22 November 2009
Jim Willie CB,  “the Golden Jackass”

* South African Severe Decline
* New Gold Investment Demand
* Official Gold Sales & Hidden Tracks
* Barrick Collapse in Slow Motion
* Rumors of China to Pursue Newmont


Special Report #2
Issue #68

GOLD INDUSTRY PROSPECTS & MAJOR MINERS

SOUTH AFRICAN SEVERE DECLINE

◄$$$ SOUTH AFRICAN MINING COSTS ARE SET TO JUMP MARKEDLY, CERTAIN TO REDUCE OUTPUT FURTHER. THE S.A.GOVT PLANS TO IMPOSE AN ELECTRICITY TARIFF INCREASE. WORSE, INDEPENDENT RESEARCH ESTIMATES THE SOUTH AFRICAN GOLD RESERVES TO BE 80% LESS THAN THEIR GOVT FIGURES. NATIONAL OUTPUT IS ON A STRONG DECLINE, WORSENED BY TAXES, CONTAMINATION, AND REGULATIONS. $$$

Mining firms in South Africa face rising costs sure to result in a catastrophe for operations. The ESKOM electrical utility is running roughshod over the nation's important mining sector. Two years ago, it was dirty coal used in the electric generators and poor maintenace of turbine equipment at the public utilities. The South African mining sector is running its financial numbers in furious fashion, in order to assess the impact on operations for the deep and costly gold mines. By the end of November, they have to make provisional written representations regarding Eskom's demand for a 45% a year tariff increase over three years. The increased levy amounts to a 200% hike on a compounded basis. The tariff increases come in the wake of Eskom already having added 67% to electricity tariffs since the onset of the power crisis. If the three 45% hikes are factored in, by the middle of 2012 electricity will have risen 410%. Mines need electricity to run certain equipment, to provide cool air, and to drain water.

The mining firm executives pitched in their opinions. Harmony Gold CEO Graham Briggs said the spectre of the planned tariff increase looms large. Gold Fields CEO Nick Holland urged the increase to be disallowed. AngloGold Ashanti CEO Mark Cutifani warned that the entire economy would collapse if the National Energy Regulator approved the tariff. These company officials conservatively estimated that by 2012 their electricity bills would push up their South African cost of production by 25% to 33%, far more than many marginal mine profit margins can handle. The DRDGold mine project Blyvooruitzicht has already suffered a vanishing act in profits. It is a marginal gold mine, whose cash costs surpassed the Rand-based gold price. Mine projects require years to come to fruition, with huge outlays, big investments, and a trail of processes to abide by with permits and leases. The tariff changes the finances by imposing a completely different cost scenario. Mines that are already near on the edge will be ruined, and projects judged unsustainable will be cancelled. In its most recent financial year, Eskom reduced the power supply provided to mines. While nobody can argue that tariffs need to be increased, the impact will be crippling to the industy. South Africa is the second leading gold mine producer globally, behind China. The SA national gold output will surely decrease in 2010, when demand rises, resulting in added gold price pressure. See the Mining MX article (CLICK HERE). It makes one wonder why the mining firms do not build their own electrical generation facilities and exit the grid.

The South African Journal of Science concluded that the nation's gold industry is on final deathwatch, as claims of massive existing reserves are fiction. Chris Hartnady, research and technical director of Cape Town earth sciences consultancy Umvoto Africa, has found that South Africa's Witwatersrand goldfields are around 95% exhausted. He anticipates that production rates should fall permanently below 100 tonnes a year within the coming decade. The country's gold reserves are less than half of the current United States Geological Survey (USGS) estimate of 6000 tonnes. The country ranks fourth in the world, after Australia (5000 tonnes), Peru (3500 tonnes) and Russia (3000 tonnes), the research shows. The USGS currently cites South African gold reserves at around 6000 tonnes, while SA claims a 36,000 tonnes reserve base figure, a lofty estimate equal to 40% of the global total. Hartnady's findings are based on Chamber of Mines figures and mathematical modeling pioneered by the distinguished American geologist M. King Hubbert.

Analysts have been shocked by recent comments from AngloGold Ashanti CEO Mark Cutifani on plans that its South African operations will be restructured. So the highest margin operating gold assets in South Africa are being re-structured??? Skeptics inquire whether Gold Fields's developing South Deep operation will ever be profitable. It was acquired in 2007 for $3 billion. Hartnady's forecast is bleak at best: "Given the energy and environmental problems associated with ongoing groundwater control, water resource contamination by acid mine drainage, and the possibility of widespread mercury and other factors of pollution caused by illicit underground ore processing by the zama-zamas (illegal miners), the glory days of South African gold mining appear to have arrived finally at an ignominious end. There can be no further illusions, maintained by unrealistic expectation of a future fortune, about the seriousness of the present situation. In their various possible forms, the slow onset disasters of environmental degradation associated with the death throes of a formerly illustrious industry now pose a serious threat, and may ultimately cost far more than the net present value of some 3000 tonnes of gold." Much of the blame for the accelerated decline has been given to new royalty impositions and rising electricity charges deemed to be black socialist levies. The miracle achieved from tax levies might be a sudden end to the industry. Note the Witwatersrand Basin depletion, and how the decline follows the normal bell curve. See the Mining Web article (CLICK HERE).

NEW GOLD INVESTMENT DEMAND

◄$$$ PAULSON STARTS A NEW GOLD FUND WITH HIS OWN PERSONAL FUNDS. IT WILL ATTRACT A LOT OF NEW MONEY FROM INVESTORS. THEN THEY GO SHOPPING FOR GOLD BULLION IN A BULL MARKET. $$$

Paulson & Co, the hedge fund run by John Paulson (no related to Wall Street criminal Henry at Goldman Sachs) poured billions into gold related investments this year. He has an aggressive plan for 2010. The New York-based hedge fund will launch a dedicated gold hedge fund on January 1st. He announced the new fund at a meeting with investors, whom he told that the gold rally was only just beginning, and pledged to invest $250 million of his own fortune to launch the new vehicle, according to the Wall Street Journal reports. The gold fund will invest in gold mining companies and related stocks, as well as gold derivatives. Earlier in 2009, Paulson moved about 10% of the $30 billion from his general hedge fund into gold bullion and gold related investments. The so-called 'Gold Only' fund follows a similar announcement from Intl Standard Asset Mgmt last month, run by Stanley Fink. See the Finalternatives article (CLICK HERE).

◄$$$ THE CENTRAL FUND OF CANADA MAKES A $230 MILLION OFFERING FOR STOCK. THIS IMPLIES THEY PLAN TO PURCHASE AN EQUAL AMOUNT OF GOLD & SILVER BULLION. $$$

The Central Fund of Canada increased its equity offering to US$230 million as underwriters exercised their right to purchase additional Class A shares. This is a real success story, exhibiting the enthusiasm behind the gold market. The original announcement in August called for 11.04 million shares, later moved up to 15.5 million shares. The underwriters expanded the offering further, a very positive sign of market interest. A syndicate of underwriters led by CIBC in Canada exercised their right to purchase an additional 1.475 million shares. The total intake was US$230 million in cash. The fund is commited to purchase gold & silver bullion, which is done with standard settlement at closing, in keeping with the asset allocation policies established by their Board of Directors. The CEF maintains a ratio of 55% gold and 45% silver in value. If they converted cash to bullion at today's prices, just for argument sake, that would make for 111 thousand ounces of gold and 5.6 million ounces of silver purchased on the open market. That is serious upward price pressure. See the Yahoo Finance article from August (CLICK HERE) and from last week (CLICK HERE). Bear in mind that the Central Fund makes its investments almost exclusively from refiners. However, the less the refiners have in supply floating around, the less they have to provide the exchanges to satisfy delivery demands. The supply is being soaked upstream, and that is the main point.

◄$$$ HICKEY MAKES HIS CASE FOR GOLD. SOME KEY PEOPLE ARE TURNING FAVORABLE TOWARD GOLD. THE I.M.F. PURCHASE OF 400 TONNES IS A LOUSY REASON TO STEP ASIDE IN THE GOLD MARKET. INVESTMENT DEMAND FOR GOLD HAS BECOME A MAJOR FACTOR. $$$

Highly respected credit market analyst Jim Grant sold out and denigrated the gold movement. But Tyler Durden wiped off his bloody bruises and had the uncorruptable Fred Hickey from High Tech Strategist on for an interview. After writing an essay on "Fighting the Fed" for his private clients, Hickey said in an interview the following. See the Zero Hedge article (CLICK HERE).

"Thanks to the Fed, gold has been building up a head of steam ever since. Nevertheless, despite nine consecutive years, gold has remained disrespected and and under-owned, both by the public and by the professional money managers. More recently, that has been changing. This past month I have read speeches from both billionaire John Paulson and David Einhorn, both of whom famously predicted (and capitalized spectacularly from) the collapse of the housing and credit bubbles. Both eloquently explained how they had never been gold bugs, yet both have made gold the core holding in their portfolios. This weekend the Wall Street Journal ran a full page story on how Paulson made billions from the recent financial market's crash. At the very end of the story, Paulson explained his new trade, betting against the dollar through billions of dollars of gold investments. Paulson stated: 'Three or four years from now, people will ask why they didn't buy gold earlier.' ...

When gold went over $1000 recently, a lot of gold owners expected a selloff similar to what occurred in March 2008 and earlier this year. They moved to the sidelines expecting to buy back at lower prices. There was a litany of reasons the sellers used as excuses to lower their positions, including this one that I wrote about in last month's letter: 'The last excuse to sell gold (and the bears have been flogging this for over a year now) was last month's formal endorsement by the IMF to sell 403.3 tons of gold. However, the gold is expected to be sold within the limits of the new Central Banks Gold Agreement which caps central banks' gold sales through September 2014. That assumes that the Chinese do not buy the whole 403 ton lot all at once, as I have heard they have offered to do.' ...

The psychological barrier of $1000 gold has been broken. That $1000 number might as well be $100. There is no longer a limit to the upside. As you know, I have been waiting for the 'crazy phase' part of the long secular bull market to begin. That is how secular bull markets work. Eventually momentum takes over and there is a parabolic run to the top...

Gold is no longer being driven by jewelry demand, as in the recent past. It is investment demand that is wagging the yellow dog's tail. It is a loss of confidence in the US dollar and US government policies around the world that is driving gold to record levels. As it has been for thousands of years, gold is the safest store of wealth, not so much something to be fashioned into a necklace."

◄$$$ CHINESE JEWELRY SALES RISE WITH TREMENDOUS GUSTO. THE BEIJING LEADERS HAVE ENLISTED THE SUPPORT OF THEIR PEOPLE TO FEED THE GOLD BULL AND WIN GLOBAL POWER FROM A GOLD TICKET. $$$

Hong Kong Resources Holdings announced that jewelry sales in the Mainland are expected to climb at over a 10% pace this year. Middle-class gold buyers directed a 16% gain in gold & silver jewelry sales in the first nine months of 2009, according to the firm. The gold company has risen fivefold in market value this year. Strong household savings provide power to investment products like coins and bars, along with wedding gifts. The World Gold Council reported in July that China may pass India as the biggest consumer. A metals manager at Standard Bank Asia in Hong Kong said, "With the Chinese economy fairing exceptionally well this year, people are getting more wealth. It is quite normal to expect that demand for gold will increase in the next two to three years."

The CPM Group owns and operates 219 jewelry stores in Mainland China. A researcher at the firm forecasts a $1200 gold price by year end. The investment trend in China is still relatively new and fresh. The upside potential for middle class purchasers remains big in the next few years. The researcher cited Chinese household savings reached 26 trillion Yuan this year alone, equal to US$3.81 trillion, no small sum. Gold and various jewelry sales in China are forecast to reach 260 billion Yuan this year, only 1% of the total savings (an easy calculation of $38.1 billion). By contrast, the India lead position is in the process of being relinquished. The high gold price is expected to result in notably reduced gold jewelry import in India, despite the holiday season, according to the president of the Indian Bullion Market Assn. See the China Daily article (CLICK HERE).

OFFICIAL GOLD SALES & HIDDEN TRACKS

◄$$$ INDIA BUYS 200 TONNES OF I.M.F. GOLD, SO THE STORY GOES. ABSOLUTELY NO STORY ON OFFICIAL GOLD SALES IS TRUE ANYMORE. INDIA BOUGHT THE GOLD WITH I.M.F. MONEY GRANTS. $$$

So the Intl Monetary Fund sold 200 tonnes of gold to the Indian central bank, as the story goes. No real mention of where the gold came from, but probably from member banks in the European Union in a concession for IMF support. Few are selling much these months, keenly aware of the broken monetary and banking systems. The official story is that the IMF gold targeted for sale over the coming years was intended to shore up IMF finances. Yet India does not have outsized surplus cash, and is reserves are mostly held in USTreasurys and silver bullion. They used, according to my sources, funds from the IMF itself to purchase the IMF gold. So the net transaction was more like an IMF grant in gold to India. The total value of the gold proceeds was $6.7 billion dollars, said the IMF, as the 200 tonnes represent 8% of global annual gold production. The amount is almost half of the 403.3 tonnes of IMF gold approved for sale by the institution's executive board in September. Indian officials spoke about the benefit of holding gold instead of cash in its reserves. Utter nonsense! Krishna Reddy is a precious metal analyst at Way2Wealth Commodities in Mumbai. He said, "There seems to be consensus among the central banks that it is better to cut down on currency holdings and diversify into assets like gold, which has upside potential. The Reserve Bank of India gold purchase is a clear reflection of this belief. Gold production has been declining for the past seven years, while demand, particularly the investment demand has been growing steadily. Central banks and even ordinary investors want to own more gold." Reddy did not mention the IMF grants, which have precedent.

Under its Articles of Agreement, all gold sales must be based on market prices. IMF managing director Dominique Strauss-Kahn said in a statement, "The transaction is an important step toward achieving the objectives of the IMF's limited gold sales program, which are to help put the fund's finances on a sound long-term footing and enable us to step up much needed concessional lending to the poorest countries." The institution announced on September 18th that the gold sales would be conducted in such a way as to safeguard disruption of the gold market. See the Bloomberg article (CLICK HERE).

In recent years, all IMF supposed sales have been more like completed short sales to close out borrowed gold by the Americans in the last decade. The Rubin Admin in the 1990 decade sold all the US gold and some of the European gold hoard as well. To say the Americans lost control of selling gold is a gross understatement. Suppose France lent the USGovt 30 tonnes in 1997, and the Americans sold it immediately into the market, or over the ensuing weeks to pull down the gold price as planned. Then the US owes France 30 tonnes, and must repay in time. Instead of paying it back, the USGovt puts out phony stories that the IMF is selling French gold, not with the US as buyer, but instead with an unstated buyer. The key is that the buyer is not named. The story hits the press, and sentiment is depressed for a spell as the public reads of a flood of gold dumped upon the market. It is all phony. Only when one reads that China or another party buys a given tonnage of gold does the story tend to be true, since that cannot be a rigged falsified story of a short transaction closed out. The USGovt has been stuck with admitting in its financial statements that it owns a great deal of 'Deep Storage Gold' using asterisks of its balance sheets. That is a euphemism for gold not mined from mountains containing ore not yet processed. It is a balance sheet sham that deceives most people who do not bother to inquire.

◄$$$ U.S.G.S. REPORTS HUGE GOLD EXPORTS BY UNITED STATES, MORE EVIDENCE OF THE USGOVT AND WALL STREET FIRMS SATISFYING PAST GOLD SHORT TRANSACTIONS WITH BORROWED FOREIGN GOLD. THE SIDE EFFECT IS AN AID TO NARROW THE USECONOMIC TRADE GAP, CURIOUSLY AND PERVERSELY. $$$

The average daily gold production for US mines was 520 kilograms per day (kg/d) in July, compared with 541 kg/d for June and 641 kg/d for full year 2008. The US Geological Service reports that mine output on a net basis declined over 8000 tonnes since the beginning of 2007 until June this year, and the US exported 2900 tonnes of 'Component Gold' in one year!

Two important points must be made. The output decline points out my thesis stated for three years. The inelasticity of gold supply, as RISING gold price results in LOWER production. One reason is depletion of easy deposits, while another is rising labor problems in hostile areas refusing to serve as colonialist zones of exploitation. However, the big reason unstated is the run on capital from covering failed hedges that drain mining firms of their capital, a loss of funds necessary for projects.

An entry in the accounting from USGS is worthy of billboard attention. The gold component is a ledger accounting item used (abused) by the USGovt to hide the shipment of enormous amounts of gold intended to satisfy and close out leased European gold (short contracts) from years ago, as in the Clinton-Rubin Admin. The shipments are hidden nicely in the obscure 'Component Gold' ledger item, when it is actually gold bullion. It might even be mine output from collusion partners such as Barrick. Component item is usually devoted to scrap gold and recovered gold, for which 2900 tonnes is a nonsensical astronomical amount, much like an elephant at the dining room table. This is both a tragedy and a comedy. The tragedy is that the last final amounts of gold owned by the USGovt on behalf of its people were shipped away. The comedy is that the accounting also calls it an export, which helps to reduce the trade gap imbalance. See the USGS Mineral Industry Surveys report (CLICK HERE).

BARRICK COLLAPSE IN SLOW MOTION

◄$$$ BARRICK GOLD TAKES ANOTHER HUGE LOSS, BUT ONLY ONE THIRD OF HEDGES WERE CLOSED. THEY ARE CHRONIC LIARS AGAIN, BUT REMAIN INSTITUTIONAL DARLINGS. SUCH IS EVIDENCE OF CORRUPTION IN THE INVESTMENT BANKER COMMUNITY. $$$

Barrick Gold posted a mammoth $5.4 billion net loss after its claimed conclusion of its ill-fated gold hedging program. The company raised a total of $5.1 billion issuance in secondary stock and long-term debt. It eliminated ONLY 1.1 million ounces of gold from its hedge book, equal to about one third of its overall hedged position. Past headlines promised a complete removal of their hedge book. Not so! Just like a year ago. Their hedge book will remain forever. They will cover ALL their hedge book again next year, probably less than one third of it. They exhausted the benefits of raised funds, and suffered a gigantic loss, again. They also exhausted their credibility, what was left of it. The stock has risen after the event, testimony to a corrupted institutional environment. See the Canadian Business article (CLICK HERE). My suspicion all along has been that bribes, kickbacks, and bonus fees are paid to brokers who recommend this acid pit as a stock investment, even though it is among the worst on the planet. They probably also receive government slush money. Barrick is destined for ruin, bust, and liquidation, maybe lawsuits. Speculation swirls that Barrick halted its hedge book resolution since it could not find adequate gold supply to purchase. That could be, but it also ran out of funds first, another lie.

◄$$$ BARRICK HAS BECOME A PRINCIPAL SOURCE OF INFORMATION TO EXTOL THE TREMENDOUS POTENTIAL OF GOLD. MINE OUTPUT IS IN A DECLINE, WHICH WILL CONTINUE UNTIL A MUCH HIGHER GOLD PRICE COMES. ORE GRADES ARE WAY DOWN. THEIR C.E.O. SELLS THE GOLD STORY, EVEN THE 'PEAK GOLD' STORY THAT WILL RUIN HIS COMPANY. WHAT A FOOL! LIKE A LORD OF THE FLIES! $$$

Aaron Regent is president of the Canadian gold mining giant. He said that global output has been falling by nearly one million ounces annually since the year 2000. He said, "There is a strong case to be made that we are already at 'Peak Gold.' Production peaked around 2000 and it has been in decline ever since. We forecast that decline to continue. It is increasingly difficult to find ore." Total mine supply has dropped by 10% during this decade. Ore quality has eroded, as grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South African gold output has been cut in half since its peak in 1970! In fact, output fell an additional 14% in South Africa in 2008, as they dug deeper, at greater cost, and found lower grades, while efforts were hindered by socialist rules and electrical power cuts. Harmony Gold expects to close two more SA mines over coming months due to poor ore grades. Barrick itself produced 1.9 million ounces of gold in 3Q2009, down from 1.95 million ounces a year earlier. Costs have been trending down to $456 per ounce, though rising energy prices create a new threat. Their total reserves are are claimed to be 139 moz, far more than rival Newmont Mining at 86 moz.

President Aaron Regent admitted the company delayed too long to ditch the hedge policy. The hedges oblige Barrick to deliver part of its gold output into futures contract delivery set long ago at levels far below current spot prices. The strategy worked well in the falling market of the 1990 decade, as part of Wall Street corruption. He is well aware of the heavy cosr to the company in lost profits during this decade. In lame fashion, he said "Hindsight is always 20/20. It was clear to me that there was a significant number of institutions who would not invest in Barrick because of the hedge book." Even worse, they are being punished for serving as a Wall Street tool, never having had an objective to be a legitimate gold miner. Only reputable investment houses shun Barrick. Regent said the hedge policy has badly damaged the share price and angered investors, a real bone of contention at every meeting.

The analyst writer Pritchard demonstates a naive mental state. He wrote, "The [Barrick] hedge book venture has not been a happy one, but those who predicted that Barrick would eventually 'blow up' on its contracts may owe the company an apology." He misses that Barrick is blowing up right here, right now, right before his eyes. They cannot close their hedge book. It will not go away. They are hemorrhaging all new equity and debt in a colossal dilution exercise. Wow! See the UK Telegraph article (CLICK HERE).

Some further comments on my side. The cited article provided some interesting information, worthy of rebuttal in strong terms. Ross Norman of theBullionDesk.com gave credit for overcoming supply shortfalls to central banks. He called them the 'false mine of central banks' as they auction off reserves. However, Norman claimed the central banks are switching sides to become net buyers. That is true, and great news, since many European central banks have dishoarded much gold tonnage onto the market. The Washington Accord lately has set limits on official gold sales which routinely are not met, meaning the banks are not selling as much as they are permitted. Norman reports that exploration budgets had tripled since the start of the decade, even as output has fallen, more evidence of supply inelasticity.

Pritchard mentioned that China has quietly doubled holdings to 1054 tonnes. He referred to the Chinese demand suspected to rise on price declines, called the 'Beijing Put' affectionately. Gold remains a tiny fraction of its $2.3 trillion in foreign reserves. Actually, China probably owns far more than a thousand tonnes of gold. My sources say likely double that figure. Pritchard cited the gold exchange traded funds (ETFs) and called them the 'Peoples Central Bank' with an accumulated 1778 tonnes. That would make them the fifth biggest holder after the United States, Germany, France, and Italy. He seems unaware that the leading ETFund in Street Tracks GLD has sold gold to the London Exchange as aid to satisfy gold delivery demands for futures contracts, thus averting defaults!!! The GLD fund also is using its shares to satisfy gold futures contracts. Pritchard at times is a great analyst with a keen acumen, but at other times he seems like a tool for the establishment as he parrots dumb data that bears no credibility, and is unaware of fraud.

RUMORS OF CHINA TO PURSUE NEWMONT

◄$$$ CHINA MIGHT SOON PURSUE NEWMONT FOR DIRECT ACQUISITION. THE POLITICAL LEADERS MUST FIRST CLEAR THE PATH FOR SUCH A GIANT MANEUVER, SINCE NEWMONT OUTPUT MIGHT BE STEERED TO CHINESE VAULTS. THE TAKEOVER COULD BE INSTRUMENTAL IN ACQUIRING A RAFT OF SMALLER GOLD MINING FIRMS, USING NEWMONT STOCK AS CURRENCY. $$$

China shakes up the gold industry. It is rumored to be interested in major North American gold miner. Newmont Mining is one of the world's largest gold producers. Its stock has been in a powerful uptrend lately, up almost 20% in just the last week. Behind most rumors are direct actions of inquiry, conversations, meetings, and involvement of agents to broker a deal. Some on Wall Street are speculating that China might wish to buy the giant company outright. China has been on an acquisition spree for gold and other real assets, mostly in Australia, but mostly for industrial metals. An acquisition of this scale would certainly require government approval, and serve as the next US test since the failed Unocal oil deal. Fortunately for Beijing leaders, their vast hoard of US$-based bonds can be used as leverage, not only to act as currency in any sale, but to enable the sale. The threat of withdrawn bond support can be an extraordinarily powerful item at the bargaining table. China has won its way with IMF negotiations for gold shipments, on G-20 domination over the smaller G-8, and even condoning weapons schematic plan thefts over the internet. They are gradually assuming a command position. If they pursue a major gold mining firm like Newmont, expect some heated political battles. One must also bear in mind that the rumor mill might be phony, used to fire up the mining stock sector after the origin of the rumor placed some multi-million$ bets on the table.

Business Week asked the clever question of whether China is assaying Newmont. The stock share price moved from 43 to 51 in a single week. To be sure, profits are set to jump markedly from the higher gold price on sold output. More intriguing is the speculation on Wall Street that China may be eyeing Newmont. Vincent Carrino of Brookhaven Capital Mgmt said, "The buzz is that if China wants to protect its currency and diversify its assets, it makes sense to buy Newmont." In 2008, the proven and probable Newmont gold reserves were 85 million ounces, located in Nevada, Peru, and Australia. China this year succeeded in acquiring a majority stake in Australia's OZ Minerals for $1.7 billion after an unsuccessful bid for mining giant Rio Tinto. If Newmont were taken over, control of its output might become a rather important point of dispute and contention, if not outright conflict. China keeps all gold mining output at a matter of policy, exports nothing, and alters the global market. China's current #1 gold producer is China National Gold, accounting for 20% of its own national output. In 2007, China mined 9.7 million ounces in aggregate, top ranked with 7% of the global yield. See the Business Week article (CLICK HERE).

Risk prevails. Recall that the largest mining firms are typically targets of extortion by the somewhat rogue nations. A few foreign governments have used ploys such as income tax violations, environmental issues over contamination like with mine runoff, and labor treatment in extortion. In July 2007, Newmont was embroiled in a nasty dispute with the Uzbek Govt in SouthEast Asia. The story was reported by the Hat Trick Letter at the time. The Uzbek authorities froze gold shipments and seized assets from Newmont Mining over a tax dispute. The Zarafshan-Newmont joint venture was halted on entirely trumped up nonsensical ploys with government cover on the illegal leverage. The Kangaroo Court in Uzbekistan ruled that Newmont owed $48 million dollars in taxes and fines from 2002 to 2005. The Newmont officials considered selling out its 50% interest in the joint venture, worth about $94 million dollars. See the Red Cape Denver article from 2007 (CLICK HERE). The Uzbek Govt agreed to pay $80 million to Newmont in consideration of the seized mine. Newmont management wrote off their Uzbek interest last year and the latest moves bring welcome closure to the issue. See the Fat Prophets story (CLICK HERE). When the dust clears, one must therefore wonder whether China would fare better against rogue governments bearing guns who resort to extortion. BHP Billiton has also run into roadblocks in the Philippines and Indonesia over environmental concerns, labor disputes, and more. My view is that large firms and their properties are targeted much like wealthy people and their children by kidnappers. Finally, China might pursue Newmont, but only after extracting as much gold bullion from the Intl Monetary Fund and myopic central banks.