Wednesday, October 31, 2012

Gold Market Report - 31 October

Gold "Now in Consolidation Phase", US Markets Prepare to Open Again

WHOLESALE gold bullion prices rallied to a one-week high at $1720 an ounce Wednesday morning in London, though they still looked set to record a loss on the month, while European stocks opened higher before losing some ground and US markets prepared to re-open after being closed for two days.

Silver bullion climbed to $32.37 an ounce, also up on the week, while oil and copper ticked higher and US Treasury bonds fell.

By Wednesday lunchtime in London, gold bullion looked set to record its first monthly loss since May, with spot gold trading nearly 3% below where it started October.

"There are those who are still looking for another dip, perhaps one that offers an opportunity to jump in sub-$1700, between now and year-end," says a note from UBS.

"The clear downtrend from earlier in the month has now been replaced by this consolidation phase. But the possibility of another attempt on the downside certainly cannot be ruled out."

"There are a lot of event risks [for the gold market]," one trader in Singapore told newswire Reuters this morning.

"Nonfarm payrolls, the US election, a change of power in China, plus the routine policy meetings of various central banks."

"People wonder if Romney is going to be in power and what kind of monetary policy we will have," adds UBS analyst Dominic Schnider, adding that the Republican candidate would likely replace Ben Bernanke as chairman of the Federal Reserve.

"[Romney] is clearly not in favor of what the Fed is doing."

A piece published by the Financial Times yesterday argued that a change in fed leadership following a Romney win would be bad for gold bullion prices, since the US dollar would strengthen.

"There's really no clear indication that Republican presidents are better or worse for the Dollar than the Democrats," counters a note from Standard Bank currency analyst Steve barrow this morning.

"We don't doubt that a strong Romney win, with victory in the Senate as well, would boost the Dollar while, if Obama narrowly hangs on to the presidency and loses the Senate, it would probably produce the worst possible knee-jerk response in the Dollar. However, in terms of the longevity of these reactions we'd be somewhat skeptical."

US markets are set to reopen Wednesday, following two days of closure caused by Superstorm Sandy.

"In the early trade I expect an overreaction regardless of the direction," says Art Hogan, New York-based managing director at Lazard Capital Markets.

"I expect to see a lot of volume at least in the first hour."

Wednesday marks the end of the financial year for many US mutual funds, which have been unable to trade many securities since last Friday.

"That could be the wild card, how much [trading] they have to cram in," says Donald Selkin, chief market strategist at National Securities, which manages around $3 billion.

Eurozone finance ministers meantime, who meet today, may grant Greece extra time to meet its austerity commitments, although disagreement remains on whether to write off more Greek debt, Bloomberg reports.

"The decisive phase for Greece has started," reckons Carsten Bzerski, Brussels-based senior economist at ING Group.

An earlier deal to restructure Greece's debt was agreed back in February. Losses were imposed on private sector creditors with the aim of bringing Greece's debt-to-GDP ratio down to around 120% by 2020. Since then, however, Greece has missed a series of deficit tsrgets. 

"Filling the funding gap for Greece will again require some creativity," says Bzerski.

"A possible way out, at least in the short term, could be a combination of several options, such as lowering the interest rates on the first two Greek packages and front-loading parts of the funding of the second package. This could again kick the Greek can further down the road."

Elsewhere in Europe, German retail sales rose 1.5% month-on-month in September, significantly more than many analysts forecast, although year-on-year sales were down 3.1%, official figures published Wednesday show.

The Euro rallied against the Dollar following the release.

Here in the UK, prime minister David Cameron said Wednesday he is prepared to veto a rise in the European Union's budget if he does not secure "a deal that is good for Britain."

Conservative MP Mark Reckless has put forward a motion calling for a real-terms (inflation-adjusted) cut in UK contributions to the EU, and says around 40 other Conservatives support it.

"What I hope will happen," said Reckless today, "is that the government will accept this motion and will put itself and David Cameron at the head of a united Parliament, going to Brussels to call for a cut in the budget, representing Britain, representing our constituents."

The opposition Labour party has said it will also back the amendment.

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. 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.

Tuesday, October 30, 2012

India's Gujarat state almost doubles gold imports in Oct

Author: Shivom Seth

As goldsmiths start stocking for Diwali in India, Gujarat takes the lead by doubling gold imports in October

The state of Gujarat that got its first gold temple in May this year, with gold-plated spires adorning the facade, is again leading the country in gold imports.

While figures from across India show a decline in gold imports, Gujarat has imported 23.7 tonnes of the precious metal in the month to October 25, as compared to 12.7 tonnes in September. The end of the month will have the state exceeding 30 tonnes, ahead of Diwali.

A good demonstration of the state's affinity for the yellow metal is the Gopinathji Dev Mandir temple, some 125 km from Ahmedabad that has been decorated with gold-plated spires. Around 70 kilo of gold worth nearly $11.13 billion (Rs 210 million) was used to plate the spires.

A special event marked the formal opening of the golden temple in May, which sees around 1,500 to 2,000 devotees on a daily basis. On special days, like the full moon, which incidentally falls on October 30, nearly 40,000 people are expected to pay obeisance at the temple.

Elsewhere too, imports of gold are set to rise given the festivities ahead. "There is a lull in prices for the past few weeks. The onset of the festival season has boosted gold and trading is expected to pick up,'' said Manish Shah, bullion retailer and export house owner.

Added diamond exporter Satishbhai Jethamull, "Buyers are looking for avenues to buy gold and the rupee movement has been favourable given the lower calculation in rupee terms."

The World Gold Council had recently pointed out that India's gold imports in the second quarter plunged over 56% to 131 tonnes. With prices having slid from the all-time high of $599.21 (Rs 32,400) per 10 gram in the previous month, customers have come back to retail outlets finding the current prices quite lucrative. Prices of the yellow metal have dipped below $573.43 (Rs 31,000) per 10 gram this month.

Since October 1, gold prices in the international market have lost 3.54% in dollar terms as prices moved from $1,774 per ounce to $1,711 per ounce. In rupee terms, gold moved down from Rs 31,090 per 10 gram to Rs 30,775 per 10 gram, a loss of 1.01%.

Incidentally, gold prices in the last 10 years in Gujarat have moved from $79.54 (Rs 4,300) in 2001 to $541.62 (Rs 29,280) for 10 grams mid-2012. On October 30, the price of gold in the state was up Rs 290 at $578.07 (Rs 31,225) for 10 grams.

With the state recording sales of 500 kilo of gold sold in one day on Akshay Tritiya, any small dip in prices is sure to get the customers flocking to the nearest jewellery store.

Source: Mineweb

'People only looking for 200 metres at four grams per tonne gold' - Goldquest CEO

Goldquest's president and CEO puts the junior's latest drilling results - which resulted in shareprice declines - in perspective

Author: Kip Keen

No doubt Goldquest Mining's latest rounds of drilling results have lacked the gold-copper punch of its initial discovery drillhole and those near to it from earlier this year.

Back in May Goldquest drilled 231 metres g/t @ 2.4 g/t gold and 0.4 g/t copper and followed suit with as much as 258 metres @ 4.47 g/t Au and 1.27 percent copper. Since then in subsequent rounds of drilling Goldquest has been stepping out, methodically chasing gold-copper mineralization that appears associated with an extensive chargeability anomaly at the Romero project in the Dominican Republic.

But, while Goldquest has hit numerous broad gold-copper intercepts with higher grades therein and expanded the footprint of Romero mineralization substantially, subsequent intercepts haven't come with widths and grades quite as stellar as Goldquest's boomers from back in May and July. As a result, Goldquest's shareprice has tumbled in the past couple months from near C$2 in August and September to well under C$0.75 at presstime.

Goldquest's latest drilling results were from three drillholes a couple hundred metres away from the Romero discovery drillhole. In two drillholes Goldquest hit as much as 37 metres @ 3.3 g/t Au and 1 percent copper and 36 metres @ 3.53 g/t Au and 1.07 percent Cu within broader 100-metre-plus intercepts grading a little over a gram per tonne gold and about half a percent copper. On news of these intercepts Goldquest's shareprice was down six percent.

Of course these are not insubstantial intercepts and Julio Espaillat, Goldquest president and CEO, was quick to point that out when I spoke with him on Tuesday morning.

"Well I see people only looking for 200 metres at four grams per tonne gold," Espaillat said, speaking from the field in the Dominican Republic. "But this is very rare in the world; it only happens once in a lifetime. But 30 to 40 metres at three to four grams (gold), still, these are really outstanding intersections."

With that in mind, Espaillat made the case Goldquest still has a good chance to expand mineralization around Romero, especially at depth. He argued the multiple broad lower grade intercepts that have come with all subsequent rounds of drilling since May point to powerful mineralizing events.

"It tells you the system is a good, strong system," Espaillat said. Or in other words, the Romero deposit may yet have some surprises in store.

Source: Mineweb

Gold Market Report -30 October

Trading "Pretty Quiet" with US Markets Closed Again, Japan Extends QE, President Romney "Would Be Bad News for Gold"

THE SPOT MARKET gold price traded just below $1715 an ounce during Tuesday morning's London session, little changed from last week's close, while European stock markets recovered their losses from a day earlier and UK and German government bond prices fell.

"Downside targets will be in focus while the gold price stays below the 17 October high at $1753.86," says Commerzbank senior technical analyst Axel Rudolph.

The silver price climbed above $32 an ounce shortly after London opened, holding above that level for most of the morning, while other commodities were broadly flat.

Markets in the US are due to remain closed for the second day running as a result of Hurricane Sandy. Monday's trading saw gold futures volumes "far below normal", one analyst said, with another adding the market remained "pretty quiet" on Tuesday morning.

Press reports suggest that this Friday's US nonfarm payroll report could be delayed as a result of the storm.

The Bank of Japan meantime increased the size of its quantitative easing program Tuesday for the second time in as many months, from ¥80 trillion to ¥91 trillion. Of the additional ¥11 trillion, ¥10 trillion will be used to buy government debt while the remaining ¥1 trillion will be put into riskier assets, with half being earmarked for exchange traded funds.

The Yen rallied nearly 1% against the Dollar immediately after the decision, while the Yen gold price fell by 1%.

"Most people had forecast and priced in further easing this time," said Soichiro Monji, chief strategist at Daiwa SB Investments in Tokyo, shortly after the decision was announced.

"Investors are selling to lock in profit after the announcement, learning lessons from September, when a rally lasted for only a few hours."

The BoJ "aims to achieve its goal of 1% [inflation]" said a statement issued jointly by the central bank's governor and Japan's finance and economy ministers.

"The government strongly expects the Bank to continue powerful easing," it added.

"The question that inevitably arises," says Neil Mellor, senior currency strategist at BNY Mellon, "is to what extent government pressure, and the presence of economy minister Maehara, influenced the decision?"

Here in Europe, Spain's economy shrank by 1.6% year-on-year in the third quarter, the fifth successive quarter of contraction, according to official GDP figures published Tuesday.

Spain's parliament is to invite European Central Bank president Mario Draghi to discuss the Outright Monetary Transactions program he announced last month, Reuters reports.

Under OMT, the ECB could buy sovereign debt on the open market conditional on the beneficiary country being in a bailout program.

A victory for Mitt Romney in next week's US presidential election would be bad for the gold price, according to an article published by the Financial Times today.

"[Romney] would replace Ben Bernanke with a more hawkish chairman of the Federal Reserve when the latter’s term expires in January 2014," the FT's Jack Farchy writes.

"If that means a change in direction from the Fed’s current experimental and super-accommodative monetary policy, gold could suffer."

"The Dollar might strengthen regardless of the election result," says Matthew Turner, precious metals strategist at Mitsubishi.

"Political uncertainty would be reduced if there is a clear election victory."

"Should Mitt Romney win, the attitude towards monetary measures is...likely to change " says a note from gold bullion refiner Heraeus.

"In the short term [though] we still expect that [gold] falling below $1700 an ounce would fuel fresh purchases."

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. 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.

Yamana Gold profit down despite record Q3 production, revenue

TSX-listed Yamana Gold had reported 6% lower adjusted profit for the third quarter ended September 30, as lower metals prices and higher production costs on the company's strong production performance.

The miner, which is in the process of building three mines, reported record production during the period, lifting gold-equivalent production by 11% over last year’s comparable period to 310 490 oz.

The gold-equivalent production comprised of 266 374 oz of gold, and silver production comprised 2.2-million ounces, produced at a gold-equivalent cost of $201/oz, which had resulted in a cash margin of $1 479/oz.

The improved performance allowed the company to post record revenue of $612-million, 10% higher than the $555-million the company reported in the same comparable period a year earlier.

Yamana reported adjusted earnings, excluding one-off items of $178-million or $0.24 a share, slightly lower than the $190.26-million the company earned for the period a year earlier.

The company said at the end of the period it had over $1.15-billion in available funds, including cash and cash equivalents of $400-million.

"We delivered record revenue and production in the third quarter and year to date, which also resulted in strong cash flow. Our cash flow after changes in working capital reached record levels also.

“As production increases, and more production enter a commercial phase, that should translate into increasing cash flow. Our development projects continue to advance and delivery of additional future growth is in progress,” CEO Peter Marrone said.

He added that the company closed the acquisition of Extorre Gold, which was now being evaluated for its exploration and development contribution to Yamana.

The company’s stock changed hands at C$18.76 apiece on Monday.

Edited by: Creamer Media Reporter

Monday, October 29, 2012

AngloGold says Tanzania law changes worry investors

Tanzania should stick to existing agreements in the fast-growing mining sector or investors will lose confidence, the company which owns the country's biggest gold mine, said on Saturday.

Major international miners are still in talks with the government two years after it passed mining legislation that included a rise in royalties on gold exports to 4% of gross value from 3% of netback value.

The law also required mining companies to pay the government 0.3% of their annual turnover, up from the previous requirement of a maximum $200 000 a year.

AngloGold Ashanti told Reuters it expected the Dodoma government to respect its mineral development agreement, which it said was a legal contract signed before the new mining legislation was put in place.

"Our investors obviously expect that those contracts should be honoured because they've made an investment for the long term," Gary Davies, managing director of AngloGold's Geita gold mine said in an interview.

"What's key is that the goal posts are stable because otherwise investors will need to factor that into their investments. I think any investor would be concerned about that, we are no different."

East Africa's second biggest economy argues it is not seeing the fruits of soaring commodity prices, in particular gold. It plans to increase the mining sector's contribution to the economy to 10% of GDP by 2025 from 3.3% last year.

But the miners say hiking taxes and increasing royalties is the wrong approach. They say Tanzania should focus on attracting more investors and issuing additional mining licences.

Tanzania is Africa's fourth biggest gold producer. Gold export earnings jumped 47% to $2.226-billion last year.

HINDERING GROWTH

Major gold mining companies in Tanzania include African Barrick Gold, which has four gold-producing mines, AngloGold Ashanti and Resolute Mining.

Tanzania's Energy and Minerals Ministry declared in July that all mining companies had agreed to pay the new royalty rate from May and said the government would keep mining contracts under review in a bid to deepen their economic contributions.

African Barrick Gold, which has four gold mines in Tanzania, is however the only company that has so far publicly announced it will pay the new 4% royalty rate.

AngloGold's Davies said negotiations continued over several aspects of the 2010 legislation.

"Investors need to have that degree of certainty and stability in order to put large investments over the long term."

The Geita mine recorded revenues in excess of $4.2-billion over the past decade and paid $683-million to the Treasury during the period in corporate tax, royalties, withholding taxes, payroll taxes and other fees, Davies said.

"Last year we produced 494 000 oz and we are looking to be in a similar range this year," he said.

Laurent Coche, AngloGold's senior vice-president for sustainability in Africa, said the company wanted talks with Tanzania about how to boost growth of the mining sector.

"There is also a need to distinguish between the short-term issues and long-term issues. We would be willing to be part of a conversation around developing the country's mining vision ... looking at 20 or 30 years down the road," Coche told Reuters.

Other mining companies contacted on the matter directed Reuters to the Tanzania Chamber of Minerals and Energy (TCME), which represents the interests of mining investors.

It has said mining contracts all included fiscal stability clauses and that the unstable legal environment was hindering growth in the mining sector.

African Barrick Gold's Tulawaka gold mine and Resolute Mine's Golden Pride mine are both expected to close down in mid-2013 after depleting their reserves, although work is underway to explore possibilities of mine-life extension.

Edited by: Reuters

How a gold digger really spends its money

Harmony Gold's latest annual report illustrates how it actually spends its revenues, with some rather interesting results

Author: Christy Filen

In Harmony Gold's annual report released today, the miner has illustrated how its revenues are distributed and reinvested.

With the on-going debate around resource nationalism and fair distribution of profits back into communities the disclosure of how a miner's revenue is allocated between various parts of its business has become an imperative.

Harmony's disclosure shows how the biggest slice of the cake goes towards covering its staff costs. Over 40% of its revenues are used to pay the salaries and benefits of its workers as well as the tax thereon.

Hardly surprising given the labour intensity of the business (Harmony employs approximately 40 000 people) but the value is in comparing it to the other elements of the pie or cake if you will.

The second biggest part of the pie (19%) goes towards procuring materials and services - it isn't hard to see from this why government is pushing to increase black economic empowerment related spend in this area.

Notably, Eskom receives a big chunk (9%) and this is likely to increase given the proposed tariff hikes of over 16% and the need to ventilate ever increasing depths.

The next biggest portion is the re-investment in the business which becomes necessary as the miner needs to have sufficient resources to ensure the sustainability of the business.

Harmony's intentions to take its massive Wafi-Golpu project in Papua New Guinea to production have received much coverage. Maintaining and ramping up its deep level mines in South Africa will also require substantial capital.

The profit accumulated in the business (13%) is very close to the amount allocated to the depletion of assets (12%) - depreciation and amortisation. Although a non-cash cost as it is allocated to the income statement over time, the original cash flows have already been incurred.

The perception that shareholders are cashing in while employees languish in poverty is something that needs to be put into perspective - Harmony distributed just 3% of its revenue generated in dividends paid to shareholders.

Taxes and royalties paid to government are comparable to the amount distributed to shareholders.

Social investment at only half a percent is the amount that will receive much scrutiny going forward with many believing that this needs to be upped.

Harmony's disclosure is close to what used to be known as the old fashioned ‘value added statement' which has fallen out of many annual financial statements as it wasn't compulsory.

The difference with the value added statement was that it was difficult to draw up given that it was a cash driven statement and not income statement driven but it fulfilled an important role in showing where the business was deploying its funds including payments to employees, lenders, shareholders and governments.

I foresee increased efforts to return the Harmony disclosure or the value added statement to its place of prominence in the annual reports of businesses that are constantly under fire from governments and communities demanding a bigger slice of the pie.

Harmony chairman, Patrice Motsepe, confirmed these increased demands in his chairman's report where he said that the rules of the game had changed in the mining industry before going on to highlight the importance of investor confidence.

"In the past year, investors have voiced concerns about the security of their investments in the mining industry, particularly in South Africa after reports about mooted initiatives ranging from nationalisation, excessive taxes and, most recently, the tragic events in Marikana and labour unrest and strikes in the mining sector" said Motsepe.

Motsepe outlined the importance of the mining industry to South Africa's economy saying that it generated around 18% of the country's gross domestic product (10% indirect), 50% of its total foreign exchange earnings and accounted for around one million jobs directly and indirectly.

The chairman pointed out the success of other mining jurisdictions in the world that had positioned themselves as globally competitive and attractive to investment, specifically mentioning the likes of Chile, Brazil, Botswana, Ghana, Peru and Tanzania and more recently Zambia.

"In these countries, thousands of new jobs have been created, the standards of living of their inhabitants have significantly increased, poverty is decreasing and there has been growth of the middle class" said Motsepe.

Source: Mineweb

Palladium set for glum October as demand outlook weighs

The metal's September gains were driven also by a surge in platinum prices after labour unrest in the South African mining sector led to dozens of deaths and cut output.

Author: Jan Harvey

Palladium is heading for its biggest one-month drop since May in October as a weak demand picture for the autocatalyst metal reins in gains made on the back of U.S. monetary stimulus and a sharply higher platinum price.

Prices swung to their lowest since mid-August last week from the six-month high above $700 an ounce they hit in September, helped by euphoria linked to the Federal Reserve's $40-million-a-month liquidity boost for the U.S. economy.

As that dissipated, investors were faced with a glum underlying picture for the metal which, despite the promise of longer term support, could lead prices lower still.

"Palladium, even more than platinum, is dependent on what's happening in the auto industry," Bank of America-Merrill Lynch analyst Michael Widmer said. "And you have to say, Europe is not looking good, China car sales and production have for a good part of the year been relatively soft."

"The market is overall still tight, but that doesn't really matter if you have a lack of demand," he added.

A spate of carmakers in Europe, including Ford, Volvo, Daimler and Renault have released downbeat statements on production this month.

Even China, long seen as a rare bright spot for the motor industry, has shown signs of slowing. Chinese vehicle sales fell for the first time since January in September, and grew just 3.4 percent in the first nine months of the year.

"A lot of the excitement about palladium in 2010 was based on growth in car sales in China and other fast-growing markets," Mitsubishi analyst Matthew Turner said. Palladium outperformed gold and platinum that year to more than double in price.

"These forecasts were assuming 10 percent growth every year for decades, and at the moment there's some scepticism about that. That has hurt the very bullish outlook."

That has led some investors to pull out of palladium investments like exchange-traded funds. Since the end of February last year, palladium ETFs have seen outflows of more than half a million ounces, while platinum ETFs have recorded inflows of nearly 210,000 ounces.

Palladium's more pronounced exposure to the industrial cycle - it also lacks platinum's strong jewellery demand base - helped push its ratio to its sister metal to its highest in nearly a year last week.

LABOUR UNREST

Palladium's September gains were also driven by a surge in platinum prices after labour unrest in the South African mining sector led to dozens of deaths and cut output at miners like Anglo Platinum, Lonmin and Royal Bafokeng.

Basing palladium investment on a rising platinum price under those circumstances was not necessarily a good bet.

While platinum supply is disproportionately reliant on South Africa, which accounts for around three-quarters of global output of the metal, palladium is not. South Africa makes up just a third of its supply base, with Russia the major supplier.

"If platinum rallies for fundamental reasons specific to platinum, palladium shouldn't follow," one platinum group metals trader said.

"If you have a broad commodities rally and a lot of the investment baskets buy platinum, they will probably have to buy palladium as well, so there is a reason for them to buy in tandem. They don't differentiate in that sense. But palladium shouldn't have rallied with platinum (in this situation)."

Longer term, the outlook for palladium will depend heavily on the health of the global economy. Once that starts to pick up, the advantages palladium has over platinum make it well positioned to move higher.

"It has become the metal of choice in cars - most cars are gasoline, and palladium has taken market share in diesel, because it does more or less the same thing, and it's cheaper," Mitsubishi's Turner said.

"The fact that it doesn't have a South African story means that, though it hasn't gained as much as platinum, in the long term it probably makes it more appealing to end users," he said. "The supply sources are more varied and less dependent on one country."

The importance of physical gold demand

As gold prices test the $1,700 support level, analysts are mixed on the likely impact of physical demand for the metal.

Author: Geoff Candy

Gold looks to be holding the $1,700 support level fairly well, despite concerns by some that a sharper fall is needed to see investors jump back into the market.

Part of the reason for this is the strength seen recently in physical demand, particularly from Asia but, analysts caution that this demand might not be as consistent as it has been historically.

According to UBS's Precious metals daily note, while physical demand is looking somewhat rejuvenated of late, it's not a consistent trend.

"Our flows to India indicated some days of strong demand last week, but continue to lack consistency. The key thing to watch for in India is if hefty levels are sustained, especially now that we are in the traditionally busy wedding season, or if demand remains erratic, as has been the case for most of the year," the bank writes.

Barclays Capital believes that this level of buying could well be sustained. In its latest Commodities Weekly report it writes that the key question for investors is "whether the downside support for gold will materialise from the physical market?"

It says, "Early signs look positive, in our opinion. In China, appetite has responded to lower prices, with volume traded on the Shanghai Gold Exchange picking up significantly this week to above the monthly and annual averages, matching levels seen before the weeklong National Day holiday. A similar trend has emerged in India, with local dealers citing a notable pick up over the past couple of sessions as prices have fallen to their lowest since end of August."

Adding, "Given the response thus far and the fact that key gold buying festival, Diwali, is still more than two weeks away, gold prices should be cushioned in the near term, providing a base for prices to re-challenge the $1800/oz milestone. Investor interest has shown signs of fatigue, with speculative positioning falling by the largest weekly decline since mid-March to a four-week low, while physically backed."

Standard Bank, on the other hand, is a little more cautious. While it agrees that physical gold demand has been improving since mid September, it adds that this demand remains below levels seen last year.

" An important reason for the weakness (relative to last year) in gold physical demand, from especially Asia, is due to jewellery demand. We estimate that jewellery demand will total 1,816mt in 2012, down from 1,973mt last year. According to Thomson Reuters GFMS, world jewellery demand for H1:12 was at 906mt-down from 992mt in H1:12. This implies that we expect jewellery demand to remain fairly flat during the second half of 2012."

According to Standard Bank, the income effect for jewellery demand is twice as strong as the price effect. By this the group means that prices would need to rise by more than double the rate at which incomes are increasing for it to curb jewellery demand - something, the bank points out, that has been happening over the last few months.

Thus, it says, "While seasonality should support gold jewellery demand in Q4, it is clear that jewellery demand is unlikely to support the gold price as it did in previous years. Investment demand will have to pick up the slack-and while we do believe that it is possible, it also implies one has to be more patient before rallies become sustainable."

Adding, "The faster the gold price rises relative to income growth, the more negative the impact will be on jewellery demand-this should provide a drag to the gold price."

Source: Mineweb

Gold Market Report - 29 October

Gold "Lacks Upside Drivers", But Support Seen at $1700, Hurricane Sandy Closes US Markets

U.S. DOLLAR gold prices dropped below $1710 an ounce Monday morning in London, below where they ended last week, after failing to hold onto gains made in Asian trading.

Silver prices dropped below $31.80 an ounce, also down from Friday's close, as European equities also fell. US stock markets will be closed today as a result of Hurricane Sandy – the first unscheduled US market closure since September 11 2001, and the first to be caused by weather since 1985.

On the commodities markets, oil and copper ticked lower, while gasoline futures rose. The US Dollar also gained, along with major economy government bond prices.

"Gold has been trading lower as it follows the US Dollar appreciation," says Bayram Dincer, analyst at LGT Capital Management in Switzerland.

"Gold is still range-bound, lacking any upside drivers above $1725 an ounce. The lower range of $1700 is perceived as a good support."

"Market focus switches to this week's US non-farm payrolls data [on Friday]," says a note from Barclays Capital, which cites $1698 as a support level for gold prices.

US core personal consumption expenditure data for September, a key inflation measure followed by the Federal Reserve, were published this morning, showing a slight rise in PCE inflation to 1.7%.

Over in India, traditionally the world's biggest source of private gold demand, the Rupee fell to a five-week low against the Dollar Monday, pushing up the local price of gold.

"[There are] a few stray deals are there in the market," one Mumbai importer told newswire Reuters, "[but] we haven't seen big volumes yet compared to last week."

The Reserve Bank of India raised its wholesale price inflation forecast for 2012-13 to 7.7% Monday, up from 7.3%. The central bank also cut its projection for India's growth rate from 6.5% to 5.7%.

India's finance minister P. Chidambaram meantime set a target of 3% for the government budget deficit by 2017 as part of a five-year plan of economic reforms announce Monday.

"[Chidambaram's timing] suggests growing political pressure on the RBI to cut [interest] rates," says a note from Nomura.

Here in Europe, Greece's public sector creditors, which include the European Central Bank, should take losses on their holdings of Greek government debt, according to a draft report from the so-called 'troika' of lenders – the ECB, European Commission and International Monetary Fund – reported by German magazine Der Spiegel.

A restructuring of Greek debt back in February saw losses imposed on private sector bondholders. The ECB said it would forego any profits on maturing bonds bought below par in the market, but did not take losses as part of that deal.

"For the ECB, forgiving debt isn't possible because it would be equivalent to indirect state financing," ECB Governing Council member and Austrian central bank governor Ewald Nowotny said today.

German finance minister Wolfgang Schaeuble rejected the idea Sunday, describing it as unrealistic. Schaeuble has proposed creating a so-called 'currency commissioner' by extending the powers of the European Commissioner for Economic and Monetary Affairs to include a veto over national budgets.

"I explicitly support this proposal," ECB president Mario Draghi said in an interview published by Der Spiegel Sunday.

"If we want to restore confidence in the Eurozone, countries will have to transfer part of their sovereignty to the European level."

In Madrid meantime Spanish prime minister Mariano Rajoy met with Italian prime minister Mario Monti Monday, three days after Monti told reporters that a Spanish bailout request "would make market speculation less aggressive".

A formal bailout is a precondition of the ECB's Outright Monetary Transactions program unveiled last month, which would see the central bank buy distressed sovereign debt on the secondary market.

"Rajoy is very much following his own route now," says Gilles Moec, London-based co-chief European economist at Deutsche Bank.

"Rajoy was probably pressed by Monti in August to accept a pre-emptive [bailout]...it would have made things so much smoother in Europe and for Italy as well."

Italy sold €8 billion of six-month Treasury bills Monday, at a yield of 1.347% - down from 1.503% last month, and the lowest since March.

In the UK, mortgage approvals rose to a four-month high in September, according to figures published by the Bank of England this morning.

Over in the US, the difference between number of bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex – known as the speculative net long – continued to fall in the week to Tuesday, weekly data published by the Commodity Futures Trading Commission Friday show.

"The liquidations are unsurprising," says Standard Bank research strategist Marc Ground.

"However, we expect some stability going forward for two reasons. First, net speculative length as a percentage of open interest has come off considerably...second, we believe the key $1700 support level should hold, mostly due to renewed physical demand at this price level."

Elsewhere in the US, President Obama has called off a presidential campaign trip to Florida while his opponent Mitt Romney has cancelled appearances in Virginia and New Hampshire as a result of Hurricane Sandy.

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. 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.

Gamesmanship in Xstrata-Glencore Merger Vote

By STEVEN M. DAVIDOFF

If nothing else, the executives at Xstrata, the Swiss mining giant, get marks for being clever.

On Thursday, the company set Nov. 20 as the date for a shareholder vote on its merger with trading behemoth Glencore. The vote has been structured in a way to maximize efficiency in the hope that $200 million in management retention payments are also approved. It’s just part of the machinations intended to influence the voting on the largest deal of the year.

Xstrata shareholders initially objected to the low premium being offered by Glencore, which also owns 34 percent of Xstrata. On Sept. 7, Glencore, about to lose an Xstrata shareholder vote on the deal, raised the ratio it was willing to pay to 3.05 Glencore shares per Xstrata share from 2.8 Glencore shares. That valued the combined company at about $90 billion.

Some shareholders, led by Knight Vinke Asset Management and Threadneedle Investments, are still objecting. In a letter to The Financial Times on Sept. 14, Knight Vinke’s head, Eric Knight, wrote that “we have been disappointed at the lack of robust independence exhibited by the board in the context of Glencore’s hostile takeover bid.” For the understated English, words like “disappointed” are practically extreme rhetoric.

But Xstrata’s board is not only coming under fire for selling to Glencore on the cheap. It is also being criticized for initially planning to pay large retention bonuses in the amount of $275 million to management.

In the newest iteration, Xstrata has reduced the aggregate by $75 million, primarily because Xstrata’s chief executive, Mick Davis, will no longer head the combined group. Still, pay is a touchy topic in Britain these days and shareholders like the American asset manager BlackRock reportedly remain dissatisfied that the payment is not only too big, but misdirected. Xstrata has stated it needs to pay this amount to retain its mining experts, but about 15 of the intended 72 recipients are central administration professionals, according to reports.

It is here where the voting games begin.

The initial deal required that the merger and retention package be approved together. But in a clever move bound to have its shareholders’ heads spinning, Xstrata claims it has decoupled the two issues by separating the vote.

The first question is a vote to approve or disapprove the retention pay package. The second, however, is in two parts. Shareholders are being asked to vote to:

Part I: Approve the merger and accept the compensation package.
Part II: Approve the merger and reject the compensation package

Shareholders can vote yes or no on the first question and also yes or no for both parts of the second question. Critically, Xstrata is letting shareholders vote yes to both parts of Question 2.

This is important because if the first question (whether to approve the compensation package) is approved, then any votes made to approve the merger and reject the compensation package are disregarded and only votes to approve the merger and accept the compensation package are counted. If the first question is not approved, then any votes made to approve the merger and accept the compensation package are disregarded and only votes to approve the merger and reject the compensation package are counted.

According to Xstrata, “this voting structure provides eligible Xstrata shareholders with the ability to vote against the resolution to approve the revised management incentive arrangements in the knowledge that a vote against the revised management incentive arrangements is not necessarily a vote against the merger.”

Really?

The problem is that if you want the merger to go through but don’t want the incentive package, you are faced with a quandary. If the retention package is approved and you vote no on the merger and retention package, your vote won’t count toward the 75 percent of shares needed to approve the merger.

The result may be that a merger you want does not happen because the necessary vote cannot be achieved.

This is a diabolical game of the prisoner’s dilemma. As Institutional Shareholder Services wrote in a note to its clients this week, the only viable strategy if you want the merger to succeed is to vote yes for both parts of Question 2. Otherwise, you could be left with no merger and no compensation package. But such a vote almost ensures the passage of the retention package with the merger.

Xstrata claims that it has decoupled the vote on the merger from the compensation decision, but when you really look at it, the company appears to have just rejiggered it to push shareholders into accepting the package.

It may backfire on the company, however, if shareholders really do find the payments so objectionable they vote against their economic interests to have the merger approved. This is yet another test of attitudes on compensation in Britain.

Even without this gamesmanship, Xstrata faces an uphill battle. To win, Xstrata must have the deal approved by 75 percent of the shares not held by Glencore.

This effectively means that holders of 16.5 percent of Xstrata’s shares can block the deal, which creates an opening for more maneuvering. And here, the government of Qatar, which holds 12 percent of Xstrata’s shares, becomes the real player. It will determine whether this deal goes through.

Those in favor of the deal cheered when Prime Minister Sheikh Hamad bin Jassim bin Jabr al-Thani of Qatar, stated cryptically that “we’re looking in favor of doing something between the two companies,” taking this for a sign of support. But still there is no express statement, and Qatar had previously said it would back an offer at a ratio of 3.25 Glencore shares.

The real question is whether Xstrata can be sold to anyone else and if so, whether Glencore is underpaying. Xstrata is important to Glencore for its cash flow but other huge mining conglomerates may also be interested. Vale, the Brazilian mining company, reportedly had discussions to buy Xstrata in 2008. Whether Vale would be willing to bid again is unknown, as is whether there is anyone out there who can compete to buy Xstrata or whether it is more valuable for Xstrata to stay independent. But with Glencore’s bid, which is the only deal on the table that Xstrata seems to be willing to pursue, these are questions left unanswered.

Instead, as this deal heads to another vote, it is stuck in the land of voting gamesmanship.

Silver lining seen as China growth slows

By Jamil Anderlini in Beijing

One of the gravest threats to global growth has receded after the slowing Chinese economy appeared to bottom out in the third quarter.

A slew of new data also showed accelerating investment, industrial production and retail sales in September. That prompted Chinese officials and economists to predict an imminent recovery from the weakest growth since the depths of the financial crisis.

Further weakness in China could derail the whole global recovery. Its slowdown has already hit export growth in Japan, Germany and the US at a time when the European economy is in crisis and the US is heading towards a big tightening of fiscal policy.

But that risk declined after figures released on Thursday showed industrial production up 9.2 per cent on a year earlier in September compared with 8.9 per cent in August. Growth in retail sales rose to 14.2 per cent from 13.2 per cent.

“In the last quarter of [2012], it is very likely that the Chinese economy will follow the trend seen in September – that is a modest recovery,” said Sheng Laiyun, spokesman for China’s national statistics bureau. “We have full confidence that we will achieve our full-year growth target [of 7.5 per cent growth].”

China’s gross domestic product grew 7.4 per cent in the third quarter from the same period a year earlier, the seventh consecutive quarter of decelerating growth and the slowest pace since the first quarter of 2009.

But even if growth does pick up in the world’s second largest economy it is not expected to return to its previous double-digit levels any time soon and it is still on track to grow this year at its slowest annual pace since 1999.

East Asia, driven primarily by China, accounted for almost half of total global growth over the past three years and the current slowdown is a serious concern for a world economy already beset by crisis in Europe and a sluggish recovery in the US.

Dong Tao, an economist at Credit Suisse, said the latest activity figures from China showed the growth drop had levelled off thanks to a pick-up in real estate transactions and investment, more government investment in infrastructure and improved export orders from the US.

“However, despite bottoming, we do not anticipate much rebound in growth in the coming quarters; the core problem in the economy is the disappearance of private investment because of surging costs and overcapacity,” he said.

The slowdown in China this year has affected different industries to varying degrees, with construction-related sectors faring the worst.

That has had a significant knock-on effect for global markets in commodities like iron ore, coal and copper and also raised fears in commodity exporters like Australia, Brazil and Indonesia that the China-led boom in resources could be coming to an end.

Exports of capital goods to China from countries like Germany and Japan have also fallen this year as companies invest less in new factories.

But the signs of a turnaround, combined with the fact that China is yet to see any of the widespread layoffs experienced at the height of the financial crisis in early 2009, make it very unlikely that Beijing will launch a large-scale stimulus to boost growth.

“The emerging signs of bottoming and stabilising economic growth have reduced the need for aggressive policy easing in the short term,” said Peng Wensheng, an economist at CICC, a top Chinese investment bank.

China’s central bank cut the benchmark interest rate for the second time in less than a month in early July, but despite a continued slowdown since then the government has refrained from other major steps to pump up growth.

Source:  The Financial Times Limited

African Barrick lowers guidance after ‘challenging’ quarter

London-listed African Barrick Gold has again lowered its production guidance, citing illegal mining activities at North Mara and lower-than-planned production levels at Bulyanhulu and Buzwagi.
The Tanzania-focused mining company said on Friday its 2012 production would be between 5% and 10% below the bottom of its previous range of 675 000 oz to 725 000 oz of gold.

African Barrick Gold, a unit of Canada’s Barrick Gold, is forecasting a cash cost of $900/oz to $950/oz for the financial year.
Last year, the gold miner produced 688 278 oz, which was below its forecast of 700 000 oz to 760 000 oz. In 2010, delays and fuel theft at Buzwagi forced the company to lower its forecast twice.

CEO Greg Hawkins said that the September quarter had been a challenging three months for African Barrick.

“We were expecting to see a step-up in production levels leading into the end of the year and 2013, but there have been production interruptions and issues across each of our sites.

“The ramp-up in grade at North Mara is positive and expected to continue in fourth quarter, but we have been disrupted in our efforts to mine it at a normal rate given an increase in illegal mining operations,” he said.

African Barrick produced 147 786 oz for the third quarter, which was in line with the production from the first and second quarters of the year, but a 19% decrease compared with the corresponding quarter in 2011.

The miner also reported revenue of $265-million for the period, $89-million lower than the $354-million in the third quarter of 2011, owing to lower mining activity at its operations in Tanzania.

Although production increased at North Mara by 17%, this was more than offset by the impact of lower mined grades at Buzwagi stope and mobile equipment availability issues at Bulyanhulu, and batch milling at Tulawaka.

At Bulyanhulu, mining performance was impacted by reduced stope availability, lower availability of underground mobile equipment and paste filling delays, which resulted in lower ore tons hoisted.

Mill throughput was 9% lower than the third quarter, as a result of the lower mining activity in the quarter, leading to lower production. Buzwagi saw a marked improvement in equipment availability, which led to tons mined being 53% higher than in the third quarter of last year and a 22% improvement over the previous quarter.

Further, the planned focus on the waste-stripping programme has resulted in mining of lower-grade areas of the pit and, therefore, a decrease in the head grade delivered to the plant. “It is anticipated that this would enable higher grade zones to be accessed later this year and into 2013,” the company said in a statement.

Throughput levels were also lower than expected owing to unplanned mill maintenance. At Tulawaka, there was an increased focus on underground development work aimed at extending the mine life. As a result, there was a 30% decline in ore tons mined compared with last year’s comparative period.

“Together with the lack of surface stockpiles, this led to continued batch processing of the underground material blended with mineralised waste,” it added.

At a group level, gold sales were in line with production, and 20% lower than last year, owing to the decrease in production.
Meanwhile, Hawkins said African Barrick’s acquisition of an exploration package in Kenya represented an important first step in expanding the business more broadly in Africa.

The company bought ASX-listed Aviva Corporation’s Aviva Mining Kenyan gold and base metals assets in a deal valued at A$20-million.

Edited by: Mariaan Webb

Sunday, October 28, 2012

India mulls iron-ore production curb for private miners

Amid the protracted investigations into widespread illegal iron-ore mining in the country, India’s Mines Ministry was mulling the option of imposing production curbs on mines that did not have investments in end-use facilities.

The production curb proposal being considered was in line with a similar action partially unrolled in a few mines in the eastern India coastal province of Orissa, according to an official in the Mines Ministry.

However, the curbs would not be applicable to Indian government-controlled mining companies like the National Development Corporation, better known as NMDC, or mining entities operated by provincial governments since most of these miners were catering to domestic demand, the official said.

The provincial government of Orissa had slapped a production ceiling of 52-million tons a year on the Joda and Koira iron-ore mines and similar caps would be imposed progressively on other mines without end-use facilities.

The Orissa government’s move comes in the wake of on-the-spot investigations into illegal mining in the province by the Supreme Court-appointed M B Shah Commission, which, in its preliminary comments, stated that the extent of illegal mining in the province was extremely complicated and prima facie advocated checks on production volumes to conserve the finite resource.

Officials of the investigating commission have scrutinised 65 mines in Orissa since October 3, concluding that deep-rooted irregularities in mining across the mineral-rich province exist. The commission’s investigations would cover the entire 142 iron- and manganese ore mines in the region.

However, differences have emerged within the government over the desirability and practicality of implementing production curbs, which would in effect be applicable to only private miners.

A section of officials within the Ministry maintained that mandatory production ceilings on private miners would go against the long-term objective of consolidation of the mining sector and development of large diversified resource companies through greater foreign direct investment in the mining sector, as was seen in the global mining industry.

Industry analysts in the Ministry also pointed out the impracticality of an across-the-board production curb irrespective of grades of iron-ore mined.

For example, the western Indian province of Goa, the second-largest producer of iron-ore in the country, until the recent complete ban on mining, produced 50-million tons a year, which is entirely shipped out through exports. The entire production of ore mined in Goa was of a low grade and unsuitable for consumption by domestic steel mills and the imposition of end-use conditions on such mines would, therefore, not serve any purpose, officials noted.

At the same time, the long-term objective of greater use of low-grade ore for domestic consumption through higher investments in beneficiation and pelletisation would not be achieved through production curbs since the small and fragmented miners would not immediately have the financial wherewithal to set up facilities for value-addition to the mined ore, analysts opposing the curbs said.

Following the ongoing Supreme Court-mandated investigations and clampdown on mining, India’s iron-ore production was down 19.65% in 2011/12 at 167.11-million tons compared with 207.99-million tons in the previous year. Export of ore were down 41.78% at 57-million tons in 2011/12 compared with 97.90-million tons in 2010/11. In 2012/13, Indian iron-ore production was forecast to fall further to levels of around 140-million tons.

Edited by: Esmarie Swanepoel

Indian Gold Demand "Surprisingly" Absent as "Bearish Trend" Remains

U.S. DOLLAR gold prices traded just above $1700 an ounce throughout Friday morning in London, following an overnight reversal of yesterday's rally, while European stock markets traded lower this morning following losses in Asia, ahead of the release of US GDP data later today.

"The trend remains bearish so long as gold trades below $1723," says the latest note from Scotiabank technical analyst Russell Browne.

"People are still looking a bit at the downside rather than the upside for the time being, waiting for it to break $1700," adds Ronald Leung, director at Lee Cheong Gold Dealers in Hong Kong.

Silver prices traded just above $31.70 per ounce for most of the morning, 1.2% down on last Friday's close, while other commodities also edged lower and major government bond prices gained.

"Commodities have come under renewed pressure, owing to the Asian equity markets weakening in the face of disappointing corporate data and a stronger US dollar," says a note from Commerzbank.

The US Dollar Index, which measures the Dollar's strength against a basket of other currencies, hit a new seven-week high this morning.

Dealers in Asia meantime reported a quieter session this morning, with public holidays in Singapore, Malaysia and Indonesia.

"There's light buying from Thailand and that's about it," one dealer told newswire Reuters this morning.

"Surprisingly, the demand from India is not there...in fact, Indian consumers started to sell again when the market was a bit higher. Maybe they will leave it to the last minute [before next month's Diwali festival] before coming back to buy again."

Going by London Fix prices, gold looked set for a third straight weekly loss Friday lunchtime in London, the first time this has happened since March.

"We continue to see modest pressure on gold prices in the near term," says HSBC precious metals analyst James Steel.

Here in Europe, Spain's unemployment rate rose to 25% in the third quarter, a new record high, according to official data published Friday. 

Santander, the country's biggest bank, yesterday urged the government to seek a formal bailout, which would pave the way for the European Central Bank to buy Spanish government bonds through its Outright Monetary Transactions program.

"A situation in which the Treasury funding is being helped by contingency credit lines offered by any international body will produce a fall in the sovereign debt risk premium and, as a consequence, a fall in banks' risk premium," said Santander chief executive Alfredo Saenz.

A Spanish bailout however is "a necessary, but not a sufficient condition" for ECB bond market intervention, ECB Executive Board member Joerg Asumussen said Friday.

Spain has already agreed a credit line of up to €100 billion from Eurozone rescue funds to finance the restructuring of its banking sector.

Elsewhere in Europe, ratings agency Standard & Poor's last night downgraded French bank BNP Paribas by one notch, from AA- to A+. Ten other French banks, including Credit Agricole and Societe Generale, were put on negative outlook.

Nine more banks have been named as part of the ongoing Libor investigation. Bank of America, Bank of Tokyo Mitsubishi, Credit Suisse, Lloyds, Norinchukin, Rabobank, Royal Bank of Canada, Societe Generale and West LB have all been sent subpoenas by the New York and Connecticut attorney-generals.

In South Africa, the majority of striking workers in the gold mining sector returned to work yesterday, Reuters reports, after unions agreed a wage deal with mine operators.

Anglo American Platinum meantime said Thursday it lost an estimated 138,000 ounces of platinum output, equivalent to over $200 million, as a result of South African strikes. The chief executive of Anglo American, which owns an 80% stake in Amplats, resigned Friday after leading the company for nearly six years.

In other mining news, African Barrick Gold lowered its 2012 production forecast Friday, when it also reported a 1.6% rise in cash costs per ounce as part of its third quarter results. China Gold is currently doing due diligence as part of its bid to buy Barrick Gold's 74% stake in African Barrick.

Here in London, gold trading through London's 11 market-making banks jumped 35% last month from August to the highest Dollar value since the all-time record gold prices of summer 2011.

The average daily volume of gold bullion transferred between wholesale market clearing members climbed 26% last month compared to August.

The daily average volume of silver bullion transferred increased 4% month-on-month in September.

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. 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.

Goldcorp lifts quarterly revenue on increased production, sales

Canada’s Goldcorp had reported record revenue during the third quarter ended September 30, on higher production and increased sales at higher prices.

The TSX-listed firm reported that revenue increased by 17.5% year-on-year to $1.53-billion, compared with $1.3-billion in revenue a year earlier.

This was achieved on gold sales of 617 800 oz from production of 592 500 oz. This compared with sales of 571 500 oz on production of 592 100 oz in the third quarter of 2011. The average realised gold price was $1 685/oz of gold sold.

Total cash costs were $220/oz of gold on a by-product basis and $660/oz on a co-product basis.

Silver production totalled 8.5-million ounces, 30% higher than the 6.5-million ounces produced in the prior year's third quarter.

Goldcorp reported net earnings rose by 48% to $498-million, compared with $336-million in the same period a year earlier. Adjusted net earnings were, however, down 2% at $441-million or 54c a share, compared with $450-million at 56c a share.

Operating cash flow before changes in working capital was $687-million, compared with $681-million in last year's third quarter.

"Operating improvements at Red Lake and Peñasquito contributed to strong financial results in the third quarter. Our priority is on continuing work to maximise the strong potential at our two largest operations," Goldcorp president and CEO Chuck Jeannes said.

He said access to several stopes in the high-grade zone of the company’s largest mine, the Red Lake mine, in Canada, followed the completion of destressing work, which had resulted in stronger gold production in the second half of the year. An important new discovery next to the high-grade zone was also made, which supported the potential for greater future production flexibility.

At Peñasquito, Mexico, Goldcorp said there was enough water available to achieve 2012 guidance, and a study was under way to develop a long-term water strategy to meet the needs of both Peñasquito and emerging development opportunities in the Peñasquito district.

"Goldcorp's pipeline of high-quality gold projects comprises the leading growth profile in the sector, and we are pleased that the first of those new growth projects, Pueblo Viejo, in the Dominican Republic, achieved first gold production during the third quarter,” Jeannes added.

Among the company’s noteworthy projects was its Cerro Negro project, in Argentina, which was advancing towards first gold production in late 2013. All major mechanical equipment to be imported had arrived at the site or in the country, and development of the first three veins was progressing well. Based on expected throughput of 4 000 t/d, yearly gold production in the first five years of full production was expected to average 550 000 oz at cash costs of less than $300/oz.

At the Éléonore project, in Quebec, a milestone was reached with the completion of the Gaumond exploration shaft excavation, and at Cochenour, in Red Lake, a new study, including an updated development plan would be completed during the fourth quarter. Both Éléonore and Cochenour remained on track for first gold production in late 2014.

“The low capital cost per ounce of new gold production for these four new projects creates the opportunity for very strong financial returns for our shareholders,” Jeannes said.

The company said it expected to produce between 2.35-million and 2.45-million ounces of gold for the year.

The company’s Toronto-listed stock traded 4.73% higher at C$42.72 apiece on Thursday morning.

Edited by: Creamer Media Reporter

Conga delay undermines Peru perception

The suspension of the Conga mining project – which would have been Peru’s largest foreign investment ever – is undermining the country’s perception among investors. However, Conga will likely go ahead as planned eventually, mining officials say.

“A case like this can affect investor perception of Peru,” says Pedro Martinez, chairperson of Peru’s National Mining Society, which groups all the leading mining companies in the country.

He adds that he also expects it to negatively impact the yearly ranking from the Fraser Institute. Peru ranks as the third-most attractive mining country in Latin America after Chile and Mexico on the latest Policy Potential Index from the institute.

The Conga gold mine was being developed by US-based Newmont Mining and local miner Buenaventura – the same companies that own Yanacocha, the world’s second-largest gold mine. Development of Conga was originally estimated at a cost of up to $4.8-billion, or the equivalent of 63% of what Peru received in total foreign direct investments last year.

Construction on Conga started in July 2011, but were suspended in November 2011 at the request of the Peruvian government following violent protests from antimining activists led by the head of the Cajamarca region, where Conga and Yanacocha are located. The opponents claim Conga will pollute the waters used by the local farmers for agriculture.

Construction was further delayed as the Peruvian government waited for an independent expert review of Conga’s previously approved environmental-impact assessment, which was handed in in April. The three experts confirmed the data used for the original approval.

However, in August the government of President Ollanta Humala announced that it would suspend the development. The decision came as a surprise after Humala had earlier taken a hard line against the protestors and had appeared to respect the expert findings.

Neither Newmont nor Buenaventura answered questions from Mining Weekly Online on the future of Conga or the delay’s impact on financials. Buenaventura referred to Newmont, which, in turn, sent a short statement on its general commitment to Peru.

However, in its latest yearly report for 2011, Newmont states that “any inability to continue to develop the Conga project or operate at Yanacocha could have an adverse impact on our growth if we are not able to replace its expected production… Should we be unable to continue with the current development plan at Conga, we may reprioritise and reallocate capital to development alternatives in Nevada, Australia, Ghana and Indonesia.”

According to Newmont’s 2011 annual report, $1-billion had been invested in Conga as of December 31, 2011. This year, it is investing $440-million, according to a separate fact sheet.

According to the same fact sheet, Newmont’s top priority now is developing the water reservoirs for Conga.

“The company will take a slower development approach – which is intended to foster a more suitable political and social environment – by focusing on the construction of reservoirs for downstream communities,” it says. “Construction on the Conga project will only continue if it can be done in a safe, socially and environmentally responsible manner with risk-adjusted returns that justify future investment.”

Once Newmont and Buenaventura finish the water developments, Martinez expects the Conga project to be back on track. “Once the reserve construction has finished, the population will realize that there is more and better quality water,” Martinez says.

Plans call for boosting water to help local farmers, he says.

“The change of perception is only a matter of time, during which the arguments from the radical opponents will remain without merit … and the Conga project will finally be approved,” Martinez says.

American Chamber of Commerce in Peru executive director Aldo Defilippi points out that the large mining companies are providing big benefits to areas with little or no Peruvian State infrastructure. They include well-paid jobs with insurance and special preferences at local banks.

Meanwhile, thousands of indirect jobs have been created. Those benefits stand in stark contrast to illegal miners, informal loggers, drug traffickers and terrorists that operate in Cajamarca.

“They prey; pollute; exploit the locals, including children; don’t provide any labour rights; don’t pay taxes; etc.,” he says. For them, formal mining companies are seen as a hindrance to their activities, Defilippi adds.

Notwithstanding the Conga delay, there are several juniors interested in Peru, according to Martinez.

“They understand that these problems are part of an unfortunate constant, but shouldn’t affect substantially the plans of new investors,” he says.

Edited by: Henry Lazenby

Big Jump in London Gold Trading

Wholesale gold trading through London's global center just leapt towards summer 2011's records...

GOLD TRADING in London – heart of the world's wholesale bullion market – leapt in September.

How come? "The continued economic uncertainty in the Eurozone and US, the end of the holiday period and the start of the Indian festival season boosted clearing turnover," says trade body the London Bullion Market Association, releasing the new data to members on Thursday.

But matched by a sharp rise in the size of gold-backed trust funds traded on the stock market (ETFs), these latest figures really suggest strong interest from hedge funds, investment banks and other institutions around the US Federal Reserve's announcement of QE3, we believe.

Why QE3 as the catalyst? Because the so-called "smart money" had been hanging on Ben Bernanke's every word all year...willing him to make free and easy with his electronic printing press once again. And why that group? Because the other potential buyers just weren't so hot – buyers whose demand would have quickly registered back up the supply chain at the wholesale level – and certainly not hot enough to push gold trading through its world center in London to the third highest value on record.
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Jewelry suppliers in India have kept a lid on their stockpiling, even ahead of the annual peak in demand due with Diwali in mid-November. Private households (aka "retail" investors) raised their demand in September, but not dramatically, as Bullion Vault's own Gold Investor Index shows. And amongst those central banks who declare their hand each month to the International Monetary Fund (ie, everyone but China), September 2012 saw them pretty much flat overall as a group.

So you have to guess, therefore, that the so-called "smart money" was the big buyer, helping drive the daily value of gold bullion traded through London's 11 big market makers more than 35% higher in September from August to its highest level since summer 2011's all-time peaks.

Those 11 market makers – led by global investment-bank and London vault operators HSBC and J.P.Morgan, and all guaranteeing to quote firm Gold Buying and selling prices throughout the day – shifted some $39.2 billion-worth of gold between them on average each day last month. Make a guess at all of September's other gold trading done via smaller bullion banks and dealers, all still quoting prices for settlement in London's secure and accredited vaults, and the total could have reached to $350bn. That's the multple suggested by spring 2011's market-wide survey, undertaken by the London Bullion Market Association on behalf of the World Gold Council.

The aim of that report, in which the LBMA surveyed all its members, was to gauge the true depth and liquidity of the physical gold market. The previous best guess-timate – of a multiple between 3 and 5 times the average daily turnover reported by the big 11 banks – now looks it should stand nearer 8 times. Especially when gold trading gets hot, as it clearly did in September.

Some of that hot money has turned tail since. This month's pullback so far has taken Dollar-gold 4% lower to $1700 per ounce. Perhaps hedge funds, bank traders and other private institutions simply booked early profits off their September gold trading. Or perhaps they're disappointed that QE3 didn't instantly send inflation soaring.

Give it time. "There is a great deal of ruin in a nation," as Adam Smith calmly replied when told in October 1777 that Britain was ruined by its defeat by the American rebels at Saratoga. Yes, it took another 170 years for the British Empire to crest and collapse. But today's limitless zero-rate money won't have anything like as long.

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 physical gold today vaulted in Zurich and store it securely with insurance included for as little as $4 per month.

(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.

Mexican miner Penoles posts steep drop in Q3 profit

Mexican mining company Industrias Penoles on Friday reported a 58.4% drop in third-quarter profit due to a fall in metal prices and a rise in costs for investment in expansion and exploration.

The miner and metals processor, which runs the world's largest primary silver producer Fresnillo, said profit in the third quarter was 1.67-billion pesos ($129.87-million) versus 4.01-billion pesos in the same period in 2011.

Revenue between July and September 2012 fell 9.6% compared with the previous year to 23.21-billion pesos, as silver prices fell by nearly a quarter, lead by 19.6% and copper by 14.2%.

Investment in expansion at the Tizapa, La Cienaga and Soledad-Dipolos mines along with renewed investment in exploration had raised costs, the company said.

Penoles spun off precious metals unit Fresnillo in 2008 and now focuses on base metals mining and refining.

Penoles' share price ended the day down 0.28% at 667.5 pesos.

Edited by: Creamer Media Reporter

Platinum needs fundamental change, says Anglo’s Carroll in step-down media meet

South Africa’s platinum sector needed fundamental change to the way it did business in order to give it a chance to thrive, outgoing Anglo American CEO Cynthia Carroll told Mining Weekly Online during a media conference in which she announced her intention to step down once the company found a successor.

Carroll, who is also resigning as chairperson of the board of the JSE-listed Anglo American Platinum, which meets this week, said that the platinum sector needed to “come together as an industry” and commit to “doing things differently and working towards world-class standards”.

“I have no doubt that we can do that,” she said in response to Mining Weekly Online.

Fundamental change would have to be brought about in order to ensure a sustainable, competitive industry for the long term.

“We are not competitive today and it’s not an industry that will thrive in any sense if we don’t make some fundamental changes in the way we do business,” said Carroll, whose bombshell resignation announcement comes as she enters her seventh year of service at the helm of the diversified South African mining company, which is due to celebrate its 100th anniversary in five years’ time.

Trade union Solidarity described Carroll’s resignation as “a huge loss for both the company and the South African mining industry”.
Solidarity general-secretary Gideon du Plessis praised Carroll for continually championing South Africa’s mining industry abroad and focusing on the importance of occupational health and safety.

Du Plessis said that Carroll had succeeded in establishing a formal alliance between government, management and trade unions.

The labour union described her as fearless in taking the right decisions, whether these were popular or not.

Pressed by a British journalist on the issue of growing South African mining risk, the outgoing head of the London-listed Anglo American expressed full confidence that South Africa would emerge from its difficult current period.

“There is clear evidence that South Africa can be at the absolute cutting edge of performance and value creation for shareholders,” she said, drawing attention to Anglo American Kumba Iron Ore's five-months-ahead-of-schedule Kolomela mine, which was currently producing at levels that far exceeded projections.

Through its increased 85% ownership of De Beers, Anglo American was in fact investing more in South Africa, Botswana, Namibia and other African countries where diamond exploration was under way.

The company had also taken up a position in Mozambique.

Anglo American chairperson Sir John Parker, in fending off journalist suggestions that Carroll had succumbed to pressure from disgruntled shareholders, reiterated that Carroll’s resignation had been driven by the CEO herself deciding that the time had come to step down from what was a “very gruelling and very demanding role”.

Parker described Carroll’s resignation decision “as a stand-alone decision on her part” and praised her for agreeing to stay on in her post until a successor had been appointed.

Carroll in turn promised to be around for “quite some time into next year”.

The search for a successor has begun with immediate effect, with Parker making the point that the aim would be to secure a candidate with some of the characteristics that Carroll had brought to the job.

Asked to comment on speculation that former BHP Billiton CFO Alex Vanselow and South African-born Xstrata CEO Mick Davis were possible candidates for the CEO job, Parker said he would not want to comment on any individual, except to say that “we couldn’t really afford Mick Davis”.

Pressed on potential strategy changes that could follow Carroll’s departure, Parker said that the board and not the CEO "owned" the strategy.

VSA Capital Group CEO Andrew Monk told Bloomberg News in an audio interview that there had been pressure from investors for Carroll to step down.

While Monk conceded that the platinum strikes in South Africa were not Carroll’s fault, he accused her of taking gambles in South America that had not come off.

Monk said that he expected shares of Anglo American to rise on the basis of the company being a potential takeover target.

The Anglo American share price had risen by 2.9% in Johannesburg at the close of JSE business on Friday.

On the difficulties that would confront her successor, Carroll cited the real challenge for anyone moving into a major mining company as the problems around the delivery of projects in new and even existing mining jurisdictions, where governments and communities had far greater expectations.

The situation in South Africa was evidence enough that a proactive job had to be done to ensure continual alignment with communities.

Parker described the interface with governments, mining communities and labour unions around the world as a “hugely important part of the leadership of a complex company like Anglo American”.

On the state of the company’s platinum review, Carroll said that Anglo American Platinum was attempting to position itself ahead of its peer group through the current review process.

“We’ve been working at it. It’s very complex. We have 12 mining operations, 12 concentrators, seven joint ventures and 58 000 people. I told the market that it required engagement with many stakeholders and that we would only be ready to make an announcement at the end of the year.

“We’re having a board meeting next week on platinum and we’re aiming to deliver some key messages on taking the business forward towards the end of the year, exactly in line with what I committed.

“We’re looking for a fundamental shift in performance to create and sustain a competitive business for the long term and creating much more shareholder value."

On Minas Rio in Brazil, Carroll said that the board had visited the project and travelled along the pipeline and she urged the media and analysts to go and see for themselves, because the project was “really something to behold”.

However, London-based mining analysts Liberum Capital described Minas Rio as “a terrible acquisition”.

Liberum was also critical of Carroll’s forced sale of 50% of the Los Broncos Chilean copper asset.

The firm was also unhappy with the buy-in of De Beers' minorities at full price and what it described as “inaction on Anglo Platinum – an asset most had hoped would be unbundled on her watch”.

Liberum was pleased, however, that Carroll had seen off what it described as “the bear hug approach from Xstrata”, a reference to Xstrata’s merger-of-equals proposition.

“To sum up then, the history books won't be kind on Carroll’s tenure,” Liberum said.

Edited by: Creamer Media Reporter

Anglo American's problems aren't over yet

Just because the company is looking for a new CEO, doesn't mean it has solved its problems.

Author: Geoff Candy

Anglo American shares jumped almost 4% Friday on the news that Cynthia Carroll is stepping down as CEO. But, the bounce will, most likely, be short lived.

As one analyst pointed out to Mineweb on Friday: "The problems haven't gone away and anyone who thinks they have is dreaming. There are some really big problems they have to resolve, particularly in their platinum business."

Indeed, even the departing CEO isn't actually expected to leave much before the middle of next year.

But, for most commentators spoken to today, the fact that Carroll is to remain in the chair for a while yet, is a good thing. Irrespective of the market's view of her performance over recent months, her immediate departure and the leadership hole that it would have created might have been bad for the group and its operations.

Solidarity general secretary, Gideon du Plessis, echoed this is sentiment, saying in a written statement that Carroll's resignation is a major setback for the South African mining industry and for the country's image as an investment destination.

And, it is in South Africa, and especially within its platinum district, that Carroll's successor is going to have their hands full.

Carroll is well respected within South African mining and political circles and her role over the next few months is likely to remain important to the group's plans, especially in light of the platinum review that is currently underway. But, it is unlikely that any real resolution to these issues will be reached before she departs.

After falling sharply in 2008 and 2009 years, the group has rebuilt up its operating profit line at its platinum operations, but recent events have provided a great deal of cause for concern.

For the third quarter, the group reported a six percent drop in equivalent refined platinum production as a result of lower output at the Union North and South, Mogalakwena, Tumela and Siphumelele mines.

But, more importantly than that, the group is losing roughly 4,500 ounces of platinum production a day because of illegal strike action at its mines.

"As a result, and dependent on the resolution of the illegal strike action, the expected refined platinum production for 2012 is reduced to between 2.2 and 2.4 million ounces," the group wrote in its Q3 production report published yesterday.

"Given the retained fixed cost base, and as result of the reduction in production, the 2012 unit cost is expected to be R15,500 to R16,000 per equivalent refined platinum ounce," it added.

Platinum is not, however, the group's only problem. As South Africa's Public Investment Corporation noted, "Poor capital allocation has eroded value in the company over the last few years...We also see this poor capital allocation as limiting dividend paying potential for the group, resulting in unattractive dividend yield versus its peers."

It added, "that the group has produced a disappointing operational performance, particularly in copper, coal and PGMs and has had difficulty in delivering growth projects on time and to budget."

Of particular concern here has been the group's Minas Rio iron ore project in Brazil. Carroll is on record saying, "Minas-Rio is one of the largest and most complex projects in the world, and certainly in Brazil.

And the group wrote in its production report out yesterday, "If all the current impediments are cleared by the end of 2012 and there are no major unexpected interventions, it is anticipated that first ore on ship will be delivered in the second half of 2014. Capital expenditure for the completion of this project was expected to be approximately $5.8 billion, however the quantum of a further increase is currently under review."

Over and above that, the group is having issues with grade at its new Los Bronces copper project while dealing with declining production at its massive Collahuasi copper mine. And, more generally the group faces a flat market for many of its products in the wake of tepid global economic growth.

As one analyst told Mineweb, it looks very much like Anglo American has lost its way. "There have been cost overruns and delays on a number of projects. There was the whole debacle with Codelco that caught them napping and finally, there is the deal with De Beers, which until now, seems to have been a very sideways move."

But why now?

All of these issues have been a worry to those concerned for some time and there doesn't seem to have been a single so-called final straw. So, why announce Carroll's departure seemingly so suddenly, without a clear successor already in place?

Some speculate while the group considered first looking for a successor before announcing the change, the decision was taken to announce that Carroll is stepping down and then begin the search. The thinking goes had they done so 'in secret', knowledge of the head hunting effort would most likely have leaked out anyway.

Given the issues above and the current uncertainty about metal prices, especially iron ore, coal and copper one begins to believe Anglo American chairman, Sir John Parker when he said [who is parker? first reference to him is here], "today's decision is very much based on Cynthia's decision which the board has accepted that she feels the right time has come to step down from what is a very challenging role."

And, while share prices across the diversified sector have languished of late and many analysts remain hopeful that metal prices will pick up over the course of the next 12 months as the global economy picks up slightly, whoever steps into the position is going to have an equally challenging time.

Source: Mineweb