal of attracting $100 billion in mining investment by 2020 is unlikely to be achieved because of setbacks to several planned mining and energy projects, Thomas Keller, chief executive of state copper giant Codelco, said on Thursday.

Many analysts had already called the target unfeasible, citing Chile's ballooning energy problems, dwindling ore grades and volatile world copper prices -- all of which may cause companies to reconsider projects.

On Tuesday, Chile's top court rejected the planned $5 billion Central Castilla thermoelectric power plant, citing environmental reasons and potentially jeopardizing a string of new mines planned in the mineral-rich Atacama region.

"The portfolio of $100 billion appears very ambitious. Clearly it's a little optimistic to make it materialize within the time frame initially forecast," Codelco's CODEL.UL CEO said during a news conference.

"Indeed some projects have already been delayed and likely won't be achieved in line with what was originally programmed," he added.

Chile, once Latin America's investor darling, is also experiencing an increase in environmental and social opposition to mega projects that is gaining traction in courtrooms.

While mining helped Chile's economy grow 5.4 percent in the first half of this year, the country has the highest level of income inequality among the 34 OECD countries, according to a report by the body last year, and many Chileans feel they have been left out of the country's copper boom.

Chile's government will on Thursday send a bill to Congress intended to connect its two main energy grids to soothe criticism, soften high energy prices and bolster the country's shaky transmission system.

Lumina Copper's Caserones mine and Barrick's Pascua Lama mine are among the mines gearing up to operate in the area near where Castilla was planned.

But the rejection of Castilla may lead to delays in Codelco's small Salvador project as energy prices will be hard to stomach, Keller said in an interview with Chile's Diario Financiero on Wednesday.

Keller is overseeing the state miner's own challenging investment plans to boost copper output to more than 2 million tonnes from around 1.7 million tonnes. Chile, which produces about one-third of the world's red metal, mined 5.24 million tonnes of copper last year, down 3.2 percent from 2010 levels.

July's copper output sank 8.5 percent from June due to maintenance of conveyer belts and grinding equipment, the INE statistics agency also said on Thursday.

More than $22 billion and over 8,000 megawatts in energy investment in Chile have been suspended, according to Libertad y Desarrollo, a conservative Chilean think-tank.

Brazilian billionaire Eike Batista, whose MPX Energia SA was spearheading the Castilla project, reportedly said via Twitter that investing in Chile "was becoming impossible," according to local media, which added that the tweet was later deleted.

Source: Reuters

Uranium group Paladin’s loss widens

Paladin Energy‚ a uranium producer with projects in Australia and two operating mines in Africa‚ delivered a net loss for the year to June 30 of US$172.8m‚ an increase of 110% from the previous year’s US$82.3m loss.

This translates into a loss per share of US21.1 cents form a loss of US11.1 cents the previous year. No dividend was declared.

The loss was mainly as a result of an impairment associated with the write-down of mining assets in Malawi in the quarter ended September 2011‚ MD and CEO John Borshoff said in a statement.

The financial year ending June 2013 will be the first year Paladin will operate without construction and commissioning activities running in parallel.

“In this new environment the company is well placed to optimise efficiencies and costs on its operations and benefit from returns. Debt gearing is also reducing‚” he said.

The company recorded “record production” for the year of 6.895 million pounds (Mlb) of U3O8‚ an increase of 21% over the previous year.

Langer Heinrich Mine produced 4.417Mlb U3O8 for the year‚ an increase of 25% over the previous year.

The Kayelekera Mine in Malawi delivered “record production” of 2.478Mlb U3O8 for the year‚ an increase of 14% over the previous year.

The company said that US$274m was successfully raised through convertible bonds and a portion of the proceeds was used to fund concurrent partial buyback of US$191m of the existing convertible bonds maturing in 2013.

The company said a three-year moratorium on uranium development and mining in Canada had ended‚ and Paladin would proceed to development of the Michelin deposit. Drilling began in August this year.

Indian investment in Southern Africa faces delay

The protracted negotiations and delay in signing a preferential trade agreement (PTA) between India and the Southern Africa Customs Union (SACU) was proving to be a major impediment to Indian mining companies committing foreign direct investments (FDI) in South Africa, India’s Mines Ministry has communicated in an inter-ministerial note.

South Africa has emerged as the most favorable investment destination for Indian resource companies and FDI could be put on the fast track by an early conclusion of a PTA, which would also ensure such investments the cover of Foreign Investment Promotion and Protection Agreement (FIPA), the Mines Ministry pointed out.

Apart from coal and gold, which constituted 70% of South African exports to India, faster and larger Indian FDI in SACU countries would help establish long term bilateral investment commitment as well as ensure raw material security to resource hungry Indian economy, an official in the Mines Ministry said.

Five rounds of negotiations on India-SACU PTA have been held since 2007, however no timeframe has been set for signing of an agreement, barring signing of a memorandum of understanding (MoU) by representatives of India and SACU confirming to facilitate an agreement.

SACU comprises the independent nations of South Africa, Bostwana, Lesotho, Swaziland and Namibia.

India-Southern Africa bilateral trade was currently pegged at $11-billion and forecast to rise to $15-billion over the next three years while South Africa the fourth-largest destination for total Indian FDI, amounting to around $15-billion.

However, the Mining Ministry said on Friday that an institutional framework was necessary to maximise bilateral trade and investment.

Over the past few years, the Indian economy has developed the strongest linkages with Australia and South Africa to meet its resource needs for energy and metals sectors. PTAs were necessary to ensure muscle to these linkages, according to a trade analyst with Indian Institute for Foreign Trade.

“PTAs cannot be concluded in days, months or even years. But realities of rising energy and raw material needs of core manufacturing sector, the case for urgency in facilitating investment flows were very strong,” he said.

A number of Indian government mining companies, including NMDC Limited, Coal India Limited, MOIL Limited and Singareni Collieries Company Limited, all had South Africa on their radar for mineral asset acquisition, while Tata Steel, Osho South Africa Coal Mining and JSW Limited have already acquired assets in that country.

Edited by: Esmarie Swanepoel

Thursday, August 30, 2012

New Continental mine to start producing in October

South African thermal coal producer Continental Coal on Thursday said that it remained on budget to start first production from Penumbra thermal coal mine, in Mpumalanga, with about one-third of the budget spent to date.

“The project is now 48.4% complete with a total forecast cost to complete of R329-million,” the ASX- and Aim-listed company said in a statement.

The current forecast is that the project will be completed with a R0.8-million cost overrun, mainly owing to geological conditions and higher tender prices; however it is fully funded from the company's existing cash resources.

First coal production is still forecast for end October, with a ramp-up to full production scheduled for June 30, 2013. The mine is set to produce 750 000 t/y of run-of-mine (RoM) coal beneficiated through a 1.8-million-ton-a-year coal processing plant at the Delta processing operations, as well as a 1.2-million-ton-a-year Anthra rail siding.

The Penumbra mine would be the company's third thermal coal mining operation in South Africa.

Meanwhile, the company reported that total run-of-mine production during July, for its Vlakvarkfontein and Ferreira thermal coal mining operations, was 175 783 t, a 2% increase on the average monthly ROM coal production achieved during the previous quarter.

Total thermal coal sales of 142 135 t for the month was a 1% increase on average monthly sales of 140 347 t achieved in the previous quarter.

The Vlakvarkfontein coal mine achieved RoM coal production of 138 068 t during July, representing a 16% increase on the average monthly RoM coal production achieved during the previous quarter.

Meanwhile, the Ferreira mine achieved RoM coal production of 37 715 t during July, 11% above budgeted production levels.

Edited by: Mariaan Webb

Newcrest significantly lifts reserves of PNG project

Newcrest Mining on Wednesday released the results of a prefeasibility study (PFS) for the Golpu project, in Papua New Guinea (PNG), which significantly lifted the project’s copper and gold reserves.

Newcrest said the PFS had raised the estimated gold reserve by 11-million ounces to 12.4-million ounces, and raised the copper reserve by 4.7-million tons to 5.4-million tons.

Newcrest and South Africa’s Harmony Gold are developing the project in a 50:50 partnership, and the project formed part of the Wafi-Golpu project, located in the Morobe province of PNG.

Newcrest said the updated ore reserve estimate for the Golpu deposit demonstrated the size and potential of this mineral province, and added that the development of Wafi-Golpu aligned with the company's strategy of investing in large, low-cost, long-life gold and gold/copper assets.

The announcement came short on the heels of analysts on Wednesday urging joint venture partner Harmony to reconsider its involvement in the $5-billion project and focus more on smaller quick-cash projects.

Newcrest said the two partners would potentially progress the Golpu project into the feasibility study phase during the first half of 2013, should certain outstanding issues be resolved, among which counted refining capital costs given the weak global economic conditions.

The PNG government retained the right to buy a 30% interest in the project until mining had begun at the project at an equal price to the sunk costs as at the date of acquisition. Should the PNG government choose to take up the full 30% interest, the interests of Newcrest and Harmony would each be 35%.

Newcrest’s Toronto-listed stock traded flat at C$27 apiece while Harmony’s New York-listed stock traded 5.10% lower at $8.94 apiece on Wednesday afternoon.

Source: Creamer Media Reporter

Keeping low 'profile' helps Canadian miner gain approval in Peru

Hudbay Minerals has begun building its $1.5-billion Constancia copper mine in southern Peru after keeping a low profile to win crucial support from local communities, company President David Garofalo said.

The groundbreaking ceremony on Wednesday, in which Garofalo participated along with local leaders, came a week after Peru shelved Newmont Mining's $5-billion gold mine in the northern Cajamarca region due to intractable opposition.

"We stayed focused on the people that are affected and tried not to create too much of a profile for us across Peru," Garofalo told reporters late on Wednesday. "Because outsiders and interlopers get involved and they can disrupt our engagement with communities."

Opponents of mining projects like Newmont's say they want to protect important local water resources and prevent pollution, but mining advocates say local concerns have been hijacked by politically ambitious ideologues who polarise negotiations.

Production at Constancia is slated to start in 2014, with full production seen by the second quarter of 2015. Hudbay plans to roughly triple the size of its copper output over the next four years to 125 000 t/y, largely on the back of production from Constancia.

Peru faces more than 200 pending social conflicts, many related to mining projects, and President Ollanta Humala has replaced two prime ministers during his one-year administration after protests against mining turned violent.

"Even as issues were flaring up in Cajamarca, we got our beneficiation concession," he said, referring to a construction permit granted in June. "The regulatory process in Peru still works."

In July, five people died in demonstrations against Newmont's proposed mine in Cajamarca, and in May two were killed in clashes with police in the southern province of Espinar, some 70 km from Hudbay's Constancia project.

Garofalo said this neighboring protest movement at Xstrata's copper mine, Tintaya, has left Hudbay's development "largely untouched."

"We've had - knock on wood - harmonious relationships."

Hudbay agreed to labor guarantees and has already employed 1,000 locals from the 2,500 who live in the two nearby communities in the district of Chumbivilcas, Garofalo said.

The company is also paying for the relocation of 36 families that live within the 22,500 hectare concession to new homes, and has agreed to invest in roads, sewage systems, schools and health clinics.

Silver Wheaton will fund $750-million of the Constancia project in Peru in exchange for a share of the precious metals produced there and at another Hudbay mine.

Hudbay announced a second-quarter loss earlier this month, due to an impairment charge and decreased sales.

Garofalo said Hudbay hopes Constancia will replicate the successes of its mining complex in the Canadian province of Manitoba. Hudbay's Lalor mine in Manitoba pulled up its first ore two weeks ago, and the nearby Reed project will begin production next year.

He said Hudbay will probably focus future investments in coming years in Canada and Peru.

"Ninety-nine percent of mining goes on quietly and unfettered in Peru," he said.

Source: Reuters

Iron-ore hits lowest in nearly 3 years; miners' shares tumble

Iron-ore prices fell to their lowest levels since 2009 on Thursday, dragging down shares in miners including top producers of the steelmaking ingredient, Rio Tinto and BHP Billiton , as a slowdown in top consumer China threatened to further sap demand.

Benchmark iron ore with 62% iron content slid nearly 2% to $88.70/t on Thursday, the lowest since October 2009, according to data provider Steel Index. Iron ore pricing moved from decades old once-a-year benchmark system to daily assessments in 2010, although recorded spot prices fell as low as $59 in early 2009.

The iron ore price has dropped by a third, or almost $50/t, since July, as Chinese steel producers shun cargoes and the appetite of the world's largest consumer cools.

Prices could fall up to 30% more, with no sign consumption will rebound anytime soon, analysts and traders said.

"It's possible for prices to fall to as low as $65 to $70 in the spot market, before a recovery back to the $80 to $90 range," said Fairfax I.S. analyst John Meyer, adding that the price slide could continue for the next one to two months.

"It's a little early to look for significant restocking in China. I think they're still shaking the tree."

Iron ore is a leading economic indicator as it highlights demand in key industrial sectors such as construction and carmaking.

Many traders are currently trying to liquidate their iron ore cargoes with little success, a further sign that a rebound is not on the cards in the short term.

"Not only is a recovery in the near term unlikely, there is also no sign that the fall will stop," a UK-based iron ore trader said.

"Looking at the cost curve these prices make no sense but there are no signs at all of an improvement in demand. The further traders wait the more they lose and waiting for a recovery is a big risk to take."

A second trader said he was getting "no interest whatsoever" for an iron ore cargo he was offering.

A movement of the iron ore swaps forward curve on Thursday also indicated the market has lost faith in a price recovery in the near term.

Swaps tied to iron ore deliveries for the firt quarter next year traded above swaps for the last quarter this year, showing players think a rebound is unlikely until 2013.

CHINA SLOWDOWN PUTS ON BRAKES

Iron ore has been the biggest revenue earner for top miners Vale, Rio Tinto and BHP Billiton and producers have for years banked on China's industrialisation efforts to sustain its appetite for the material.

But the slowdown in the Chinese economy put the brakes on a rally that lifted spot rates to near $200 last year, more than triple the level since 2008.

Prices have been falling rapidly since early July.

Shares of Rio Tinto in Australia fell 3.8% to close at A$48.63, their lowest since July 2009, while rival BHP lost 2.4%, the steepest single-day drop in a month. In London, BHP shares were down 2.9% in afternoon business, while Rio was trading close to 2012 lows, down 2%.

Mid-tier miners were under even more pressure as the margin between costs and prices narrows. Shares in Ukrainian producer Ferrexpo fell as much as 10%, as analysts quoted fears of a fall in the premiums for pellets and high freight costs.

Analysts at Liberum said Australian producer Fortescue Metals Group , with cash costs around $50 per tonne, in reality had much higher costs once royalties, corporate overheads and freight are included. All in, costs would be $79/t, not far from realised prices, the analysts said.

Shares in emerging west African producers African Minerals and London Mining were also hit by the margin fears, down 4.8% and 5.4% respectively, underperforming a 2.4% drop in the sector .

"The speed in the fall of the iron ore price is alarming. I don't think many people expected it to be sub $100 and to see it go below $90 is eye-opening to say the least," analyst Asa Bridle at Seymour Pierce said.

"For a long time there was uncertainty over whether a lot of the planned production would come on, and perhaps that is still the case, but for those that have made it to production, the timing is cruel to say the least."

STRUGGLING

The iron-ore market will remain under pressure until the steel sector recovers and this will not be a quick process, analysts said.

"With sluggish manufacturing activity in Europe and a construction market that's struggling to pick up in China, demand for steel has dropped sharply with no quick fix in sight," said Metal Bulletin research steel analyst Kashaan Kamal.

Chinese steelmakers said the sector, nourished by a decade of breakneck growth, needs to brace itself for weak demand and razor-thin margins over the next three to five years that will force inefficient mills to shut.

The most active rebar contract for January delivery on the Shanghai Futures Exchange slipped 0.2% to close at 3,437 yuan a ton, stretching its losing streak to a 14th day running.

Rebar, or reinforcing steel bar which is used in construction, hit a record low of 3,327 yuan on Wednesday. Down almost 9% so far in August, it is on track to extend its monthly loss to a fifth straight month.

Fading steel demand in China will see producers incurring bigger losses this month following a loss of 1.9-billion yuan ($299 million) in July.

Baoshan Iron and Steel Co, China's biggest listed steelmaker, said global demand for iron ore could drop in the second half of 2012 compared with the first six months, while 50-million tons of additional supply will come on stream, weighing further on prices .

Iron ore lost almost a quarter of its value this month as most Chinese buyers opted to keep their iron ore inventories low and bought smaller lots from port stockpiles instead of ordering fresh cargoes.

"We're lucky we don't have so much cargo. Many traders are struggling to unload their material into the market," said an iron ore trader in Shanghai.

Price offers for cargoes from Australia, Brazil and India fell by another $2/t to $4/t on Thursday, traders said.

Source: Reuters

GWMG on track to start SA rare-earths production by mid-2013

Aspiring integrated rare-earths producer Great Western Minerals Group (GWMG) on Thursday said it was on track to complete the refurbishment of the previously producing rare-earths mine Steenkampskraal, in South Africa’s Northern Cape province, by mid-2013.

The company said that while its focus was mainly set on completing the Steenkampskraal monazite mine project, it was actively evaluating strategic spinoff opportunities for its four exploration properties in North America.

The Steenkampskraal mine is a former high-grade producer of rare-earth metals. Global demand for rare-earth metals, which are used in a variety of applications, including the manufacture of hybrid cars, is increasing, with 95% of the supply provided by China, which is limiting the rare-earth metals it exports.

The company said it was continuing with a “highly successful” drilling programme on the Steenkampskraal property and expected to release an updated National Instrument 43-101 technical report and resource estimate before the end of the year.

GWMG had received the remaining $63.2-million held in escrow as part of its $90-million convertible bond financing. The company filed its first Canadian National Instrument 43-101-compliant resource estimate at the beginning of June, thereby satisfying the escrow release condition.

GWMG had to confirm that at least 20 000 t of total rare-earth oxides, including yttrium, in the sum of the measured, indicated, and inferred resource categories were present at the Steenkampskraal property, using a 1% cut-off grade.

Immediately upon closing the convertible bond offering on April 5, GWMG received $10-million, followed by about $63.2-million on June 6. About $10.8-million remains in escrow to satisfy interest payments.

Meanwhile, the company had reported that additional assay results on the property points to a higher distribution of neodymium, dysprosium and terbium when compared with historical data, all of which were critical elements to GWMG’s alloy manufacturing operations.

The surface refurbishment project was reported to be moving towards its scheduled completion during mid-2013, with the construction of containment ponds and finalising of the headgear, winder and associated electrical equipment.

The development of the Steenkampskraal is managed according to National Nuclear Regulator of South Africa requirements, with all activities and authorisations being up to date.

Recent progress was achieved with the authorisation of pumping and storage of mine water, approval from the Department of Energy for transport of materials, and the submission of worker safety assessments for the forthcoming chloride plant-building phase.

GWMG said it was in the process of awarding the contract for the next phase of underground mining preparations that would focus on the bottom portion of the decline. It was expected this part of the refurbishment project could be completed in about two months.

The company is fixated on achieving the first cash flow from the Steenkampskraal project, which would take place as soon as the mixed-chloride plant is completed.

The decision on the final position of the mixed chloride production plant to be located at the Steenkampskraal site had been revised twice since the two initial locations proved, after sterilisation drilling, to have significant monazite mineralisation beneath them. A final site had now been selected and approved for construction.

A rare-earth solvent extraction separation plant near Steenkampskraal is also planned for the site.

GWMG said it was expecting a final scoping report on both plants to outline capital and operating costs, and timelines for its construction in September.

The company also has two rare-earth alloy manufacturing plants, one being operated by subsidiary Less Common Metals (LCM) in Birkenhead, UK and the other operated by subsidiary Great Western Technologies in Troy, Michigan.

As LCM worked toward its first commercial shipment of alloys using its new strip cast furnace, LCM was also planning for the installation of a second strip cast furnace, scheduled for delivery in 2012. More such furnaces were planned to match alloy production with the ramp up of the Steenkampskraal mining operation, to match production with the availability of oxides from Steenkampskraal.

GWMG said it was looking for a new CEO.

The company’s TSX-V-listed shares traded 1.79% lower at 27 Canadian cents apiece on Thursday morning.

Source: Creamer Media Reporter

Vale sees 2012 Mozambique coal output at 4.6m tons

Brazil's Vale plans to produce 4.6-million tonnes of coal at its Moatize mine in Mozambique this year as it ramps up production to supply growing demand from Asia, a senior company official said on Thursday.

Vale began producing coal at Moatize last year, with first exports leaving Mozambique in September, and is investing heavily to increase the mine's capacity to 11-million tons by 2014 and to 22-million tons by 2017.

"Our production is still constrained by the limited capacity at the Beira port and the Sena railway line," Ricardo Saad, a director at Vale Mozambique, told reporters.

"We have a lot of production stockpiled at the mine and we hope that when the refurbishment of the Sena line is completed, we can begin to accelerate our production capacity."

The miner is also investing $4.5-billion to rehabilitate another railway line and the northern port of Nacala to carry coal from the mine, partially passing via Malawi.

The line will transport 30-million tons of coal when completed from mines operated by Vale and other producers.

Source: Reuters

How big is gold's QE premium?

What will happen to gold post Jackson Hole is the question on many commentators' lips at the moment, here are a few scenarios.

When the Fed's Jackson Hole meeting concluded two years ago, it was with the announcement of QE2 by Fed Chairman, Ben Bernanke. And, judging by the performance of the yellow metal over the last few days, there is a hope on the part of many that something similar might be announced at the end of this week's meeting.

As UBS's Edel Tully wrote yesterday, "The metal's QE premium is very real, and we question how much more can be expected before Friday. Gold is currently trading where some would have estimated after a Jackson Hole symposium which offered some QE crumbs."

But, it is worth pointing out, as Tully does that, while there has indeed been an increase in speculative activity pushing gold higher since the release of the latest set of FOMC minutes, there are other positive factors standing in gold's corner.

"There's still a lot in gold's favour. Dollar weakness, some European optimism (for now), momentum, technical and the strongest ETF buying this year are individually very supportive, and certainly help squash some concerns that all we've really seen is a spec buying splurge with a short-lived attention span."

Indeed, "what happens after Jackson Hole?" is the question on everyone's lips. Consensus seems to be that, should there be an announcement of further stimulus measures, whether in the form of QE3 or something else, the reaction is likely to be strongly positive for gold.

Standard Bank, in its aptly named Gold price probabilities note, released today, says, "At this time, we do not believe that gold is pricing fully further monetary stimulus from the Fed. Therefore, we expect more upside from gold depending on (a) further QE or some other type of stimulus and (b) the magnitude of any such QE or stimulus. A $500bn expansion of the Fed's balance sheet would increase our fair-value estimate for gold by $80."

The bank estimates that, were $500bn dollars be added to the balance sheet, there is only a 30% chance of a gold price less than $1,700, with a 58% likelihood of a price less than $1,750.

UBS, on the other hand expects prices to ratchet up sharply in such a scenario saying, that it would expect its three-month forecast of $1750 to be quickly realised.

However, if the Fed does not implement a new bout of easing, both UBS and Standard Bank expect gold prices to come off somewhat, although both admit that the extent of the fall depends on the content of the statement.

If the Fed hints that further stimulus measures are not imminent, UBS says, "This is the outcome that would certainly sour the mood towards gold. Expect a sharp sell-off, and the risk that gold falls below $1600 with little supportive buying emerging." But, it does not expect this to happen.

The bank's base case is that the Bernanke will elaborate extensively on how the discount window may be deployed to provide subsidised bank funding.

This it says would allow for some balance sheet expansion, but not as much as markets are hoping for under a new round of QE and, it wouldn't be dollar negative.

"Expect gold to lose some its recent fever and soften, but investors to be tempted to buy the dips closer to $1620/1630, around where it broke out recently," it writes of such an eventuality.

Standard Bank says, "In the event of no further stimulus, we'd see gold's fair value at $1,660 - up from $1,650 in July," adding, "Without further Fed stimulus, we'd see a 38% probability of gold moving below its 200-day MA [$1,642 currently] level within the next month." But, if it did move below this level it would consider liquidating its long positons.

However, it adds, "Should the gold price drop below $1,600 in this time, we'd consider scaled-down buying again.

Gold Market Report - 30 August

Jackson Hole Puts Gold on Hold, But New US Money-Printing "Not Yet Priced In"

WHOLESALE-MARKET prices to buy gold retreated Thursday morning in London, ticking back towards yesterday's 1-week low at $1653 per ounce as world stock markets also fell.

Prices for silver bullion held steadier, trading just 10¢ below Monday's start at $30.70 per ounce.
The US Dollar ticked lower against the Euro and Sterling on the currency market.
Iron ore sank yet again, hitting a 3-year low and taking its fall over the last 6 months to 37%.
"Bullion trading is still quite light with the market awaiting [Friday's] Jackson Hole symposium," says one London market-maker in a note.
"Players on the precious metal markets already appear to be exercising restraint ahead of the annual [central-banking] conference this weekend," agrees Commerzbank's commodities team in Frankfurt.
But "the currently very brisk levels of investment demand should prevent any serious fall in gold prices," they add.
Demand to buy gold and other precious metals bars "continues to be high," confirms German refining group Heraeus, "and we do not expect a decline in interest in the next few days."
Investors using exchange-traded funds to buy gold exposure again increased their position on Wednesday, according to global data from Bloomberg, taking this run to a 7th day and extending August's growth in physical backing to 65 tonnes – a rise of nearly 3% for the month.
The #1 investor in the world's largest gold ETF – the SPDR Gold Trust – John Paulson this week called his Gold Fund "the worst performing fund this year" amongst his hedge-fund offerings to clients.
Down 22% by value since the start of the year, "If you like the gold miner thesis, this is something that should encourage you to keep your position," says Spencer Boggess, Bank of America's director of hedge-fund investments, also speaking on a conference call with Paulson on Tuesday.
Besides holding 12% of the $65 billion SPDR, the Paulson Gold Fund holds sizeable stakes in several gold mining companies.
US-traded gold miner stocks have fallen 10.9% so far in 2012, badly lagging the price to buy gold itself – now 5.6% higher for Dollar investors.
"In the event of no further stimulus, we'd see gold's fair value at $1660 – up from $1650 in July," says a new report from Walter de Wet at Standard Bank in London today.
"[So] we do not believe that gold is pricing fully further monetary stimulus from the Fed."
Standard Bank's analysts believe that a further $500bn of US quantitative easing would add another $80 per ounce to their "fair value" gold price.
Today in India – the world's #1 consumer market for gold – prices edged back from fresh all-time records as the Rupee's exchange rate rallied.
"There is less buying as prices are still high," Reuters quotes Lucknow wholesalers Brijwasi Bullion.
India's post-harvest wedding and festival season is now underway. A traditionally strong period to buy gold it culminates with Diwali – the festival of lights – in early November.
Meantime in Europe – where business and consumer confidence both showed another drop on new data this morning – the government of Italy today sold all of the €4 billion in new 10-year debt it wanted to raise at auction.
Investors demanded an annual yield of 5.82%, down from the near-6.00% achieved at a sale in July.
"I think [that drop] is very much to do with the ECB," says fixed-income analyst Elisabeth Afseth at brokers Investec in London.
"If we hadn't had [rumors of a bond-buying plan], I suspect that both Spanish and Italian yields would have been considerably wider than where they are" compared to German debt.
German Bund yields remained just below zero this morning for investors buying anything up to 3-year debt.

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

David Morgan bullish on gold and silver - saw ‘bottom' in May

David Morgan expects gold to top $1,800/oz and silver $35 to $40/oz by the end of the year and both to take off from there. Interview with The Gold Report.

The Gold Report: What's your current outlook on metals, the economy and the general market indexes?

David Morgan: My outlook is bullish on the metals both short and long term. I think that the bottom is in for the mining equities as well as for the metals themselves. More and more people will realize that there's really no way out of this debt-based monetary system, whether it is about the U.S. reserve currency, the Eurozone or anywhere else on the planet that uses a fiat currency. There's a problem here and it can't be resolved. We're going to see more pressures to the commodity sector in general, particularly the precious metals.

TGR: In mid-May you called the bottom in the mining shares and the bullion. What leads you to make such bold calls and maintain a high degree of accuracy?

DM: I use my own indicators that come from a lot of experience. A couple of other things also keyed me. One was that the sentiment was so bad that it was screaming we are "at the bottom." Another was that there were a few days where the volume was very, very high and there was no real buying pressure. It was short covering. Short covering at a bottom is a good indicator that the smart money or the professional money is moving out of the market. In other words, they shorted for a very long time. They made their money, they're getting out and are covering their positions.

All these factors led me to decide to stick my neck out, which is part of the job I do, and say that this looked like a bottom to me. My experience of over 30 years in this business tells me that it usually takes about three months to confirm a bottom. I'm pretty convinced that I did get the bottom; now it's just wait and see another month or so if I'm correct on the metals themselves.

TGR: What prices are you predicting for silver and gold?

DM: I'm looking for silver to be above $35/oz and perhaps as high as $40/oz by the end of the year. I think we could see gold at about $1,800/oz by the end of the year. We still have four months ahead of us this year and with the fix that the global economy is in, a lot of people are going to come back into what they call the fear trade, and that will lift the metals. Once gold reaches a couple of upward resistance lines, you'll see a lot of momentum players come to the market as well for a quick trade.

TGR: Last year you were predicting $75/oz silver. What's changed since then?

DM: What's changed is the deflationary scare that I also talked about. It just happened to go a lot longer. I changed my mind partway through. That's one reason why you would subscribe to something like The Morgan Report, especially if you really want the most up-to-date thinking. Basically, we saw a big push from Quantitative Easing 2, where silver went from $26/oz to $48/oz. A lot of people thought it would keep going. I called that top at that time and thought that after it ebbed and flowed we might be able to build a base quicker than we have.

Once I was able to determine that the base building would take a lot longer than I originally thought, I changed my view and said we're going to look at probably $35-40/oz by the end of the year, not $60-75/oz. Will we ever see $75/oz silver? Absolutely. I've always predicted that we would see $100/oz silver as a minimum. I still think that's low but we haven't been there yet. So, you have to first get to $60/oz and $75/oz silver before you get to $100/oz. I'm still looking for the top to be out probably three to four years from now.

TGR: What do you see going forward into the new year? Any particular price targets for silver, gold and the white metals?

DM: I'll be a little more conservative than I was at the beginning of this year. I think in 2013, we'll see silver above the nominal high of $48/oz. As for gold, for 2013 I believe we'll take out the $1,900+/oz level that gold has already achieved. I'm looking for new nominal highs in both metals in 2013. I think we'll get far beyond that but I don't want to put a number on it at this time. I've wiped enough egg off of my face this year.

TGR: Taking a macro view, what do you see in the general/physical economy from a monetary point of view?

DM: The physical economies are not doing that well in much of the world. A lot of misallocation of capital has taken place. China is a good example; it has tons of real estate that can't be rented. The prices are too high.

Food stocks, generally speaking, are in some cases lower than they've been for quite some time. Energy, food and water are crucial globally and there hasn't been enough capital movement into those essential elements. A lot of nation states are looking at what they have in the ground or are growing on the ground and are coveting their own natural resources. In the book "Resource Wars," Michael Klare outlines the scenario of nation states going to war to either take resources that they need or defend resources that they already have. I'm not predicting war but we already see increased competition for resources.

On the financial side, the political class in every country is doing everything that they can to make this a fuzzy, mysterious problem that they'll blame on anybody but themselves. And, of course, they're the main culprits because they have so much control over the money supply.

So, I see the physical economy dwindling, resource wars in our future and the political class pretending as if nothing's really wrong. Everything is going to be happy tomorrow but tomorrow never gets here.

TGR: On to the mining side. Given the upheaval we've seen in Argentina, Peru and most recently in Guatemala, what do you consider the most mining friendly countries?

DM: Currently, I would say Canada. We just did a piece by David Smith in The Morgan Report about the overlooked silver mining ability of Canada and mines in general. The United States still is a good place, especially if you're a foreign investor. We have a lot of recommendations in Mexico, but I never want to have too much in any one geopolitical area. Some of the Scandinavian countries would be fine. In Africa, you have to pick and choose based on what part of Africa it is. There are resources in Africa but they're being developed as brand new. We really don't know how well they'll work out because there's not much empirical evidence yet. South Africa is a mess and getting worse. I've stayed away from South Africa during this bull market even though I was very heavily invested there during the first bull market in the 1970s to early 1980s. There are some exceptions, but the risk is very great.

There is a report put out by the Fraser Institute that gives its take on the most politically stable countries for mining. I don't agree with it completely, but it's a good start. This is an art form and not something that is scientifically derived. Investors want to be careful about the geopolitical jurisdiction because no one can call them all perfectly. Investors should not put all their eggs in one basket when you're in the resource sector. Either have some top-tier companies that have assets all around the world or, if for investors picking their own stocks, use a service like ours to make sure that the investments are spread out geopolitically.

TGR: What is the best investing advice you have ever received?

DM: It sounds trite because it's said and people don't do it, but cut your losses and let your winners run.

TGR: It's hard to do.

DM: But that's one of the best because if you're able to sell, you are doing the opposite of what most people do-most people sell their winners and hold their losers. No, investors should cut their losers and let their winners run because if investors have one stock that's going to make 100 new highs over a 10-year timeframe, that's the one you want to keep all the way up.

TGR: I think that's great advice. Thank you for taking the time to talk to us.

David Morgan (www.Silver-Investor.com) is a widely recognized analyst in the precious metals industry; he consults for hedge funds, high net-worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, the author of "Get the Skinny on Silver Investing" and a featured speaker at investment conferences in North America, Europe and Asia.

Article published courtesy of The Gold Report - www.theaureport.com

Antofagasta reports 16.5% increase in 1H copper output

Chilean copper miner Antofagasta's Board of Directors has authorized the payment of an ordinary 8.5 cents dividend payable on Oct. 4, 2012.

Copper miner Antofagasta reported Wednesday that net income fell nearly 8% from US$696.2 million or 70.6 cents per share in the first half of 2011 to US$646.1 million or 65.5-cents per share during the first half of this year.

Meanwhile, the company is sticking with its 2012 full year production guidance of 700,000 tonnes of copper, 280,000 ounces of gold and 11,000 tonnes of molybdenum, thanks to a 16.5% increase in copper output and almost a doubling of gold production during the first six months of this year.

In his first meeting with analysts since he assumed chief executive's post, Diego Hernandez said the price of copper is likely to remain volatile in the near term. Copper demand has been hit by uncertainty over the growth of China and the global economy.

However, Hernandez also observed that tight copper supplies are likely to persist for many more years. Global copper supply and demand remain finely balanced despite the slowdown in the global economy, he observed.

Antofagasta reported first half copper production increased 16.5% from 288,500 tonnes of copper in the first half of 2011 to 336,000 tonnes. Group gold production was up 92.5% during the same period from 70,000 ounces in first half of 2011 to 136,100 ounces. Moly production increased 35.4% from 4,800 tonnes for the first six months of last year to 6,500 tonnes during the same period of this year.

Hernandez attributed the increases to "increased production from Esperanza, which had been ramping up during the first half of 2011, along with continued strong performance from our other existing operations." As a result, revenues increased to $3.16 billion despite a decrease in average copper market prices.

"This increase in low-cost production from Esperanza has allowed us to maintain a relatively stable cost position, within the context of an industry environment which remains tight," Hernandez noted.

During the first half of the year, Esperanza has continued to optimize the reliability and performance of the operation. The mill's lower than average throughput in the first quarter of the year was due to damage that occurred in the primary crusher feed conveyor during February and March.

Meanwhile, Antofagasta's board declared an ordinary dividend of 8.5 cents per share for the first half of this year, which will be paid on Oct. 4, 2012.

Wednesday, August 29, 2012

Gold Market Report – 29 August 2012

Bernanke Disappointment "Could See Gold Correct", ECB "May Need to Take Exceptional Measures" says Draghi

WHOLESALE gold prices dipped below $1665 an ounce during Wednesday morning's London trading, slightly below where they started the week, while stock markets also edged lower, with markets focused on upcoming meetings of central bankers in the US and Europe.

Silver prices fell to $30.76 an ounce – in line with last week's close – as other industrial commodities also ticked lower, following news that iron ore prices in China had dropped for the 13th day in a row.

On the currency markets, the Euro held its ground above $1.25 this morning, with two days to go before Federal Reserve chairman Ben Bernanke gives a speech on monetary policy at the annual Jackson Hole conference of central bankers.

A number of analysts have already predicted that the Fed will announce further monetary easing when it meets in a fortnight.

However, "the Jackson Hole conference is not the forum for Bernanke to make any strong commitment to easing," reckons Marc Ground, commodities strategist at Standard Bank.

"[But] this will not prevent the market from attempting to 'read between the lines' — leaving room for all manner of interpretations and price responses."

"In terms of further easing, nothing has been decided," Federal Reserve Bank of Dallas president Richard Fisher, a non-voting member of the Federal Open Market Committee, said Tuesday.

"Nothing is predestined."

"Gold prices could correct, possibly abruptly and steeply, should Bernanke's speech again hint of distancing the Fed from further monetary policy easing," says James Steel, chief commodities analyst at HSBC.

"We see near-term risks of a reversal if Jackson Hole does not deliver what the market is hoping for," agrees Nick Trevethan, senior metals strategist at ANZ.

European Central Bank president Mario Draghi has cancelled his scheduled Jackson Hole appearance, citing a heavy workload. The ECB's Governing Council holds its monthly policy meeting next week, where it is expected to outline plans to stabilize the Euro, which could include intervention in sovereign debt markets.

In an interview published by Der Spiegel on Sunday, German Bundesbank president Jens Weidmann warned that "central bank financing can become addictive like a drug".

"The role the ECB appears ready to take on will overburden the central bank," added Juergen Stark, former ECB chief economist who resigned last year, in an opinion piece published by newspaper Handelsblatt Tuesday.

"[It] will allow its independence to be further eroded by politics...and ultimately, the central bank will no longer be able to fulfill its core task of delivering price stability. There is the risk of higher inflation – not today, not tomorrow, but in the medium- to long-term."

"It should be understood," counters Draghi in a piece published in Die Zeit today, "that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools...this may at times require exceptional measures."

Elsewhere in Europe, Catalonia has become the third Spanish region to ask Madrid for a bailout, saying it will ask for €5 billion.

Earlier this week it was reported that the national government has agreed to regional spending plans that would see them exceed agreed budget deficits by up to 10%, according to the Financial Times. Spain's prime minister Mariano Rajoy however insisted Tuesday that his government is not negotiating a bailout.

Spanish banks saw private sector deposits fall at a record rate in July, according Bank of Spain figures published yesterday.

Here in the UK, Britain's richest people should pay an emergency tax to avoid a breakdown in social cohesion, according to deputy prime minister Nick Clegg, who leads junior coalition government partners the Liberal Democrats.

"If we are going to ask people for more sacrifices over a longer period of time...then we just have to make sure that people see it is being done as fairly and as progressively as possible," Clegg says in an interview with the Guardian Wednesday.

The volume of gold bullion held to back shares in the SPDR Gold Trust (GLD), the world's largest gold ETF, rose to its highest level since March yesterday, hitting 1289.5 tonnes.

By contrast, the volume of silver bullion held by the world's biggest silver ETF, the iShares Silver Trust (SLV), fell slightly to 9763.5 tonnes.

Ben Traynor

BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold Market Report - 28 August 2012

Will Push Gold Higher", But Euro Problems "Haven't Disappeared"

from Ben Traynor

BullionVault

Tuesday 28 August 2012, 07:15 EDT

Fed Easing Discussion "Will Push Gold Higher", But Euro Problems "Haven't Disappeared"

SPOT MARKET gold prices traded just above $1660 an ounce during Tuesday morning's London session, a few Dollars down on last week's close, while stocks and commodities were also broadly flat on the day and US Treasuries gained.

Silver prices rallied to nearly $31 per ounce, having fallen back through that level a day earlier, before easing back towards lunchtime.

"Although in an uptrend, gold does not appear as technically strong as silver," reckon technical analysts at Scotiabank.

On the currency markets, the Euro climbed back above $1.25, having dropped below that level during Tuesday's Asian trading, with analysts continuing to speculate on the prospects for a third round of quantitative easing (QE3) from the Federal Reserve.

Over the weekend, the leaders of France and Germany, the Eurozone's two largest economies, both said they wish to see Greece remain in the Euro.

"For me, the question should no longer be asked," said French president Francois Hollande, following Saturday's meeting with Greek prime minister Antonis Samaras.

"Greece is in the Eurozone."

"I want Greece to remain a part of the Eurozone," said German chancellor Angela Merkel a day earlier.

"We expect from Greece that the promises that were made are implemented, that actions follow words."

Greece is asking for a two-year extension to meet its commitments to austerity measures, and has proposed issuing short-term T-bills to cover the estimated €18 billion funding gap this would create.

Representatives of the 'troika' of lenders – the European Central Bank, European Commission and International Monetary Fund – are due to visit Greece next month to report on the government's progress towards its commitments, although their report may not be published until October, a Commission spokesman said Monday.

"It's not in German interests to kick Greece out of the Eurozone," says ING economist Carsten Brzeski in Brussels, speaking to Bloomberg.

"Everyone realizes that it's in the German interest to solve the crisis. At the same time, [Germany has] become weak enough to show them that they're not an economic island anymore."

"The Eurozone has been quiet of late, but that doesn't mean the problems have disappeared," adds Jeffrey Rhodes, global head of precious metals at INTL FCStone.

"The US economy has been sluggish and there is a growing belief that there is going to be QE3 soon. This anticipation is driving the market."

"We expect the Fed to ease policy further in September," agrees Steve Barrow, head of G10 research at Standard Bank, adding that easing could take one of various forms, such as QE, cutting rates interest rates on banks' excess reserves, or extending the length of time the Fed says it expects rates to stay at historic lows.

Fed chairman Ben Bernanke is due on Friday to give a speech on 'Monetary Policy Since the Crisis' at the annual Jackson Hole conference of central bankers. It was at this even two years ago that Bernanke hinted at a second round of quantitative easing, which the Fed implemented a few weeks later.

"We expect there to be QE3 by September and gold will move substantially higher," says Philip Klapwijk, global head of metals analytics at consultancy Thomson Reuters GFMS.

"More cash is coming into the market from investors...ETF demand has picked up and will continue to grow as prices rise."

Last week saw the world's largest gold ETF, the SPDR Gold Trust (GLD), add nearly 12 tonnes of gold bullion, taking the total to 1286.5 tonnes, the highest level since April.

On New York's Comex meantime the difference between bullish and bearish contracts held by gold futures and options traders – known as the speculative net long position – jumped by nearly a fifth in the week ended last Tuesday, according to weekly data published by the Commodity Futures Trading Commission.

Russia's central bank added 18.6 tonnes of gold to its reserves in July, according to IMF data published last week. Kazakhstan, Kyrgyz Republic and Ukraine also opted to buy gold, while Guatemala and Mexico reduced their holdings. 

Turkey, whose reported official reserves includes gold held at the central bank by commercial banks, saw its gold reserves grow by 18% in July, the IMF data show.

"There's a lot of talk of gold coming back as a safe-haven asset," says Bernard Sin, head of currency and metal trading at Swiss refiner MKS. 

"As long as the QE3 discussion is on the table, gold will continue to trade higher."

Ben Traynor

BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Monday, August 27, 2012

Brazil halts ruling on use of mercury in gold mining

Brazil’s new regulations on gold mining in the Amazonas State that limit, but don’t outlaw the use of mercury, has scientists and activists up in arms.

Scheduled to go into effect on Aug. 9, the decree passed by the State Council on the Environment in May is awaiting final approval as it has faced increased opposition by stakeholders concerned about mercury’s impact on human health and the environment.

Scientists, reports SciDev Net, have asked President Dilma Rousseff to consider what they deem as more environmentally friendly alternatives, such as the use of cyanide, which they say is less harmful.

Under the new legislation, miners are allowed to use mercury if they obtain a permit and a document “attesting the origin of the mercury within 30 days of the issuance of environmental permits,” according to TerraAmerica.

The use of mercury in small-scale operations, labelled as 'artisanal' mining, in Brazil is controlled, but high. About 50 tons per year are used illegally in gold activities undergoing at the biologically rich Amazon region.

Two weeks ago, Brazil’s Environment and Sustainable Development, Nadia Ferreira, suggested that, with the appropriate environmental license, the use of mercury in gold mining should be allowed in the Amazon for at least another five years.

But the Executive Secretary of the Brazilian Agency for Technological Development of the Mining Industry (ADIMB), Onildo Marini, says the issue of logging the Amazon region for mineral exploration, is considerably less harmful than the use of mercury.

The general coordinator for the Brazilian Environment and Renewable Natural Resources Institute (IBAMA), Rodrigo Dutra, cites research indicating that the mercury used in mining has been permeating the local food chain.

“Carnivorous fish accumulate mercury and humans who eat such fish, eat the metal too,” he told Agência Brasil.

When consumed, mercury can severely damage neurological development in fetuses, even when the mother may show no symptoms. Inhaling mercury may trigger tremors, mood swings, neuromuscular changes, kidney and respiratory failure, and even death.

Sunday, August 26, 2012

Xstrata Discount to Glencore Bid Shows Increasing Doubts on Deal

Xstrata Plc (XTA) is trading at a record discount to commodity trader Glencore International Plc (GLEN)’s 20.1 billion-pound ($31.8 billion) bid, suggesting investors increasingly believe this year’s biggest takeover will fail.

The discount to Glencore’s offer of 2.8 shares for each Xstrata share widened to 10.7 percent on Aug. 24, according to data compiled by Bloomberg.

Glencore Chief Executive Officer Ivan Glasenberg last week reiterated that he will rebuff calls for a higher bid. Sovereign wealth fund Qatar Holding LLC has increased its stake in Xstrata to 12 percent since the deal was announced Feb. 7 and is pressing for better terms. The takeover, on which investors are scheduled to vote on Sept. 7, would be the second-largest mining takeover if completed at current values.

“The prices of the stocks tell you that the deal is in trouble,” said Keith Moore, an event-driven strategist at MKM Partners LLC in Stamford, Connecticut.

Xstrata rose 0.1 percent to 927.7 pence in London on Aug. 24. Glencore climbed 0.2 percent to 366.85 pence. Trading in London is closed today for a public holiday.

Glencore, the largest publicly traded commodities supplier, is seeking to add Xstrata’s copper, coal and zinc mines to create the world’s fourth-biggest mining company and challenge rivals BHP Billiton Plc, Vale SA and Rio Tinto Plc. Glasenberg would be deputy CEO once the deal is done while Xstrata boss Mick Davis would be CEO.

 

Chinese Demand

That plan was thrown into doubt after Qatar Holding raised its Xstrata interest from 3 percent in February to a stake now worth at least 3.2 billion pounds. The fund said June 26 an exchange ratio of 3.25 Glencore shares would “provide a more appropriate distribution of benefits of the merger.”

The deal is poised against a background of moderating commodity demand as China’s economy slows. Glencore said Aug. 21 its first-half net income dropped 26 percent to $1.8 billion. Earlier this month, Xstrata reported a 33 percent decline in first-half earnings.

Glasenberg, 55, said last week he’s ready to walk away from the deal rather than overpay. Glencore may revisit the deal in a year or two if the current transaction doesn’t succeed, he said.

If Qatar votes against the bid, “they will block the deal,” Glasenberg said in an Aug. 21 interview.

“From my point of view, from Glencore’s point of view, so be it,” he said. “It’s not the end of the world.”

 

ISS Report

There is probably about a 40 percent chance that the bid succeeds, analysts at Liberum Capital Ltd. in London said in a note on Aug. 24.

“The widening of the bid spread reflects the market coming to terms with the increasing likelihood of a deal break,”Liberum said.

Charles Watenphul, a spokesman for Glencore, and Claire Divver, a spokeswoman for Xstrata, declined to comment.

The combination of Glencore and Xstrata can be blocked by just 16.48 percent of Xstrata holders under U.K. takeover rules because Glencore can’t vote its 34 percent stake.

Institutional Shareholder Services Inc., a proxy advisory service, said Aug. 22 that Xstrata shareholders should vote against the acquisition, which it described as being “marginal on economic merit.”

ISS also recommended Xstrata shareholders vote against proposed retention payments to keep Xstrata executives at the merged company. Xstrata investors Standard Life Plc and Fidelity Worldwide Investment in February criticized as excessive proposed payments of as much as 172.8 million pounds for 73 executives. Xstrata said in July the terms of incentive plan would be revised and be voted on at the Sept. 7 meeting

“My perception is the chances of this getting done here are probably low,” said Sachin Shah, a Jersey City, New Jersey-based special-situations and merger-arbitrage strategist at Tullett Prebon Plc. “It seems like Glencore’s CEO doesn’t really want to up the ante enough to get this to the finish line.

Source: Bloomberg

Violent mining strikes could spread, says Implats

Impala Platinum today has warned that industrial action at South Africa's platinum mines could become more widespread.

A violent six-week strike at Implats' Rustenburg operations early this year sliced 21 percent off its full-year production

This combined with declining metals prices, led to a drastic cut in its dividend.

"The platinum industry is experiencing increased levels of industrial action, as witnessed at both Impala Rustenburg at the beginning of this year and more recently at Lonmin

These developments pose a significant risk to the industry," said Implats' newly installed chief executive Terence Goodlace.

Implats is confident that their operations are "relatively stable",

He also said the trade union rivalry that sparked the strike at both its operations and Lonmin's was still "fairly volatile".

A bitter turf war between the entrenched majority National Union of Mineworkers (NUM) and rival Association of Mineworkers and Construction Union (AMCU) has already spilled over to surrounding mines in the Rustenburg area and analysts are worried about a contagion hitting gold producers.

The platinum price has also jumped to a three-month high on the threat that South Africa, as supplier of 80 percent of the world's platinum, could be disrupted indefinitely.

Three lives were claimed during the strike at Implats in January and February. This cost the company, which produces 30 percent of the world's platinum, 120,000 ounces in lost production and translated into 2.8 billion rand ($336.57 million) in lost revenue.

Indonesia miners cut 2012 thermal coal output forecast

Thermal coal output in Indonesia could be steady this year with 2011, at around 360 million tonnes, an industry group said on Tuesday, cutting its forecast as a global oversupply puts pressure on the industry.

"We see we may not reach our target of 390 million to 400 million tonnes, and the chances are it will be the same as last year," Supriatna Suhala, executive director of the Indonesian Coal Mining Association, told Reuters.

Indonesia is the top supplier of thermal coal to China, its main market, but a slowdown in the Chinese economy coupled with increasing output from Chinese hydropower stations has led to declining demand for power station fuel from the world's second-largest economy.

Chinese traders scrapped import deals for at least 2 million tonnes of coal in July, with coal stockpiles already full at Chinese ports and cargoes waiting to offload.

"I hear that a lot of coal has been rejected. They have requested delaying shipments. There are also many cases where they cannot offload because ports are already full," Suhala said, adding that smaller operations with high stripping ratios had been forced to close because operations were no longer profitable.

"If prices go below $70 per tonne, companies with stripping ratios above 10 begin to get hit. Still, we are in a better position than Australia or South Africa," he said, explaining that Indonesian coal mines benefited from being close to cheap river transport and seaports. "That's our competitive advantage."

The excess supply has also hammered thermal coal prices in recent months. Australian thermal coal on the globalCOAL Newcastle index, the benchmark for Asian coal, closed at $88.41 on Friday, after prices plummeted from above $125 tonne in the first quarter of 2011.

"The biggest problem is oversupply, because the United States has started pouring their production into East Asia, to Japan, Korea and Taiwan. And also Canada has started exporting," Suhala said.

Source: Reuters

Does China have a hidden agenda on gold?

China is currently in some economic difficulty which could impact internal stability and some feel that the global megapower is planning to utilise gold to reboot and pick its way out of an economic meltdown

One thing that is most apparent about China relative to virtually any industry is that nothing is done without the approval, or instruction, of government. When you have an enormous population of over 1.3 billion - around 20% of the global population - the government's policies are all aimed at maintaining order among its people, and for the past decade or so this has revolved around massive internal growth. This has been done, first by becoming the world's supplier of cheap goods, and second the building of an internal demand economy to help support this massive annual growth.

Nearly half the country's population has moved from the country's old rural economy into a modern industrial one - but this is now seen as faltering under massive bank debt, much of it in potentially bad loans brought on by government-engendered cheap finance supporting the country's internal manufacturing and infrastructural growth. Given the Chinese state-owned company aims are not necessarily to make money, but to provide employment, this may not be a sustainable economic model, which could have some dire consequences for those companies, particularly in the resource sector, which have been providing the raw materials that help keep the Chinese factories maintaining uneconomic production levels.

In the past we have seen Chinese companies begin to make inroads into securing future supplies through investing in and taking over resource companies around the globe, but while the emphasis has so far been in respect of industrial metals to feed the manufacturing behemoth, we are now seeing similar moves into the western gold mining sector - of which the most recent example is China National Gold Corporation's interest in taking over control of African Barrick Gold. And prior to that the Zijin Mining takeover of Norton Goldfields among others. An earlier, but perhaps less well flagged deal was China National Gold's offtake deal with Coeur's Kensington Mine in Alaska whereby the mine's output is processed in China, not in Alaska where the mine is located. It would seem that these deals, or prospective deals, could be the tip of the iceberg if some views on China's gold policy are correct.

These views suggest that China is hugely expanding its own gold reserves, but doing so surreptitiously - a view we have expressed here beforehand. Last time China announced a gold reserve update was in 2009 when it suddenly announced it held 1,054 tonnes of the yellow metal - a 75% rise from its 600 tonnes reported in 2003. If a similar time gap is involved before China reports its reserves again, this will come in 2015 and some feel that the next reserve figure could show that China has accumulated more than a thousand tonnes of gold over the period. Indeed some have suggested a Chinese target of an additional 4-5,000 tonnes to bring it in line with some of the bigger Western gold holders.

There certainly have been a number of statements from senior figures in China suggesting that the country should be increasing its reserves and has been buying on price dips. Add to that China's own official gold production, which may understate the actual figure, which has by law to be sold to the state and one certainly can't rule out the likelihood that reserves are being increased substantially Even when gold appears weak there always seems to be a strong support level indicating a very big buyer out there. Could that be China?

China is also rapidly moving to become the world's biggest importer of gold, while exports are prohibited - and here again, although there have been elements of gold fever in buying by Chinese individuals at various points over the past couple of years, it is certainly conceivable that some of this is being bought by official sources.

Now this is all surmise - but bear in mind that in a controlled economy like China's the government tells you only what it wants you to know, or believe, and everything is aimed at the preservation of the state and the Chinese Communist party. There is little transparency in the Western sense.

Take global gold reserves - China's official 1,054 tonne holding is but a fraction of that of many Western economies. China is also said to be sitting on a surplus of over $3 triilion in U.S. denominated assets - which is, in effect, monopoly money. It would therefore be logical that some of this could be converted into hard assets, notably gold, which the Chinese see as a more stable ‘currency' than the U.S. dollar which, in China's view, is continually being devalued by the U.S. Fed's QE and associated monetary easing programmes.

Also, China has seen the huge advantages that have accrued to the U.S. from its currency being used as the global reserve currency. China would very much like to put itself in a position, perhaps not to usurp the U.S. - although this would be the ultimate target - where it has a dominant seat at the global trade table and there have been a number of recent moves which reinforce this interpretation of China's aims with the setting up of bi and multi lateral yuan-based trade deals, and the development of precious metals exchanges where gold and silver will be able to be traded in yuan. Indeed, if moves continue at the current pace, and the country actually is growing its gold reserves at say 500 tonnes a year (which is certainly not impossible), by the end of the decade it could push its way through to pole position in the global economic stakes.

If it can do this it could then use its dominant currency base to stimulate its own trading sector - and China largely lives by trade, although its domestic consumer base rises by the day - much as the U.S. has over the past few decades since the dollar usurped the pound sterling as the global currency of note.

And, as we noted here back in 2009, China has also actively been persuading its citizens to buy gold and silver through its banking system, as well as through traditional traders, through TV, radio and billboard advertising. Should China announce at some time in the future a very significant jump in its gold reserves, this would really kickstart another significant gold and silver price leg up, thus substantially enriching its citizens who have been buying gold and silver. Some may see this as China embracing the capitalist system - but again we re-iterate that in China virtually no new initiative is taken without government approval and backing.

It is actually probably too soon for China to take the step of announcing a substantial gold reserve increase yet, but if the basic scenario is correct China will thus continue to support the gold price on dips until such time as it sees fit to upset the global gold apple cart.

Source: Reuters

Gold Fields reports lower earnings

South Africa’s second-biggest gold-mining company Gold Fields on Thursday announced lower net earnings of R1 606-million for the June quarter compared with R2 082-million in the March quarter.

The quarter was, however, up on the R1 267-million net earnings of the corresponding 2011 quarter.

Net June-quarter earnings of $198-million were well down on the $268-million for the three months to March 31, but up on the $186-million of the previous year.

The company produced 862 000 oz at a total cash cost of $851/oz and an all-in cost of $1 308/oz.

The operating margin was 47% and all-in margin of 18%.

Gold Fields CEO Nick Holland reported “good progress” on the South Deep project and stabilized production from the Kloof Driefontein Complex (KDC).

The company declared an interim dividend of 160c a share, payable on September 5.

Holland said that the company’s safety drive experienced a serious setback when five miners lost their lives in an underground fire at KDC West’s Ya Rona shaft.

The cause of the fire, which started in an old worked-out part of the shaft that had been closed for many years, remained unknown.

The balance of the September quarter would be focused on flushing out noxious gases and ensuring a safe and healthy environment to recommence operations in the last quarter of the calendar year.

Loss of production as a consequence of the fire was expected to be 50 000 oz or 1 600 kg.

With the KDC tramming fatality, the total number of fatalities in the quarter rose to six.

South Deep had been fatality-free for the past 18 months while Beatrix recorded a fatality-free quarter.

Tarkwa and Cerro Corona continued to report zero lost-time injuries and the overall lost-day injury frequency rate for the group improved from 5.21 to 4.51, but the days-lost frequency rate regressed to 234 from 220.

Source: Creamer Media Reporter

Mitsui to market large share of output from Anglo Chile unit

Mitsui's direct ownership amounts to roughly 5%, but it will have the right to market the entire output share from its JV with Codelco, totaling 120,000 t/y of copper

Japanese trader Mitsui & Co said it would get the right to market a larger-than-expected share of production from Anglo American's Chilean mining unit after it backed Chile's Codelco in a battle for a stake.

Anglo and Codelco, the world's largest copper producer, reached an out-of-court deal on Thursday that ended a 10-month row over the stake in Anglo American Sur.

Codelco and Mitsui, who financed Codelco with a $1.9 billion loan, together now have 29.5 percent, while Anglo's share falls to 50.1 percent.

Mitsui's direct ownership amounts to roughly 5 percent, but it will have the right to market the Codelco-Mitsui venture's entire output share, 120,000 tonnes of copper per year, from the unit's south-central Chilean assets, which include the Los Bronces copper mine, slated to become the world's fifth biggest.

The mining industry worldwide has watched the prolonged dispute over Anglo's Chilean mines as avid Chinese demand for metals pressures miners to scramble for the few promising copper deposits left to exploit.

"There are few locations around the world where copper output is increasing, and at the same time demand from developing countries including China is very strong," said Yasushi Takahashi, chief operating officer of Mitsui's Mineral & Metal Resources Business Unit, said on Friday.

"The bottom line is we expect the tight copper market to continue," Takahashi said at a press briefing in Tokyo.

Mitsui said it would sell most of the concentrate to Japanese smelters.

Copper prices have fallen 13 percent from this year's peak of $8,765 per tonne in February, as global economic growth including in China has slowed, but miners and analysts say tight supply is likely to support the price.

Under the deal over Anglo American Sur, the business's profit will be distributed among the partners and all will now have a pro-rata share of production to market, or offtake. Mitsui will also get Codelco's share of offtake.

The Japanese company will also receive 30,000 tonnes per year of copper from other Codelco assets, which it secured in return for agreeing to provide the Chilean company with a loan to buy the Sur stake.

That brings its offtake to 150,000 tonnes per year, as much as 10 percent of Japan's annual imports of 1.4 million to 1.5 million tonnes, Mitsui officials said.

Japan's cash-rich trading houses have been taking advantage of a strong yen to scoop up commodities and minerals assets around the world.

Mitsui will pay $1.1 billion for its direct 5 percent stake in Anglo American Sur, which could rise to 9.5 percent at a later date should Codelco decide to repay part of the loan with more shares in their joint venture.

Codelco and Mitsui may explore further mining opportunities together in Chile or internationally, Codelco said in a statement to Chile's regulator on Thursday.

"If there's a chance to develop new copper mines in Chile or abroad, we would seriously consider accepting proposals to help Codelco do that," Takahashi said.

Source: Reuters

Turkey's gold reserves jump by almost a fifth

According to IMF data released Friday, Turkey's central bank raised its gold reserves to 9.3m troy ounces in July.

Turkey's central bank raised its gold reserves by almost a fifth in July taking its total holdings to 9.3 million troy ounces, data from the International Monetary Fund showed on Friday.

The IMF's monthly statistics report showed that Turkey's gold holdings rose by 18 percent or 1.4 million troy ounces.

The reserve is worth $15.5 billion based on a gold price of $1,670 per oz. Spot bullion hit four-month highs on Thursday.

Russia's central bank increased its gold reserves by around 0.6 million troy ounces last month, taking its total holdings to 30.1 million ounces, the bank said earlier this week.

Other central banks with significantly smaller reserves - Belarus, Sri Lanka, Moldova, Ukraine, Kyrgyz Republic and Kazakhstan - added to their reserves in July, but the increases were incremental. Kazakhstan, which purchased 45,000 troy ounces, was the largest.

Guatemala and Mexico sold a small portion of their stockpiles.

Source: Reuters