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