Friday, September 28, 2012

Looking for a big silver score on the Veta Grande in Mexico

Defiance Silver raises some cash as it moves to spruce up a 250 tpd mill in the Zacatecas silver district and explore the storied Veta Grande vein.

The lack of lift in the junior financing market is evident in Defiance Silver's latest financing, which just closed and raised about C$900,000 in two tranches. The junior had hoped for as much as $10 million back in mid-2012, an amount that would enable it to earmark about $4 million to get its 250-tonne-per-day silver mill, under option from Impact Silver, online and "up to first world standards," as Darrell Rader, Defiance Silver's chairman put it to me a few months ago. The mill is next to the storied Veta Grande silver vein in Mexico in the Zacatecas silver district, a vein along which Defiance controls about two thirds its nine-kilometre-long strike length on grounds also under option.

While Defiance didn't hit the $10 million mark, the initial financing still marks a solid start. It's safe to say the market isn't in the habit of feeding turkeys these days. Rather, while juniors like Defiance find supporters in a financing world marked by scarcity, those unable to raise funds may find themselves as Thanksgiving menu items. Headless and roasted.

For Defiance, the funds give it cash to continue with refurbishments at its mill and, perhaps more importantly, secure it funds to make good on option payments on its main properties. The crux to Defiance is a combo of assets: a concession over much of the storied Veta Grande mine, including some historically mined portions that hold 15 million ounces silver @ 182 g/t silver in historic resources (by Silver Standard back in 1995) and then the small Santa Gabriela mill next door.

The two assets haven't been under the same junior roof before. Indeed, Impact Silver, a major Defiance shareholder, had the Santa Gabriela mill in the past, but not the almost adjacent San Acacio property, which has been in the hands of a single family for a couple decades short of a century.

The head of the Mexican family, 80 years old, has not wanted to part with the property in the past, at least at prices that may have been on offer. But Bruce Winfield, Defiance president and CEO, worked on getting a deal done with the Mexican patriarch for the better part of a year and said the octogenarian had his five children in mind in deciding to work with Defiance.
"This is in effect estate planning for him," Winfield said.

The combination is pretty logical, making for a nice package with possible near term production from dumps at the mill, and then possibly with mine backfill and other feed from the Veta Grande mine, and then the obvious exploration potential beyond. The San Acacio concessions cover about four kilometres of the Veta Grande vein to the east of mine workings, an area that is little explored, in part because of sparse outcropping.

Of course there's no guarantee Defiance will find anything along strike to the southeast, but it has good reason to hope it might. As Winfield pointed out, a few years back MAG Silver announced it had drilled the Veta Grande vein to the southeast of the concessions Defiance now has under option. The MAG Silver hits were blind targets in the sense they were under 150 metres of cover, in an area without outcrop. The drillholes, if not showing widths as broad as in parts of the old Veta Grande mines to the north, still had strong intercepts with as much as 850 g/t silver over a metre.

Given the hits to the south, the question of what lies on Defiance-controlled land is very much an open one. As Defiance spruces up its Santa Gabriela mill, maybe starting off with silver production in the 100,000-ounce range a year, it aims to find an answer.

Lundin Mining in search of new acquisitions

Lundin Mining is seeking mine acquisitions in Europe, Canada, Mexico and South America, but not Russia.

The company wants to invest up about US $600 mln in zinc and copper mine acquisitions.

The company wants to boost its production after the company experienced various failed deals and mergers last year.

The company owns the Tenke-Fungurume copper-cobolt mine in the Democratic Republic of Congo.

Chief Executive Paul Conibear said "We are looking at copper and zinc mines that produce 30,000 to 70,000 tonnes of metal per year."

"We are going to be very disciplined, but when we find something for the right price, we will act quickly and aggressively."

Lundin Mining, listed in both Toronto and Stockholm, has up to 4 billion crowns ($604.05 million) to spend on acquisition, the paper said.

Early in 2011, Lundin agreed a $9 billion tie up with rival miner Inmet Mining.

But this fell apart after Equinox Minerals launched a hostile bid for Lundin. Equinox itself was taken over by Barrick Gold and Lundin failed to attract any new suitors and has since then been focusing on expanding its existing mines.

The Tenke project, which is operated by Freeport McMoRan, is on its way to total annual output of 195,000 tonnes of copper cathode. The expansion is expected to be completed in 2013.

Conibear said further investment could take production to close to 300,000 tonnes by 2015.

Lundin is also looking at expanding ore production at its Zinkgruvan mine in Sweden by up to 40 percent to 1.4-1.5 million tonnes a year from the current 1.1 million tonnes.

"We have had a very strong development at Zinkgruvan this year and production is at a record level," he said. "We hope to be able to make a decision on expansion at the end of the year."

At the Neves-Corvo mine in Portugal, Lundin is looking at spending $500 million over the next 5-6 years to boost production.

"Another alternative is for a smaller production increase with less risk," Conibear said, adding that decision would also be taken at the end of the year.


acquisitions, democratic republic of the congo, global, mining, canada, mexico, tenke project, mining, lundin mining

Diamondcorp says Lace tailings retreatment to resume next year

Aim- and JSE-listed Diamondcorp said on Friday it had shut down its the Lace processing plant and that full-scale production from tailings retreatment would not resume until the first quarter of 2013.

The company explained that it had shut down the plant in response to the weakening of diamond prices in the July to August period. During the shutdown, the company would undertake plant upgrades.

Diamondcorp said 5 312 ct of diamonds recovered from tailings retreatment prior to shutting down the plant would be held in inventory and that it would be sold when prices recovered. The company postponed the proposed tender for September.

The firm also holds 2 168 ct of diamonds recovered from underground bulk sampling, which would be retained for evaluation by potential off-take partners.

Diamondcorp posted a loss of £1.56-million for the six months to the end of June, compared with a loss of £1.17-million a year earlier.

CEO Paul Loudon said the period under review saw the company make significant steps towards its goal of being a long-term diamond producer. “Having secured the majority of the project finance required for the Lace underground development, we look forward to finalising the balance of the financing and starting underground development as soon as possible."

The company said last week it would receive R220-million in funding for the underground development and purchasing of mining equipment for its Lace mine, outside Kroonstad. It also agreed that the company would arrange another R100-milllion for the mine prior to the initial drawdown of the IDC facility, which would take total project funding to R320-million, representing a 33% contingency on the forecast peak-funding requirement.

Edited by: Mariaan Webb

Aim- and JSE-listed Diamondcorp said on Friday it had shut down its the Lace processing plant and that full-scale production from tailings retreatment would not resume until the first quarter of 2013.

The company explained that it had shut down the plant in response to the weakening of diamond prices in the July to August period. During the shutdown, the company would undertake plant upgrades.

Diamondcorp said 5 312 ct of diamonds recovered from tailings retreatment prior to shutting down the plant would be held in inventory and that it would be sold when prices recovered. The company postponed the proposed tender for September.

The firm also holds 2 168 ct of diamonds recovered from underground bulk sampling, which would be retained for evaluation by potential off-take partners.

Diamondcorp posted a loss of £1.56-million for the six months to the end of June, compared with a loss of £1.17-million a year earlier.

CEO Paul Loudon said the period under review saw the company make significant steps towards its goal of being a long-term diamond producer. “Having secured the majority of the project finance required for the Lace underground development, we look forward to finalising the balance of the financing and starting underground development as soon as possible."

The company said last week it would receive R220-million in funding for the underground development and purchasing of mining equipment for its Lace mine, outside Kroonstad. It also agreed that the company would arrange another R100-milllion for the mine prior to the initial drawdown of the IDC facility, which would take total project funding to R320-million, representing a 33% contingency on the forecast peak-funding requirement.

Edited by: Mariaan Webb

Chile manufacturing, copper output leaps, jobless falls

Chile's manufacturing and copper output soared in August from July and the country's jobless rate sank to its lowest in six months, buoyed by domestic consumption and increased import demand, primarily from Brazil and the US, the government said on Friday.

Chile's stronger-than-expected economic performance has helped drive its peso currency up more than 9.5% against the US dollar this year. Together with the Hungarian forint, it ranks as the strongest performer against the dollar among the 152 currencies tracked by Reuters.

Early Friday, after the release of the surprisingly strong production data, the central bank warned it was not ruling out intervening in the foreign exchange market, which it did last year, to stem the peso's rise.

Following the remarks, the peso retreated against the dollar, and was trading about 0.6% lower on the day at about 474 to the dollar. Manufacturing output increased a seasonally adjusted 6.8% in August from July and rose a larger-than-forecast 3.6% from a year earlier on improved domestic and external demand conditions, according to the National Statistics Institute (INE) report on Friday.

Chile's jobless rate for the June to August period fell to 6.4% on jobs in public administration and defense, teaching and mining, easing from May to July's 6.5% level to its lowest since December to February's 6.4% rate. "We think the data released today shows favorable growth in local activity and doesn't display evident signs of contagion on the back of international problems," BICE Inversiones said in a note to clients.

Copper is the backbone of the Chilean economy, making it highly export-dependent. But so far it has resisted the fallout of euro zone debt woes and slowing demand from China, its leading copper customer, better than previously forecast.

INE cited improved conditions for "external demand are explained by the exports of products like salmon and trout, mainly to Brazil and the US."

Domestic demand was boosted by the use of metal-based products, such as railings and fences, in real estate projects, it added.

A low unemployment rate, brisk domestic demand and strong economic activity, weighed against a threatening global backdrop, are seen pressuring the bank to keep its key interest rate at 5% in the near future, and not reduce it to stimulate economic growth, as has been the case recently in Latin American peers Colombia and Brazil.

The central bank is seen holding the rate at 5% again at its monetary policy meeting on October 18, and it is also seen at that level in three and six months, the bank's fortnightly poll of traders showed on Wednesday.

A Reuters poll had seen manufacturing output growth at 1% in August from a year ago on waning external demand and a strong domestic currency exporters say dull their competitive edge globally. The unemployment rate was forecast to have remained unchanged at 6.5 percent, according to the median response of ten analysts and economists polled by Reuters.


Chile lynchpin copper output jumped in August, both compared with the same month of last year and with July 2012. Chile produced 462 643 t of copper in August , jumping 7.8% from the same month a year earlier due to a low base of comparison and a higher current productive capacity, the government also said on Friday.

Copper output in August of last year was hit by the tail-end of a massive strike at world No 1 copper deposit Escondida, majority owned by BHP Billiton.

Production of the metal rose 11.7% in August 2012 from a month earlier, boosted by higher rates of mineral-processing and better ore grades, the INE added.

Red metal production reached 414 339 t in July, a 9.8% jump from the same month a year earlier, also due to a low base of comparison and higher productive capacity, the government said last month. But copper output sank 8.5% in July compared with June on the maintenance of conveyer belts and grinding equipment.

Chile, which produces around a third of the world's copper, is struggling to boost its key copper production despite stubbornly dwindling ore grades in old mines, labour action, energy woes and operational troubles.

The Andean country produced 3.52-million tons of copper in the January to August period, a 4% increase from the same period of 2011.

Chile is seen mining 5.4-million tons this year, significantly down from a previous projection of 5.7-million tons.

But analysts and industry players are increasingly questioning whether Chile will be able to meet its ambitious mining production and investment aims. "Considering that no new operations are due to start before year-end, maintaining August's rhythm would mean an annual output of 5.34-million tons (+1.5% year-on-year), which is difficult if one takes into account Collahuasi's problems and generalised decreases in ore grades," said Pedro Fuenzalida, a senior analyst with LarrainVial in Santiago.

Collahuasi, the world's No 3 copper mine, expects its red metal output to improve in the second half of the year versus the first six months, but its full-year output will likely still be below last year's, as lower ore grades and accidents hit operations.

Edited by: Creamer Media Reporter

Xstrata haggles over management as Glencore deadline nears

Xstrata's directors, facing a Monday deadline to deliver their verdict on Glencore's $32-billion bid, are hammering out a deal they hope will ensure the miner retains control of the combined group's board, even after the exit of its veteran boss.

All sides are working towards completing an agreement and announcing the board's recommendation by October 1, sources familiar with the deal said on Friday. However, the struggle to reconcile wide-ranging shareholder views, to ensure the success of the current, last-ditch attempt to merge, meant Xstrata's board could still ask for more time.

Glencore, the world's largest diversified commodities trader, bid in February for the shares in Xstrata it did not already own, launching one of the resources sector's biggest ever takeover deals. But it was forced earlier this month to raise its price - offering 3.05 new shares for every share held, up from 2.8 - in an effort to rescue the tie-up after opposition from the miner's number two investor, Qatar.

As a condition of the change, however, Glencore imposed its own chief executive and largest single shareholder - Ivan Glasenberg - at the helm of the combined group, at the expense of Xstrata's mining veteran boss, South African Mick Davis.

As Glasenberg was already due to sit on the board, Davis's departure within six months of concluding the deal leaves an empty spot - and one that is key to the balance of the 11-strong board. Under the original deal, Xstrata would have six board seats including the chairman, while Glencore would have five.

Sources familiar with the matter said Xstrata was not necessarily seeking a specific name, but they said the miner wanted "assurances" that a satisfactory mechanism would be set up to allow it to retain the majority of seats. Without it the deal would be a takeover and arguably require a higher premium.

"I'd be staggered if this didn't happen now," one top-50 investor in Xstrata said. "There's been unexpected give on both sides - Qatar and Glencore."

Xstrata's board is widely expected to recommend Glencore's revised, higher offer, having backed the lower offer. But its independent directors - already under fire from some minority shareholders angry that the board supported a bid many of them opposed - want to ensure the miner holds on to the team at the helm of its operations which is also expected to deliver some 20 projects by 2014, including four major greenfield sites.

The board had hoped to link a retention package for Xstrata's top employees to a vote on the deal itself thereby keeping the team responsible for its major industrial assets and the bulk of its profits.

But several top shareholders have objected, with some warning they would vote down any such package they consider excessive - and the merger in the event of a combined vote.


With just days to go, sources familiar with the deal said the directors could ultimately agree to separate shareholders' vote on the bid from the vote on the more emotive issue of pay.

That would allow Xstrata's board to keep the retention package it is reluctant to change - more than £140-million ($226.7-million) over two years, excluding the outgoing Davis - but allow some shareholders to vote against it without imperilling the deal.

"There is a lot to balance. It is not as simple as (funds and key owners) Blackrock and L&G against the other shareholders - there are wide-ranging views," one of the sources said.

Among other funds, both BlackRock and L&G, which together own 6.5% of Xstrata shares, have signalled they do not support elements of the deal.

Qatar, which is not expected to make a public statement until Xstrata lays out its board's position, is said by some sources to support the retention payment and the new terms, but its ultimate position is still uncertain, leading to what several sources said was a "tense atmosphere" on all sides.

Qatar, with just over 12% thanks to regular share buying, has proven an unlikely kingmaker in the deal.

Hedge funds have also found themselves in the spotlight - their support could be critical, in a deal where shareholders representing just 16.5% of total shares could block the deal. These funds represent 10% of Xstrata at the moment, just enough to outweigh vocal rebels including Knight Vinke, Schroders and others.

The Xstrata board's decision, if ultimately positive, will pave the way for Glencore to file its long-awaited antitrust notification with the European Union, setting the regulatory clock ticking in Brussels, the sources said.

Glencore had been expected to file that notification by the end of September, after months of negotiations with officials to avoid a lengthy, in-depth probe.

Source: Reuters

Gold Market Report - 28 September

Gold in Euros Sets New High as Crisis "Escalates" and Spain "Lays Groundwork" for Bailout

U.S. DOLLAR gold prices hovered near seven-month highs above $1780 an ounce for most of Friday morning's London trading – a few Dollars up on where they started the week – while stocks failed to hold early gains after a analysts interpreted Spain's budget as "laying the groundwork" for a formal bailout.

Silver prices eased to $34.73 per ounce after failing to breach $35, while other commodities were broadly flat and US Treasury bonds gained.

Euro gold prices meantime remained close to all-time highs hit yesterday.

"The debt crisis in the Eurozone has escalated again," says today's commodities note from Commerzbank.

"Gold should therefore remain in high demand as a store of value and alternative currency. Silver has also been pulled upwards in gold's slipstream."

Spain unveiled a "crisis budget" Thursday that included a third year of public sector wage freezes and an 8.9% cut in ministry budgets.

"This is a crisis budget aimed at emerging from the crisis," said deputy prime minister Soraya Saenz de Santamaria.

Olli Rehn, European Commissioner for Economic and Monetary Affairs, said the budget goes beyond what his institution required.

"It's positive that Spain is laying the groundwork for a bailout," says Ayako Sera, Tokyo-based senior market economist at Sumitomo Mitsui Trust Bank.

A Spanish bailout would pave the way for the European Central Bank to buy Spain's government debt on the open market, through its Outright Monetary Transactions program announced earlier this month.

Spain will use a decade-old reserve fund to pay for increases in pension payments, newswire Bloomberg reports.

"The reserve fund is there to be used," said budget minister Cristobal Montoro, adding that it is "politically very important" to maintain pensioners' purchasing power.

"Politically, they couldn't do anything else," agrees Jose Ramon Pin, professor of public administration at IESE business school.

Tens of thousands of demonstrators have taken to the streets of Madrid this week to protest austerity measures, in scenes that have been echoed in Portugal and Greece.

Ten-Year Spanish government bond yields remained below 6% this morning, after breaching that level earlier in the week for the first time since the ECB announced its OMT program on September 6. 

The Euro meantime regained some ground against the Dollar this morning following a week of losses. Euro gold prices meantime remained near yesterday's record high of €44,377 per kilo (€1380 per ounce) trading in a tight range this morning above the previous record hit last September.

Spain is also expected to publish the result of banking sector stress tests later today, including estimates of likely levels of recapitalization required.

"They have to be seen to be coming clean and being realistic," reckons Ron D'Vari, former head of structured finance at BlackRock.

"There’s no right answer for how much capital the Spanish banks will need," adds Madrid-based Nomura analyst Daragh Quinn, "but they at least need to exceed people's expectations...the real experience of the banks shows that losses just go up to the extent that the economy gets progressively worse."

Earlier this week, ratings agency Standard & Poor's said it expects Spain's economy to shrink by 1.4% next year – a sharper contraction than the 0.7% fall it forecast back in July. Fellow rating agency Moody's is set to publish its review of Spain's rating later today, with several analysts predicting it will downgrade Spain to junk status.

Elsewhere in Europe, French president Francois Hollande is expected to unveil France's toughest budget in three decades as the government attempts to hit its 3% of GDP deficit target for 2013.

Here in London, it was announced today that the British Bankers' Association will no longer be responsible for the London Interbank Offered Rate (Libor), following the scandal of so-called rate-rigging that has "engulfed more than a dozen institutions on three continetns", the Financial Times says.

"Today we press the reset button," Financial Services Authority managing director Martin Wheatley said Friday.

"Libor needs to get back to doing what it is supposed to do, rather than what unscrupulous traders and individuals in banks wanted it to do."

Libor is used as a benchmark rate and is referenced for more than $300 trillion worth of contracts worldwide, the FT reports.

Ben Traynor


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. 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.

Thursday, September 27, 2012

Panoro Minerals awarded full ownership of Peruvian project

Peru-focused project developer Panoro Minerals on Thursday said an arbitration committee had confirmed that it had followed the required legal steps to cancel the Antilla joint venture (JV) agreement with Chancadora Centauro two years ago, and that it was the sole owner of the copper/molybdenum property.

Panoro CEO Luquman Shaheen told from Vancouver that the company would now move forward with a drilling programme on the property within a month, to further prove up the resource.

Shaheen said the company could in 2010 not internally finance the development of its two Peruvian projects, the Antilla project, and its flagship Cotabambas copper/gold/silver project. The company decided to enter into a JV with a partner to develop Antilla.

Under terms of the JV agreement, the privately held Centauro were to make cash payments of $8-million to the company and invest $17-million into the Antilla project in order to earn a 70% interest over a 30 month period.

Shaheen said Centauro at the time paid $1 million upon signing the accord, but the required payments of $4-million within 90 days and the final $3-million within 20 months never materialised. The $17-million investment was to be used to complete a bankable feasibility on the project.

Shaheen said bankable feasibility studies for both projects would now be simultaneously undertaken, funded internally by the company.

The Antilla project had an inferred resource of 154-million tons grading 0.47% copper and 0.009% molybdenum at a 0.25% copper cut-off. This provided for the property to hold 1.6-billion pounds of copper and 30-million pounds of molybdenum.

The company also recently updated the inferred resource at the Cotabambas project to 404.1-million tons grading 0.42% copper, 0.23 g/t gold and 2.84 g/t silver using a 0.2% copper-equivalent cut-off. This provided for 3.75-billion pounds of copper, three-million ounces of gold and 36.9-million ounces of silver.

The TSX-V-listed company’s stocks closed at 80 Canadian cents apiece on Thursday.

Edited by: Creamer Media Reporter

Pan African sees further consolidation, but not immediately

Precious metals miner Pan African Resources, which reported a rise in earnings for the year to end June, may consider further regional consolidation prospects over-and-above its current move to acquire Harmony Gold’s Evander operation, in Mpumalanga.

The company reported a 68.33% increase in earnings a share to 2.02p and revenue growth of 27.65% to £101.1-million for the financial year.

CEO Jan Nelson stressed that the company’s immediate focus was on concluding its current transactions and projects. But he indicated that there might still be further consolidation opportunities in the medium term.

“There are a number of other players around Barberton who we have been in discussion with to determine if it would make sense to consolidate operations,” Nelson said.

He attributed the earnings improvement to an over 60% increase in gold price (in rand per kilogram terms), as well as cost management at the company’s Barberton Gold Mines (BGM), in Mpumalanga.

During the year, the group realised an average gold price of $1 694/oz (R422 215/kg), an increase of 24.01% from $1 366/oz (R306 757/kg).

"Production at BGM has been consistent at 94 449 oz of gold and at a consistently high head grade in excess of 10 g/t, and we started construction on our tailings retreatment plant at Barberton,” Nelson added.

BGM’s production rose 4% to 308 000 t from 296 000 t, while grade was slightly down from 10.55 g/t to 10.45 g/t.

The group’s operating costs rose a modest 2%, from £45-million to £46-millon.

Earnings before interest, taxation, depreciation and amortisation increased by 57.89% to £45-million, from £28.5-million in the previous year. Headline earnings a share grew by 69.17% to 2.03p and Pan African’s profit margin rose by 57.19% to $918/oz, up from the previous year’s $584/oz.

The company’s gold resource inventory increased slightly by 4.41% to 5.92-million ounces during the reporting period, while its gold reserve inventory increased by 16.0% to 1.16-million ounces.

“We have discovered quite a number of orebodies at Barberton with grades ranging from 30 g/t to 60 g/t,” he noted.

As for the Barberton tailings retreatment project, capital expenditure of about £23.2-million had been approved for the project, with commissioning planned for July 2013. “Construction is going as planned and we are still on schedule to start production in June next year,” Nelson noted.


The £116.2-million, or R1.5-billion, acquisition of Evander would be "game changing" for the company, setting it on a path to midtier production status, Nelson enthused.

With an anticipated life of mine of more than ten years, Evander had an
expected yearly production profile of about 100 000 oz.

Upon completion of the transaction the group would increase its underground reserves from 3.9-million tons at 8 g/t to 39.5-million tons at 6.94 g/t. Its underground resource would grow from 8.3-million tons at 9.22 g/t, to 177-million tons at 6.08 g/t.

Nelson said the acquisition would potentially allow Pan African to double its current gold production profile. “Evander’s grades are higher than that of Barberton and it generates the same profits,” he told Mining Weekly Online.

Besides the condition to enter into a new electricity supply agreement with State-owned power utility Eskom, which was expected before October 31, and obtaining consent from the Department of Mineral Resources in terms of Section 11 of the Mineral and Petroleum Resources Development Act, all other conditions could only be fulfilled upon shareholders' approval of the transaction.

Nelson said shareholder approval was expected at the end of November or December.

It had been agreed with Harmony that Pan African would pay a break fee of £3.87-million (R50-million), payable in two separate tranches. The fee would be deducted from the purchase price when the transaction was implemented.

Pan African would fund the transaction through a combination of third-party debt, current cash reserves and through the issue of new ordinary shares. The company was currently moving to secure additional debt financing not exceeding £46.5-million (R600-million).


Nelson said recovery at Pan African’s Phoenix surface platinum operations that were commissioned in April had improved to between 25% and 30% during the reporting period.

The operation produced 3 384 oz of platinum-group metals during the year.

The ramp-up phase was completed by July and production was expected to reach steady state in the next year. “We are still 200 t below target, but we do have plans to address this,” Nelson assured.

The project was expected to produce 211 000 oz at a plant recovery rate of 45% over the 17-year life with a planned yearly retreatment capacity of 240 000 t.

Edited by: Terence Creamer

Atlatsa says has restructure plan to lower cost of borrowing

Junior platinum miner Atlatsa said on Thursday it had agreed the first phase of its restructuring, recapitalisation and refinance plan with Anglo American Platinum (Amplats), which would significantly lower its cost of borrowing.

Under the first phase of the restructuring plan, Atlatsa and its subsidiaries Plateau Resources and the Bokoni group of companies would consolidate outstanding debt and preference shares into its existing senior term loan facility with Amplats.

This would result in the repayment of preference shares through the redemption of all preference shares outstanding in the share capital of Plateau and the Bokoni group, together with repayment of the operating cash shortfall facility loan within the Plateau and Bokoni group structures, while debt and preference shares would be consolidated into the senior loan going forward.

The senior loan, as consolidated, would bear a yearly effective interest rate of 6.23% as opposed to the yearly effective interest rate of 12.31% currently charged on the various Atlatsa and Bokoni group debt owing to Amplats.

JSE- and TSX-listed Atlatsa said the implementation of the first phase, which was expected to occur on September 28, would simplify its balance sheet structure and materially reduce its effective cost of borrowing.

The company added that its debt would be further reduced on implementation of the second phase of the restructure plan, which was still subject to finalisation of definitive agreements, as well as obtaining the regulatory approvals.

Edited by: Mariaan Webb

Gold Market Report - 27 September

Two-Week Low "Just What Gold Needed", Long-Term Uptrend Seen Safe Above $1712


WHOLESALE-MARKET prices to buy gold eased $5 in London on Thursday after an overnight rally to $1760 per ounce.

The Euro currency also eased lower after rallying to $1.29 – some 2¢ below the 5-month high hit a fortnight ago – as Spain was set to unveil its latest government budget cuts and Italy's economy minister said Rome has no plans to request bail-out help.

Asian and European stock markets rose and major-economy "safe haven" bonds ticked lower.


US crude oil rallied back above $90 per barrel. Silver prices held in a tight range above$34.00 per ounce.

"Wednesday trading was dominated by a strong US Dollar," says a note from German universal bank Commerzbank. "It pushed [all] precious metals lower."

Although prices to
buy gold
"recovered almost all of [their] losses on Wednesday," says the latest technical analysis from London market-maker Scotia Mocatta's New York team, "gold broke through the bottom of the recent range on an intraday basis.

"This is near term bearish, but...we could retreat to $1712 without damaging the longer term uptrend. We believe that gold will try to test this level."

"Gold [on Wednesday] finally had a decent flushout," says the Asian office of Swiss refiner and finance group MKS.

Yesterday's "rebound off [2-week] lows suggests there are still players waiting to
buy gold
on the dips.

"This was a healthy correction to clean out weak positioning, and long term probably just what the market needed."

On the supply side today, Bloomberg News reports that 39% of
gold mining
output in South Africa – the world's former #1 producer – has been closed after fresh wildcat strikes hit gold majors AngloGold and Goldfields.

New wage demands handed to managers at Anglo yesterday ask for 16,000 to 18,500 Rand per month. Rock drill operators currently average some 10,000 Rand according to local press – equivalent to US$1200.

The world's third largest
gold mining
firm, Anglo has now suspended at all of its South African operations according to the Independent Online.

Over in platinum – where South Africa remains the world's #1 producer, and where this year's "strike season" first broke – the CEO of Anglo American Platinum said Wednesday that Amplats "will not negotiate" with workers on illegal strike at its key Rustenburg operation.

Last week, wildcat strikers won a 22% raise from platinum producer Lonmin, whose Marikana mine saw 34 workers killed by police in rioting this month.

"There's no question it has caused massive damage to us and incredible damage to South Africa's mining sector," says Albert Wocke, associate professor at University of Pretoria's Gordon Institute of Business Science.
With formal unions, all closely tied to the ruling ANC party, cut out of Lonmin's negotiations, "The government needs to step up and reassure investors," says Wocke.

"We have got an unstable, almost unpredictable regulatory regime."

Political analyst William Gumede, also speaking to the LA Times, warns that "The biggest red flag is that people might actually start losing their trust in democracy as a protective mechanism."

After the deaths at Marikana , "I think the police will feel constrained," Gumede adds, "in how they deal with these strikes now."

Meantime in Europe, the Spanish government was widely expected to announce sharp new cuts to its 2013 budget, ignoring protests earlier this week and striving to avoid tighter demands from international lenders if – or when – Madrid makes a formal request for help.

"Italy is doing, I believe, a very good job in reforming its economy and without the need for any extra help," said Rome's economy economy Vittorio Grilli last night, after meeting with Germany's central bank president Jens Weidmann.

"At this point, it is not within any plan of the Italian government to apply for any programme. We are solving Italian problems within our government mandate."

Reuters meantime reports that "tensions have risen in recent weeks" between Greece's three official-sector lenders.

After the European Central Bank last week moved to start buying more weak-Eurozone debt in the bond markets, "The problem is between the IMF and the European Union," says an anonymous Greek official, blaming the International Monetary Fund for wanting to impose harsher budget cuts on Athens to try and reduce its debt burden more quickly.

Adrian Ash




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.

Wednesday, September 26, 2012

Vale to prioritize Brazil iron-ore mine over Guinea project - source

Vale, the world's second-largest mining company, is likely to make its $19.5-billion Serra Sul iron-ore mine project in Brazil a priority over a similar development in the West African nation of Guinea, a source with knowledge of the firm's strategy said.

The emphasis on the project in the Amazon comes as Guinea, which holds rich deposits of iron-ore and is the world's top supplier of the aluminium ore bauxite, struggles to maintain foreign investment amid deepening political turmoil, labour unrest and a government review of mining contracts.

The granting in June of a so-called preliminary environmental license for the Sierra Sul project, which includes railway and port investments, means the development of the Simandou site in Guinea is less urgent, the source said on Tuesday.

"All things considered, projects need to be prioritised," said the source, who asked not be named as his employer does not allow him to speak to the press. "The priority has become Serra Sul."


Serra Sul is an extension of Vale's giant Carajas iron, copper and nickel mining complex in Brazil's Para state. It is expected to have a capacity of 90-million tons a year, about 9% of current world iron-ore exports, helping maintain Vale's position as the No 1 producer.

Simandou, while holding enormous high-quality reserves, faces major political, commercial and transportation hurdles before it can be developed.

Guinea recently revised its mining code, raising the state's mandatory stake in mining projects to 35% from 15% and plans to change other clauses in the code after consultation with mining companies.

"I believe it will be difficult for Vale to invest in both projects at the same time because it would require very high capital spending for the company," said Marcelo Aguiar, metals and mining company analyst with Goldman Sachs in Sao Paulo.

"Vale investment in Simandou appears to have lost a bit of its urgency after getting the license for Serra Sul."

Vale gained the rights to develop iron-ore in Simandou in 2010 when it agreed to pay $2.5-billion for a 51% stake in the Guinea iron-ore mining operation of BSG Resources Ltd, the London-based mining group controlled by Israeli businessman Beny Stenmetz.

A newspaper in Brazil reported on Sunday that BSG was preparing to sue investment bank BTG Pactual, which it accuses of misusing its role as an adviser to Guinea's government to win licenses for a holding company at BSG's expense.

Guinea's mines minister Mohamed Lamine Fofana called BSG Resources threat to sue BTG "insulting" in an e-mailed response to questions from Reuters.


The Serra Sul mine is at the center of plans to boost Vale iron-ore output by 40% to 460-million metric tons a year in 2017.

Serra Sul and Carajas are two of the largest high-grade iron-ore projects under development to meet soaring demand for iron-ore from China.

Vale produces more than a quarter of the world's sea borne iron-ore exports of more than one-billion tons a year. Work to gain the preliminary Serra Sul license took nearly a decade.

Vale, though, has been re-evaluating its investment plans in the wake of a slowdown in China and sluggish growth in the US, Europe and Japan. In late 2011, it cut planned 2012 spending 11% to $21.4-billion.

As iron-ore prices fell to three year lows earlier this month, slashing billions from revenue, further cuts came under consideration.

Edited by: Creamer Media Reporter

Sulliden Gold plans 87 700 oz gold-equivalent Peruvian operation

Canada-based project development company Sulliden Gold on Monday said it planned an 87 700 oz/y gold-equivalent operation in the Peruvian Andes.

The company reported the results of a feasibility study for its Shahuindo gold/silver project, which pointed to the operation being able to support production of 84 500 oz/y of gold and 167 200 oz/y of silver, from only 40% of the established oxide mineral resource.

The company said it planned to start with a low capital-cost and smaller-footprint operation, even when the current resources allowed for a significantly higher mining rate and production profile. It said the initial mining scenario would act as a foundation for future production growth by internally funding future expansions.

“We are pleased to be able to deliver an initial project study with modestly sized capital costs that we believe should provide faster cash-flow generation, expeditious permitting, and a shorter construction schedule," CEO Peter Tagliamonte said in a statement.

The feasibility study, completed by Kappes, Cassiday & Associates and Mine Development Associates, attached a net-present after-tax value, using a 5% discount rate, of $248.6-million to the project. The total gold-equivalent production over the life-of-mine (LOM) expected to be 909 500 gold-equivalent ounces.

Sulliden planned to start mining at a rate of 10 000 t/d at its fully owned epithermal gold/silver deposit, which would produce gold at about $552/oz. The feasibility study mine plan has a LOM average gold grade of 0.84 g/t and an average silver grade of 9.5 g/t.

The first phase of the mine would cost about $131.8-million to construct and the sustaining capital over the envisioned ten-and-a-half years LOM was stated at $47.8-million.

The feasibility study used base-case prices of $1 415/oz of gold and $27/oz of silver for its products, which provided the project with a pretax internal rate of return of 52.2%, generating $ 52.1-million average yearly after-tax cash flow, with a payback period of 2.2 years.

The Shahuindo project had current measured and indicated resources of 147.31-million tons grading 0.54 g/t gold equivalent, for 2.43-million ounces of gold and 33.37-million ounces of silver. The total proven and probable reserves of the project was 37.84-million tons grading 0.85 g/t gold-equivalent, containing 1.02-million ounces of gold and 11.56-million ounces of silver.

The next step for the company would be to complete and submit to the Peruvian Ministry of Energy and Mines the environmental and social impact assessment report as part of the project's permitting process, which was expected before the end of December.

Sulliden said it would now focus on debt financing discussions with significant mobile equipment manufacturers to acquire the mobile equipment fleet of the mine.

The Toronto-listed stock of the company, which has a market capitalisation of C$282-million, traded nearly 5% lower at C$1.16 apiece on Wednesday.

Edited by: Creamer Media Reporter

Peru top court puts tribal sovereignty ahead of mining, logging

Peru's top court has affirmed the right of an Amazon indigenous community to block outsiders from entering its lands - a ruling that could foil resource extraction in tribal areas, experts said on Wednesday.

The ruling by the constitutional court in favour of the Tres Islas community sets a precedent for tribes trying to halt mining, logging or oil drilling on their lands.

"We think this will serve as an example for other indigenous groups to take their cases to the top court," said Jaime Tapullima Pashanase, president of the Kechwa peoples council. He called the ruling issued late Tuesday historic.

Tribes have long complained that existing law is contradictory, allowing private oil and mining firms to extract resources from tribal lands via government concessions. Tribes also say they have little recourse to defend their lands from informal wildcatters.

The ruling by the constitutional court takes a step toward clearing up the legal confusion by allowing tribes to assert their sovereignty in a jungle region brimming with hundreds of disputes over land and resources.

Though rights groups welcomed the ruling, they cautioned that it might not go so far as to limit activity by companies that have government concessions, nor help tribes that don't have title to their lands.

"The sentence said every right, even the right to property, has limits, and the state decides those limits. That's dangerous," said Javier La Rosa with the Legal Defense Institute in Lima. "Because of that, the state can suddenly say 'your land is part of a concession.'"

The Shipibo and Ese'Eja peoples who live in the Tres Islas community had complained that wildcatters were destroying their forests and streams. In its ruling, the court said they had the right to block a road that runs through their property to keep out informal miners and loggers.

Indigenous communities have been struggling to maintain autonomy in the Madre de Dios region. A third of indigenous territory in Madre de Dios has been destroyed by informal gold miners.

"I consider this ruling very important for indigenous communities. This is an advance in terms of the rights they have been demanding," Julio Ibanez Moreno, a lawyer for Aidesep, which represents tribes in the Amazon.

The ruling also highlighted the importance of a new law that requires the government to consult indigenous communities before making decisions that directly affect them and says that any government interference on indigenous land "must be duly justified."

The consultation law, which the administration of President Ollanta Humala is now putting into force, gives tribes more say over their lands but stops short of allowing them to veto government-approved extractive projects. It was drawn up in a bid to defuse hundreds of social conflicts that threaten to derail private investment projects worth billions.

"The consultation law was an important step towards realising these rights, but it has been significantly weakened in its implementation," said Gregor MacLennan with the indigenous rights group Amazon Watch.

Edited by: Creamer Media Reporter

China and India needed for current gold spark to ignite

Reuters market analyst Clyde Russell says for gold to extend its current rally into a move beyond $2,000, it will more than likely need the support of the physical market and this means more buying by China and India.

There's no doubt that gold has been boosted by the latest round of U.S. quantitative easing, but the question remains as to whether this is the start of a sustained rally or just a flash in the pan.

Certainly, there is no shortage of gold bulls saying the precious metal is once again poised for significant gains. Their argument is centred on gold's investment appeal being burnished by monetary debasement in the United States and Europe, coupled with fears of inflation in years to come.

Add to this the possibility of increased demand from top consumers India and China as their respective festive seasons get underway in the fourth quarter and the case for gold looks quite constructive.

However, gold's gains since the U.S. Federal Reserve announced its third round of quantitative easing, or QE III, have been somewhat muted.

Spot gold has risen just under 2 percent from its close prior to the Sept. 13 announcement, but is up 9.3 percent from the end of July, around the time that QE III became more of a likelihood.

But gold is still more than 8 percent shy of its record high of $1,920.30 an ounce, reached on Sept. 6 last year.

While a return to the all-time peak can't be ruled out, it's hard to see how it can alone be achieved on the back of quantitative easing in the United States and the bond-purchase guarantee offered by the European Central Bank.

For gold to extend its current modest rally into a move beyond $2,000 an ounce, it will more than likely need the support of the physical market and this means more buying by consumers in China and India.

And this is where the biggest question mark must be placed, notwithstanding the likely seasonal gains.

Gold demand has plunged in India on the back of new taxes, a weaker currency and slower economic growth.

India's gold demand dropped to 181.3 tonnes in the second quarter, down a massive 38 percent from a year earlier and 13 percent from the first quarter, according to data from the World Gold Council.

China is likely to overtake India as the world's top buyer of the precious metal, but even here the picture has been mixed as lower inflation eroded some of gold's investment appeal and, similar to India, consumer demand eased along with economic growth.

China's demand was 144.9 tonnes in the second quarter, down a huge 43 percent from the first quarter, and if second-half demand matches the first, it will total about 800 tonnes for the full year, only 29 tonnes more than 2011.

This certainly not enough to offset the loss of about 184 tonnes of gold demand in India, assuming second-half demand in the South Asian nation matches that of the first half.

There is a fairly strong correlation between gold demand and price over the past couple of years, once seasonality is taken into account, but this has broken down significantly since the beginning of the year.

Using quarter-end gold prices and demand figures from the World Gold Council shows that the demand/price ratio was 1.29 at the end of the third quarter in 2010.

This was more or less steady to the third quarter of 2011, when it stood at 1.33, as gold's rally was matched by increasing demand.

However, gold demand has now fallen since the third quarter of last year, outpacing the slip in prices since the record high of September 2011.

The ratio of demand to price in the first quarter of 2012 was 1.52 and 1.60 by the end of the second period.

Since the third quarter of 2010 the ratio has averaged 1.39, or 1.34 if the first two quarters of this year are excluded.

For the ratio to return to the average would take an enormous increase in physical gold demand, which is unlikely to have happened in the third quarter or eventuate in the fourth.

Even if third-quarter gold demand this year was the same as the record high achieved in the same period in 2011, the ratio would still be 1.44, using the current gold price.

This is still elevated in historical terms, and the exact ratio is likely to be higher as it's hard to see a more than 200-tonne leap in gold demand from the second to third quarters this year.

While China's gold consumption may have gained, given that Hong Kong's exports to the mainland nearly doubled in July, it's still unlikely to have recorded the kind of jump needed to bring physical demand back into correlation with the third-quarter price gains.

It's the same story for India, with imports likely to have improved in the third quarter as the rupee gained strength, but unlikely by enough to give a physical platform to gold's rally.

The run-up to last year's record high in gold was driven by both physical demand and inflation-hedge, or safe-haven demand, as well as central bank buying.

Right now it appears central bank buying remains solid, investment demand has picked up with a 6 percent gain in holdings by exchange-traded funds since the end of July, but it remains to be seen if Indian and Chinese demand has improved.

If it has, then the case for a gold rally may be complete, but if the third quarter growth in the world's top two consumers is modest, then gold's rally will look shaky.

Source: Reuters

Central bank measures, currency devaluation bode well for gold-Pat Mohr

Base metals prices have rallied significantly this month, along with a rebound in spot iron ore prices, as risk appetite has returned to financials, says Scotiabank's Patricia Mohr.

Central bank measures to improve a struggling world economy lifted investor and business confidence this month-"triggering renewed interest in ‘riskier assets,' such as equities and commodities," said Scotiabank economist Patricia Mohr.

In the September 25th edition of the Scotiabank Commodity Price Index, Mohr advised that the near-term boost to global growth will likely be limited, "QE3 has significantly pushed down the U.S. dollar, lifting dollar-denominated commodity prices across a wide swathe."

"An aspect of competitive currency devaluation has also emerged in the aftermath of the Fed and ECB monetary policy initiatives, with Japan, Turkey, and Brazil injecting liquidity into financial markets to push down rates and prevent their currency from appreciating," she said.

"These developments all bode well for gold," Mohr advised. "High gold and silver producers benefit most base metals producers, with high by-product credits from precious metals offsetting rapid operating cost inflation."

"Base metals prices have all rallied significantly in September, with ‘risk appetite' returning to financial markets," Mohr noted. "LME copper prices surged as high as US$3.81 per pound in the immediate aftermath of the September 13 FOMC [Federal Open Market Committee] meeting, though prices have fallen back again to US$3.70 later in the month."

Earlier this month, China's National Development and Reform Commission (NRDC) announced a US$160 billion infrastructure spending program on subways, highways, port terminals and civil projects. "While the program is only one-fourth the size of the massive RMB 4 trillion stimulus offered in November 2008-to rev up China's economy during the ‘Great Recession'-it is significant and should help revitalize industrial activity in the next six months," Mohr observed.

"Spot iron ore prices have rallied back over US$105 in mid-September amid lower stock, a normal seasonal pick-up in steel demand in the Fall and the unveiling of an infrastructure spending program by the NDRC," said Mohr.

"The sharp decline in iron ore prices from an enormously lucrative US$187 per tonne in February 2011 (-44%) has triggered the deferral of some iron ore developments in Western Australia and may lead to a pick-up in M&A activity," Mohr advised. "Asian-Pacific investors will wish to take advantage of lower equity values, though with widely differing views on asset values, deals may be limited to minority stakes in projects in return for off-take agreements, guaranteeing supplies."

Gold Market Report - 26 September

"Buy the Dips" in Gold & Silver Advise Bank Analysts as South Africa's Mining Strikes Spread

WHOLESALE gold prices in US Dollars dipped beneath $1760 per ounce for the 3rd time this week in London on Wednesday morning, gaining against the Euro and Sterling as those currencies fell faster and rising back towards last week's new all-time high versus the Swiss Franc.
World stock markets extended Tuesday's late plunge in US equities, knocking 2.4% off the French CAC40 index as the Euro dropped to a 2-week low beneath $1.2850.
After anti-austerity protesters clashed last night with police in Madrid, a general strike in Greece brought the country "to a standstill" according to BBC reports, with tens of thousands of people gathered outside parliament in Athens.
Commodity prices fell, with crude oil dropping to a 7-week low.
Silver bullion held below $34.00 per ounce, trading just above Tuesday's 8-session low.

"It's bullish when gold goes up in other currencies than the Dollar," Bloomberg today quotes Mitsubishi Corporation's precious metals strategist Matthew Turner, "because it means it's a fundamental story rather than a currency issue.
"We've been waiting for QE3 in gold for over a year now and now it's happened."
US central banker Charles Plosser, president of the Philadelphia Federal Reserve, warned Tuesday that the Fed's new monthly purchases of $40 billion in mortgage debt are "unlikely to see much benefit to growth or employment."
"Plosser threw a wet rag on hopes that the Fed's quantitative easing would stimulate the US economy," says Marc Ground at Standard Bank in London.
"[But the] accommodative monetary policy stance from the Fed will support precious metals, particularly gold and silver, well into 2013."

Analysts at Bank of America-Merrill Lynch also "remain secular bulls on gold," says technical strategist Stephen Suttmeier, adding that "The breakout above the year-long downtrend line completes the correction within the longer-term uptrend.

"Gold prices point to a stronger rally to $2050-2300 and up to $3000 longer-term."
Last week, Suttmeier's BAML colleague MacNeil Curry – head of foreign-exchange technical strategy – told CNBC that he sees gold hitting $3000 to $5000 an ounce, but "not in the next few months."

On the demand side, "Physical demand still remains fairly limp presently," says today's note from Swiss refiner and financiers MKS's Australian dealers, "and there is certainly an increase in scrap this month which is skewing physical flows to the downside.
"The one respite is that typically Q4 shows a bounce back in physical demand following summer holidays [as the] Chinese and Indian gift giving and festival season begins."
Gold prices in India – where mid-November's Diwali festival will mark the typical gold buying peak for the world's #1 consumers – today edged higher by 0.3%, the first such rise in a week according to Bloomberg but only 2.5% off this month's new record highs.
Central banks "are likely to continue to buy gold for the remainder of this year," writes Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt today, "thereby stripping supply from the market and contributing to climbing gold prices."

Gold is "currently also finding support from concerns about supply in South Africa," says Weinberg of the world's former #1 producer, still sitting on the biggest underground reserves.
"Strikes [by miners] are now concentrated on the gold industry, while the platinum industry has recently calmed down again."
The world's 4th largest gold mining firm, Gold Fields, said Tuesday that workers remained on illegal strike at two of its South African mines, "ignored the agreement reached Friday night," according to a spokesman.
World No.3 listed miner AngloGold Ashanti said Wednesday morning that illegal strike action at its Kopanang mine had spead to involves "most" of South African workforce.
Holding the world's second-largest unmined gold reserves, however, Russia could accept tenders to work Siberia's Sukhoi Log, the country's biggest untapped gold deposits – "in the near future" said deputy prime minister Arkady Dvorkovich, speaking at Reuters Russia Investment Summit in Moscow Tuesday.
Adrian Ash


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.

Tuesday, September 25, 2012

Gold and the harsh realities of a 42 year old currency experiment

Julian Philips argues that the concept of a currency as a measure of value has now departed completely

In 1971 President Nixon closed the window that allowed U.S. dollars to be sold for gold owned by the U.S. Just before that, the price of gold was $35 an ounce. Since then gold has been called a 'barbarous relic', a term used by Keynes, the famous economist.

From that time on, the world's currencies stood merely on the confidence their governments engendered and the control they exercised over international financial dealings of all kinds. That confidence lasted until 2007 when the credit crunch brought government financing on both sides of the Atlantic into question. Up until now the performance of the underlying value of currencies has hidden these questions as exchange rates are adequately 'managed' through swap arrangements to stabilize exchange rate movements to the extent that violent moves don't happen. But the real value of currencies in terms of their real solvency is now a matter of open debate. As of now, relative to the amount of gold available to markets, the price of gold is the only measure of value that currencies can be held to. We look at that and look at the conditions that are determining the value of currencies now and in the future.

The Currency Experiment

When Nixon closed the 'gold window' to European governments in 1971 he relied on the oil producers of the world to price oil in U.S. dollars only. This made the USD a necessity. Except for the few oil producers who refine their own oil, every country needs to import oil after using the U.S. dollar to buy it. This gave the U.S. the control they needed over currency markets, to ensure that the dollar became and remained the sole global reserve currency until now.

A look at the euro, which -although the world's largest trading bloc- shows that if a currency is measured solely on the performance of its government and Balance of Payments, it remains vulnerable to market forces that react to that measurement. With oil in backup, that vulnerability fades. That is, until profligate printing of that government's currency becomes so obvious that it cannot be ignored. This is where the U.S. dollar is coming to now.

The 'currency experiment' has persisted for 41 years, but for the last five, it has faltered and continues to do so. With the focus on the short-term, the real consequences of that experiment have been largely ignored. It's time to take a more distant view of what has happened so that we can get a balanced perspective of its cost.

Value of Paper Money - The Harsh Reality

During the 42 years of the currency experiment with no gold or silver standing behind currencies we have seen the gold price multiply from $35 to $1,770. That's over 50 times in 42 years. And there's still much more to come it seems, with the assistance of governments.

If one was fortunate to get out at anywhere above $800 back in the eighties and back in at $300 in the next twenty years that number goes up to 64 times $35. That's what solid long-term funds should have done, to maximize profits. (It is far better than trading and far less nerve-racking.)

But don't look at that as a profit figure. That's not the point we are making here. Look at it as a statement on the failure of the currency experiment and currencies' ability to measure value. Now translate that into the value of savings over that period -a harsh reality indeed!

Pension Funds

A Pension fund is measured on the money flowing in and less the money flowing out. The assets in the middle should be rising to cover the additional costs of paying pensions when the workers retire and the cost of living increases. That's why they depend on Pension Fund Managers and Pensions. If the money leaving is more than that coming in, then the fund is moving to insolvency.

As Alan Greenspan pointed out so strongly, this is happening now and with 'baby boomers' retiring now, that is the current situation in most Pension Funds (such as is now reported about the Chicago Teachers). The future of such Pensioners even now as well as the Pensions of those working now looks bleak.

If you strip out the causes of higher prices that are due to supply and demand factors (which usually readjust over time) then you are left with monetary inflation. A rate of monetary inflation of 2.5% has been deemed acceptable because it is manageable and gives the impression of growth.

Today's quantitative easing in the U.S., Europe, Japan and China has now accelerated to a much faster pace in the hopes of stimulating faster, sustainable growth. QE1 and QE2 may have staved off a depression, but they have not translated into sustainable growth. We are all now waiting to see if QE3 will do so.

We've all become aware that money printing lowers the value of a currency; however, the benefits of increased liquidity in the system -it is hoped- will compensate for that. Savers are the victims of such a policy, if they save those currencies even when growth is resuscitated.

Some savvy enough may turn to currencies, which they believe will not be devalued in the same way and retain their value, i.e. Yen or Swiss Franc. But for the last year or so, both the Swiss and Japanese governments have interfered in the market place to lower the value of their currencies internationally, so they can retain their international trade competitive levels. The Yen is still being treated as a 'safe-haven' currency even though the Bank of Japan has made it clear that it will engineer a weaker Yen for a long time to come. The same is true of the Swiss Franc, both countries placing their export competitiveness above the value of their currencies.

We can therefore state: The concept of a currency as a measure of value has now departed completely.

Such currency market changes leave room for gold and silver to act as that measure of value, as currencies fall against them. Look again at the price of gold before 1970 and now. It translates into a 100%+ gain every single year for the last 41 years. (So much for an item you dig up, then put back in the ground.) But this is a measure of decline in currency value over that same period! The culture that precipitated this history is still in control and certainly intends to continue down that road. Some commentators believe that the gold price can triple in the next few years. That would change the rise from $35 until then to 317% per annum since before the 1970's. What will that tell you about the value of currencies the world over? And what does that point to in the future?

Julian Philips is the founder of and

Lumina shares bounce as fear of broader Argentine nationalism wears off

Lumina Copper's shareprice has climbed strongly in recent weeks, suggesting fear of Argentine nationalism in the mining sector has lessened after an April scare in energy

With a mood swing in mining equities, it appears investors are forgiving Argentine President Cristina Fernández de Kirchner for her nationalistic tendencies at least just a little.
Back in April, junior miners in the country were pounded on the markets after Kirchner nationalized most of energy giant YPF. The move struck fear across sectors in Argentina, particularly in mining where many foreign companies operate.
Though many analysts noted at the time that the state grab on energy assets was unlikely to spread into mineral explorers and miners, the damage was done. The spectre of nationalism scared shareholders and there was an ensuing selloff in mining and exploration equities with major Argentina exposure.
One of the more notable examples was Lumina Copper, which among other assets owns the billion-tonne-plus Taca Taca copper-gold project in Argentina. Its shareprice tumbled amid a broader market selloff, falling from over C$15 to under C$8.00 in the month after Kirchner sunk her state claws into YPF.
Analysts, given their take on the likelihood Kirchner would go after explorers and miners, widely described the selloff as a buying opportunity. Scotiabank's Tom Meyer titled an April note "Headline Risk Provides Buying Opportunity" and argued, if anything, the Argentine state's heart for foreign exploration and mining companies had warmed as the government recognized the need to increase foreign direct investment.

(But that said, Argentina has made it broadly more difficult to get cash out of the country, an issue that is not specific to miners.)
Likewise, analyst Adam Low with Raymond James described the hit to Lumina's shares as excessive and said it wasn't warranted. As noted in these pages Low argued supply-demand in the copper industry in particular bolstered the case against nationalisation in the mining sector in part because the country has no refining capacity.

"Nationalizing copper mines has no strategic value when the country has no means to refine the output," Low wrote in April.
Lumina's shareprice bumbled along through most of the past four months, but as the mining market picked up steam in recent weeks, its shareprice has surged, outpacing the Venture, and climbing an impressive 25 percent to over C$11 this week without a whiff of any big company news. In this it seems fair to say the heightened fears of an epidemic of nationalism have dissipated and junior equities in Argentina are regaining some lustre.

Gold Market Report - 25 September

Gold ETFs Set New Record, Bullion Prices "Should Break Higher After Consolidation Period"

SPOT MARKET gold bullion prices traded around $1765 an ounce Tuesday morning in London, 1.8% off last Friday's seven-month high.

"It looks to me like we've got a short period of consolidation," says Standard Chartered analyst Daniel Smith.

"[We'll see] maybe a month of sideways trading possibly and then generally trending higher in the next six months to a year."

Stock markets were also broadly flat as major government bond prices gained, while the Euro recovered early losses ahead of a meeting between the leaders of Germany and the European Central Bank.

Tuesday also brought fresh news of central bank gold buying, while SPDR Gold Shares (GLD), the world's biggest gold ETF, saw its gold bullion holdings hit a new record Monday at 1326.8 tonnes.

Overall gold ETF holdings tracked by newswire Reuters also hit a new record at 2294.3 tonnes.

Silver bullion held by the world's biggest silver ETF, iShares Silver Trust (SLV), rose to just under 10016 tonnes yesterday, their highest level since September 2011.

"We still prefer to be buying gold on dips and believe the break higher will eventually come," says Walter de Wet, commodity strategist at Standard Bank.

"But the futures market needs to lose some speculative length and the physical market needs to adjust to a higher price-range first."

The aggregate positioning of Comex gold futures and options traders rose to its highest reported level since February last week, according to weekly data published by the Commodity Futures Trading Commission. October gold option contracts on the Comex expire later today.

On the supply side, London-listed pawnbroker Albermarle & Bond has announced a reduction in new store openings in the next financial year, citing a "sudden slowdown" in profit growth from buying and recycling scrap gold.

"We expect gold buying to continue to be a significant profit contributor...albeit at much reduced levels to that achieved at the peak," chief executive Barry Stevenson said.

The firm plans to open five stores in the next financial year, compared to 25 opened in 2011-12.

Silver prices meantime climbed to $34.31 an ounce – 2.6% off last week's high – while other industrial commodities also ticked higher.

"Silver is still within the recent range and we feel it is too early to call a reversal," says the latest technical analysis from bullion bank Scotia Mocatta.

Over in Europe, German chancellor Angela Merkel and European Central Bank president Mario Draghi are due to meet today in Berlin, where they are expected to discuss the Eurozone crisis.

Spain's deputy prime minister meantime has said she wants to see more details of the ECB's unlimited sovereign bond buying program announced earlier this month.

"We need to know to what extent the ECB will intervene in the secondary market," Soraya Saenz de Santamaria said Tuesday.

"To take decisions you need to have all the elements on the table."

Spain sold €4 billion of 3-Month and 6-Month bills at auction this morning, with borrowing costs ticking higher from a month earlier. 

Italy meantime sold €3.94 billion of 2-Year debt, compared with a maximum target of €4 billion.

Elsewhere in Europe, Switzerland's central bank bought an estimated €80 billion of so-called core Eurozone sovereign debt in the first seven months of the year, according to a report published Tuesday ratings agency Standard & Poor's.

"In our view, this has significantly contributed to the declining yields on bonds issued by the core sovereigns," the report says.

Yields on 6-Month German Bubills have spent much of the year in negative territory, while 10-Year Bund yields have at times traded at less than 1.2%. By contrasts, Spain's 10-Year government bond yields spiked above 7.7% in July.

Last year, the Swiss National Bank announced it was placing a floor under the Euro's exchange rate with the Swiss Franc and would not allow it fall below SFr1.20. The SNB pledge "unlimited" currency purchases to support this peg.

The central banks of South Korea, Paraguay and Ukraine meantime all added to their gold reserves over the last two months, according to International Monetary Fund data published Tuesday.

Korea added nearly 16 tonnes of gold bullion in July, taking total reserves above 70 tonnes, while Paraguay's holdings rose by 7.5 tonnes to 8.2 tonnes in the same month. Ukraine added just under 1.9 tonnes in August, taking official reserves to 34.8 tonnes.

Venezuela, which repatriated most of its gold last year, cut its holdings by 3.7 tonnes, taking the total to 362 tonnes.

Turkey's central bank also reported a rise of 6.6 tonnes, although Turkey's gold holdings include gold held with the central bank by commercial institutions as part of their reserve requirements. 

China's central bank injected a record 290 billion Yuan into financial markets Tuesday, ahead of a week-long public holiday next week.

Ben Traynor


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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+

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