Rob McEwen: $5,000/oz gold in 5 years?

DENVER GOLD FORUM

$5,000/oz gold? Rob McEwen says it's coming in 2014 or 2015

Über gold promoter Rob McEwen has also developed a taste for silver mining.

Author: Dorothy Kosich

RENO, NV -

When über mining investor Rob McEwen makes predictions on gold prices or appears to have developed an interest in silver mines, retail investors heed his clarion call and place their bets that the gold price is about to soar.

In a presentation to the Denver Gold Group on U.S. Gold Monday, McEwen was somewhat subdued as he only briefly mentioned he thought gold could hit $5,000 an ounce before the end of the gold cycle As this reporter scrambled for a clarification of his remarks in a brief interview, McEwen stuck by his prognostication, forecasting the end of the gold cycle would occur either in 2014 or 2015.

McEwen is so dedicated to the power of gold, he told his audience of fund managers, analysts, investment bankers and miners that he personally owns 21% of U.S. Gold. In comparison most major mining CEOs own a mere pittance.

He is steadfast in his belief that the Cortez Trend-which hosts Barrick's massive Cortez Hills gold project-will yield millions of gold ounces for his U.S. Gold company.

But, McEwen also has developed a fondness for silver, albeit he lacks the same passion for the precious metal as he feels for gold.

He declared to his audience Monday that "El Gallo, Mexico is becoming one of the world's great silver discoveries. " With a 540,000-acre position in what he called "highly mineralized lands," McEwen's U.S. Gold is spending $10 million in exploration over 12 months. He anticipates an initial resource and heap leach test during the first quarter of 2010.

Though he told Mineweb his interest in silver has been stimulated more by individual mining properties rather than a newfound passion for silver, McEwen has also become active in Minera Andes, which he says owns 49% of the world's ninth largest silver mine, San Jose in Argentina. By 2010, McEwen forecasts that San Jose will have 7.5 million ounces of silver and 95,000 ounces of gold. He also predicts the operating cash costs will go lower than the 29% drop to $4.99/oz achieved in the first quarter of this year,

He also believes that Minera Andes' Los Azules project is "one of the largest undeveloped copper discoveries in the world. And in keeping with his philosophy as Minera's Chairman and CEO, McEwen owns 33% of the company's shares.

As the years roll by, McEwen's legendary penchant for marketing to the max remains intact as he offered audience members trillion dollar notes as an impromptu raffle prize at the conclusion of his talk.

Chris Powell: Gold mining may not be profitable even near $1,000 per ounce

A friend, writes:

"I am confused regarding the average production cost of an ounce of gold. I have read a number of articles stating that the average production cost is at or near the current price, while other articles say the average production cost is about half the current price. Do you have any figures on the costs to produce gold exclusive of sales, marketing, administration, and so forth?"

There don't seem to be any official figures on this. It is largely a matter of informed opinion. The opinion of the people GATA most respects is that, if resource replacement costs are counted, the current price of gold does not allow for much profit on the whole for the gold mining industry.

One thing is pretty sure: For years now gold mining production has been falling substantially even as the gold price has been rising substantially and gold demand has been increasing. The gap between production and demand has been covered by central bank dishoarding and by the diversion of gold demand into more and more mere paper promises of the metal -- derivatives -- a growing system of what might be called fractional reserve gold banking.

This suggests that the gold price has not yet reached the point where it is encouraging production; that, on average, if replacement costs are counted, gold mining remains uneconomic even as the price nears $1,000 per ounce; and that a much higher price will be needed to match supply with demand, the more so as central banks reduce their dishoarding.

CHRIS POWELL, Secretary/Treasurer

Gold Anti-Trust Action Committee Inc.

Real price of gold is less than real price of central banking

Dear Friend of GATA and Gold:

National Geographic's January issue has what has been the usual "global" sort of article about gold mining, written by Brook Larmer, accompanied by stunning photographs taken by Randy Olson, and predictably enough headlined "The Real Price of Gold." The article's thrust is that gold mining is a dirty business with enormous costs to the environment and human health and that these costs are borne largely by poor people.

This is, of course, only half the story, and National Geographic should tell the other half:

-- That the environmental and health costs of gold mining can be remediated, but only with a higher price for the product.

-- That government price-suppression schemes not only impede the development of poor countries with natural resources but also push the less-regulated gold mining there into the irresponsible practices cited in the National Geographic article.

-- That gold is money and that the alternative form of money -- government-issued currency without any direct convertibility into gold, silver, or some other valuable commodity -- has infinitely greater environmental and human costs that somehow never get inventoried, including much easier resort to war, such as the U.S. invasion of Iraq, which probably would not have been undertaken if it had had to have been financed by direct taxation rather than borrowing and printing; overconsumption; and the general expropriation of the producing class by the financial class.

You can find the National Geographic article on "The Real Price of Gold" HERE

Let's see how long we have to wait for the colorful magazine spread on "The Real Price of Fiat Currency and Central Banking."

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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U.S. Mint suspends sales of 1 oz gold Buffalos

By Frank Tang
Reuters
Thursday, September 25, 2008

NEW YORK -- The U.S Mint said Thursday it was temporarily suspending sales of American Buffalo 24-karat gold one-ounce bullion coins because strong demand depleted its inventory.

"Demand has exceeded supply for American Buffalo 24-karat gold one-ounce bullion coins, and our inventories have been depleted. We are, therefore, temporarily suspending sales of these coins," the Mint said in a memorandum to authorized American Buffalo dealers.

The Mint also told dealers that it would work to build up its inventory to resume sales shortly.

In mid-August, a shortage of American Eagle one-ounce gold coins due to "unprecedented" demand had also forced the U.S. Mint to temporarily suspend sales of the popular coins.

The Mint said Thursday it would continue to supply the American Eagle 22-karat gold one-ounce and American Eagle silver bullion coins on an allocation basis to coin dealers.

In addition, the half-ounce, quarter-ounce, and 1-10th ounce American Eagle gold coins and American Eagle platinum were also available, the Mint said.

Coin dealers from the United States to Canada have recently reported a surge in buying of bullion coins and other gold products as troubles in the financial markets prompted people to seek a safe haven in precious metals.

On Thursday, the U.S. gold contract for December delivery ended down $13 or 1.5 percent at $882 an ounce on the COMEX division of the NYMEX, while spot gold traded at $873 an ounce.

Bullion hit an all-time high of $1,030.80 an ounce on March 17.

* * *

...and a snippet from BullionVault:


"...Longer-term, says Roland Duss - co-chief investment officer at Gonet & Cie, the Swiss private bank based in Geneva - the price of Gold Bullion could reach $2,000 or more per ounce over the next decade.

"We are still in a commodities bull market," Duss told London's CityWire news service on Wednesday.

"The growth in demand from emerging economies is such that it will exceed supply, so we are bound to have price hikes for another five to 10 years."

Duss says 95% of additional demand for energy, metals and other raw materials is coming from emerging economies. Developed OECD countries simply don't have an impact.

"On the supply side [in contrast] there is a lot of destruction. For metals, there are too many cost increases, which means that some mines are not going to be there."

World gold mining output peaked in 2003. Ian Henderson, head of J.P.Morgan's $5bn Natural Resources Fund, believes we need "a sustained price level of over $1,200 an ounce before we see any significant new mine build."

The CEO of world No.4 gold miner Gold Fields, Nick Holland, says his company's assets would require a market-price of $2,000 and above "if you tried to build these mines today" to justify the investment.

"Already at cost levels between $600-700 an ounce," notes the latest Precious Metals Weekly from Wolfgang Wrzesniok-Rossbach at Heraeus - the German refining group - "many mines will find it difficult to continue production.

"This should put a check on fresh supply. At lower prices, the feasibility of processing 'scrap gold' [meaning old jewelry and electronic bonding wire] will also be severely tested - and at the same time it should significantly encourage jewelry demand.

"As such, in the next 15 months, we do not see the gold price falling for any extended period of time below these levels"

***

Gold sales meant for market manipulation, MineWeb chief acknowledges

MineWeb chief Lawrence Williams speculates that central banks may attempt major sales of gold to support the fading U.S. dollar -- an acknowledgement that central banks undertake to sell gold not to diversify their reserves or relieve themselves of the expense of storing a supposedly dead asset, long their cover stories, but to manipulate the currency and government bond markets...

Possibility of big Central Bank gold sales to help try and stabilise the dollar

The prospect of new Central Bank sales of gold to try and contribute to dollar stabilisation is likely to be under consideration. Will this happen, and, if it does, what will be the likely effect on the gold market?

Author: Lawrence Williams
Posted: Thursday , 17 Jul 2008
LONDON -

Following various pronouncements in Washington and elsewhere there seems little doubt that moves are being discussed to try and halt the greenback's seemingly ever-spiralling downturn now that the Fed is beginning to concern itself with inflation. This may just mean US interventions in the markets to buy dollars, but could also be the prelude to some concerted sales of gold into the market as higher gold prices are themselves seen as an indication of dollar devaluation (which indeed they are) and so the feeling among some Central Bankers is that a gold sell-off will in turn help stabilise the dollar.

This may well occur. Be warned. There are enough gold disbelievers in the sector to make it happen. But one suspects it will be of little use in the medium to long term. The U.S.'s economic malaise cannot be halted by selling the best indicator out there of dollar weakness. The weakness goes far deeper structurally into the American dream which up until the second half of last year had been boosted by virtually unlimited credit, a significant proportion of which was being taken up by those who could least afford to repay it in a downturn. Unfortunately the American dream has de facto become a global dream as the world's economic powerhouse has aggressively exported its ideas of capitalism (behind the smokescreen of democracy) all around the world - sometimes by force where it has seen its economic interests and security threatened.

The banking and investment sector - particularly the former - has to take a huge amount of responsibility for what has occurred. Traditionally an ultra-cautious sector, this caution seems to have been thrown to the winds in the name of ever increasing profits as enormous sums of money are moved around and where even a fraction of a percentage turn on which is worth billions of dollars. Perhaps the problem is that investment banking these days is largely populated by the young and overly-aggressive, dazzled by riches beyond belief and corresponding greed, with corporate bonuses running into sums which seem to exceed the GDP of some countries! Most of all they are those who have no prior experience of a really serious downturn.

The culture is alarming to the person in the street who only earns a tiny fraction of the kinds of sums available to those with few scruples and mega incomes and who may look down with disdain on those who have not selected careers which can generate such extremes of wealth.

Perhaps this is a little unfair and is only painting a picture of the extremes in the sector. There are still plenty of traditional conservative bankers around who are probably just as horrified at some of those they have to rub shoulders with and whose warnings have gone unheeded. They are taking command now and some of their cautions in dealings with fellow banks are perhaps at the root of the credit crunch which means that almost all risk elements have to be removed before loans - corporate and personal - are approved.

But there is still a debt mountain out there and credit card issuers have to be the next area where some financial collapses have to be on the cards as more and more individuals default on credit card debts - a worrying parallel with the mortgage defaulters who have dominated the analyses so far and who have precipitated runs on banks and savings and loans (building societies to us Brits).

But we digress. Will the bankers sell gold to try and reverse the dollar slide? And if they do will it make any serious difference to the gold price, or the dollar, anyway? Short term negative gold price impacts may result, but overall the fundamentals behind the dollar weakness cannot be undone by such an artificial procedure. Indeed if such sales are made openly, and the gold price is not significantly affected, which has to be a possibility, then the dollar may be seen as being even weaker still.

What is likely to be the dollar saviour in terms of currencies like the Euro and perhaps the Yen, is that the US has very successfully exported many of the problems it is currently facing to the Euro zone and elsewhere and only now is the true impact of the financial crisis in these areas beginning to sink in. We are seeing housing price collapses in some European countries - the trigger behind the US downturn - and as the US economy begins to stabilise, which it probably will, the downturn is beginning to get under way elsewhere and other economies will weaken. That may be what truly halts the dollar slide.

Another factor which could impact the dollar positively, and gold negatively, is a bursting of the oil price bubble. Gold has moved up with the oil price and it may move down with it too until it eventually is likely to decouple and find its own way. This has already been seen in the past couple of days and something we warned about here only a couple of weeks ago. See: Is gold too low compared with oil - or is it that oil is just too high?

Although Paul Walker of GFMS recently told Moneyweb/Mineweb his research group is not seeing a decline in gold production worldwide, it is not seeing an increase either which would seem strange given the big rise in the gold price over the last few years. Indeed it would appear that the gold mining sector is facing difficult times and if the returns are not there we are going to see production decline anyway. It's a fine balance between price and production and with bankers being over-cautious with their loans we are certainly going to see a number of what would have seemed to be probable new gold mine developments and expansions curtailed, deferred or postponed indefinitely.

This alone would help mitigate the impact of any Central Bank sales, while the investment take-up of physical gold through ETFs has become an almost overnight phenomenon. It is again becoming respectable (and much easier) to hold a direct investment in gold bullion and with more and more institutions beginning to recognise the value of holding gold as part of a balanced portfolio there is likely to continue to be growth in this sector of the market.

So, should Central Banks sell gold to try and help stabilise the dollar, apart from some short term dips around the gold sales themselves, it is likely the markets will absorb whatever is thrown at them. This would be either through a decline in production and continuing increasing investment demand, not to mention some likely purchases by some central banks which a) believe in gold and b) feel they need to hold more of their foreign exchange reserves in some currency other than the US dollar - and in this respect gold definitely counts as a currency.

While there may be a negative impact in that gold might not move upwards as fast as some would predict, longer term fundamentals look good for gold and with economic instability likely to continue for some time one has to remain positive on the price.

Erste Bank Gold Report: A Shiny Outlook!

In a 60 page Special Report on gold, Austria's Erste Bank analyst, Robert Stoeferl reckons that in spite of the recent correction the yellow metal "remains in a secular bull market and that the positive fundamental outlook will not change a lot over the remainder of the year and beyond."

With seemingly massive support seen around the $850 level, the report suggests that the price will remain in the $850-$950 band during the summer months with the $1000 mark being clearly passed again later in the year. Passing $1200 is seen as the first target and in the long run the price is seen as passing the inflation-adjusted all-time high of $2,300.

As if to place emphasis on the remonetisation aspect of gold, Stoeferle concludes his report with the J.P. Morgan Satement to the U.S. Congress in 1913 - "Gold is money, and nothing else".

To access the 60 page Gold Report, please click HERE

Junior Mining summer shopping spree?

According to Financial Journalist Peter J. Cooper writing from Dubai, this coming summer may be just hot enough to ignite an aquisitions rush for promising and undervalued junior miners.

You can read P.J. Cooper's post called "Stalking the best gold and silver juniors a profitable summer sport" at his blog HERE

Why high gold prices haven't led to more production

By Fabrice Taylor
The Globe and Mail, Toronto
Wednesday, April 16, 2008


Ask an economist what happens to the supply of a commodity as its price rises and he'll tell you it eventually goes up as producers try to take advantage of good times.

History shows that it isn't necessarily so with gold, though, and that history makes a pretty good case for the metal.

In the 1970s, bullion prices rose from $35 (U.S.) an ounce to $700, yet gold production fell sharply. Why? In 1970, the gold mining industry was in terrible shape. The majority of production - 80 per cent - came from underground mines, and most of that from South Africa. Underground mining is very expensive.

Until 1968, the price of gold was fixed by central banks at $35/ounce. (It was called the Gold Pool). The cost of mining wasn't fixed at all, of course, so the profitability of gold mines was crushed. So producers started high-grading their ore bodies, stripping out the richest ore rather than taking a little good rock and mixing it with a little lower-grade rock.

Production rose because the mills kept running at capacity, by and large, but were processing higher-grade ore, and were thus putting more ounces of gold into the market.

At the same time, producers cut back on exploration and development to conserve cash.

This explains why by the time the Gold Pool, and the broader Bretton Woods accord, were fully unwound as the decade turned over, production was peaking, and why, in the seventies, as the price soared, production fell. Mine operators -- the ones that survived that is -- had to start putting lower-grade ore through their mills because the good stuff was gone.

They hadn't spent enough on exploration, so they hadn't replaced their reserves either. They didn't have the money to expand after so many lean years. Plus, although the price rose for much of the seventies, costs also rose rapidly because of inflation.

Sound familiar? The situation today isn't much different. Gold prices are way up, but producers aren't making much money. And despite a rise in bullion prices -- a big and drastic rise -- there's not a lot of new capacity coming on stream.

According to the U.S. Geological Survey, world gold production peaked in 2000 at 2,600 tonnes. Gold prices pretty much bottomed, with respect to the current cycle, around that time. In six years, production fell to 2,460 tonnes. There will likely be a small decline when the 2007 numbers are published. Production in 1970 hit 1,480 tonnes before falling to 1,200 in 1975, where it stayed for several years before climbing sharply in the eighties.

But there's a difference between today and the 1970s, says gold maven and stockbroker (and my former business partner) Murray Pollitt, who provided me with the above information.

In the eighties, when gold prices stabilized around $350-$400/ounce, production moved in earnest from underground mining, which is expensive and generally smaller scale but higher grade, to big open-pit mines, which are relatively cheaper but low grade. A lot of tired underground mines, stripped of their juiciest ore, became open pits, thanks to advances in technology and cheap fuel (open pits use a lot of diesel). That allowed ore that was previously uneconomical to see the light of day, literally and financially. But the industry's fortunes didn't improve much, and they really started to turn south in the following decade.

The upshot is that today, while we have rising prices (especially in U.S. dollar terms), we also have soaring costs, dropping production and a dearth of inventory in terms of untapped reserves. Imagine what oil at $112 (U.S.) a barrel will do to open-pit mines.

Look at some of the big projects that are touted as a big deal: Barrick's Pascua Lama, which is way up in the mountains of Chile and has a huge royalty on it, not to mention the billions in investment required to get it going. Galore Creek, in British Columbia, which was mothballed when the cost of getting it producing skyrocketed. Hope Bay? Dubious also.

In a nutshell, supply today is falling, perhaps irrevocably so. Demand? Rising, in fits and starts. There's inflation in the air, there are ETFs that make it easy for retail investors to buy gold directly and there are sovereign funds with tens of billions of dollars looking for a home and probably not looking for more U.S. Treasuries.

The demand side would be even more bullish if gold was still viewed as money. How likely is that ever to happen again?

Well, maybe more likely than you think.

For the past few decades, governments, led by the United States, have done their best to strip gold of its role as currency in favour of paper money. But history is long, and in its fullness, gold has spent far more time playing the role of money than not.

As Mr. Pollitt points out, not that long ago the United States preferred gold to fiat money. As owner of both a creaky financial system and the single biggest depository of bullion, it might be tempted to return to that preference one day.

----

Fabrice Taylor is a chartered financial analyst.

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Newmont Mining: Gold Getting Scarce

Gold Getting Scarce

MoneyNews
Wednesday, April 2, 2008

PERTH -- Discovering the next mother lode is not as easy as it used to be, the world's second-largest gold producer, Newmont Mining Corp (NEM.N: Quote, Profile, Research) said on Wednesday, as it plans to spend nearly a quarter of a billion dollars on exploration this year.

There has been shrinking number of gold finds above five million ounces, Newmont's general manager for Australia Adriaan van Kersen told a gold mining conference in Perth.

"Newmont depletes its reserves at 10 ounces a minute and needs a replacement discovery rate of near 14 ounces a minute," van Kersen said.

Newmont counts about 86 million ounces of gold in reserves at its mines worldwide and has earmarked between $220-230 million for exploration in 2008, he said.

"Exploration is not only becoming tougher and riskier but more expensive and it is becoming more and more difficult to find gold in any surface quantity," van Kersen said.

Van Kersen, cited Newmont's lack of a big discovery recently as indicative of the plight of the gold industry as the whole.

Only 4 percent of gold deposits in the world hold more than five million ounces in reserves, he said.

"As an industry, we are spending more and more on exploration but even in a high demand and high price environment, and more drilling happening, the gold sector is not discovering the same ounces as it used to," van Kersen said.

At the same time, costs for everything from buying trucks and fuel to hiring workers, up 24 percent in the last year, are biting into operations, he said.

Newmont plans to mine between 5.1 million and 5.4 million ounces of gold this year, he said.

World No. 1 gold miner Barrick Gold Corp said recently it held 124.6 million ounces in reserve as of December 31, 2007 and would spend $200 million exploration in 2008.

Gold Digger

from Fund Strategy
by Vanessa Drucker

Where were the gold bugs in 2001, when the metal touched a low of $255 an ounce? Long snuggled deep in the mattress, they began to creep out as the metal price rose. It reached a plateau in 2004 in the $400 range, and then took off in earnest after July 2005.

The gold bugs refuse to concede that we could be in a speculative blow-off phase of frothy glitter. They point to the 1980 high watermark at $877 an ounce, and claim that price would convert to more than $2,000 (£1,000) today.

Notwithstanding, there are plenty of reasons to be cautious, or even downright bearish, at today's lofty levels. A host of factors already signal a potential turn in the multiyear uptrend.

A confluence of disparate drivers has always buoyed or buffeted gold. Since about 2004, the mix of these drivers has shifted, with implications for the price action. Today, the critical factors are: the dollar; economic uncertainty; supply/demand forces; and the new-found popularity of the exchange traded funds. A look at how these factors are evolving may shed some light on where the gold price is heading next.

"We remain wedded to the view that the US dollar is the principal, longer-term driver of the gold price," says James Steele, chief commodities analyst at HSBC. He expects the relationship to continue as long as the dollar remains the world's reserve currency.

Gold, widely regarded as a hedge against a falling greenback, has performed an intimate inverse dance with the dollar over the past 40 years. Turning points coincided in 1976, 1982, 1988, 1994 and 2000. While the correlation remains high at 0.91, the two asset classes do not move exactly in lockstep. "If they did, we could do without precious metals traders," Steele says. "We could just trade foreign exchange."

Dan Smith, gold analyst at Standard Chartered, notes that a less linear relationship has developed over the past six months. Incremental dollar weakening keeps boosting the gold price, while dollar rallies barely affect the metal.

"It may show that people are steadily building long-term gold positions as they piggyback on dollar weakness," suggests Smith.

Interest rate cuts by America's Federal Reserve, instituted to boost a sagging economy, highlight the gold/dollar linkage. For example, on January 22, 2008, the Fed surprised markets with its announcement of a dramatic three-quarter point cut. That news rapidly depressed the dollar, as gold soared through $900.

"Real interest rates and the dollar are two sides of the same story. When people refer to inflation shocks, they are also describing a drop in real interest rate environments," says Michael Lewis, global head of commodities research at Deutsche Bank. He points out that as long as real rates run 2.5% or lower, as they did in the 1970s, gold performs well. At the moment, inflation appears poised to climb, while the dollar loses real interest rate support.

Yet the role of inflation is not straightforward. To the extent that gold remains denominated in dollars, yes, it embodies an inflation hedge. At the same time, the perceived correlation between gold and inflation is probably a carryover from memories of the 1970s and 1980s. When we examine more recent patterns of American inflation, we observe that core inflation fell from 3.38% in 2000 to 2.83% in 2001, and then down to 1.59% in 2002, according to monthly rates published by the Bureau of Labor Statistics.

Gold barrelled up and up during those years. From 2005 to 2007, inflation skidded from 3.3% to 2.85%. Gold kept ascending, at an even more feverish pace.

Political and economic risk and instability of all stripes is another prime driver. In its long-standing role as a safe haven asset, gold can react to any type of turmoil that strikes on the world stage. "It is not even the type of risk that matters, but rather the severity," Steele comments. When the credit markets seized up last August, why should gold then have fallen initially? The reason, it transpired, was that many investors, who needed liquidity, were selling their gold. Once again, the metal was duly performing its function.

Looking back, from 2001 through 2005, financial and political deterioration was building on all sides. At the same time, many investors still regarded the environment as a temporary blip that would soon readjust. It did not. By 2007, the economic uncertainty dwarfed that of the previous six years, as the subprime crisis, real estate weakness and financial illiquidity came together in a perfect storm.

Compared with economic dramas, reverberations from geopolitical incidents barely qualify as second order events.

"The idea that events such as terrorist attacks provide much catalyst has largely been discredited," says Andrea Hotter at Dow Jones Newswires. She points to the London underground bombings, and even the 9/11 terrorist attacks, as examples of incidents that produced fleeting reactions in the gold price.

Other fears prompt hoarding. It is worth noting that certain Middle Eastern investors, as well as central banks of countries that may be suspicious of American policies, have also been storing gold. "In the post 9/11 environment, some of them fear having their US accounts frozen, if there is a link to terrorist activity. So they invest in gold and other alternative assets," says David Thurtell, metals analyst at BNP Paribas. Similar behaviour occurred in the aftermath of the American hostage drama in Tehran in 1979.

Like all commodities, supply and demand must balance to clear the gold price. From the supply side, consider the case for "peak gold". Until it was overtaken by China, South Africa was the world's largest producer, providing more than 1,000 tonnes a year in the 1970s. Its output has contracted to 248 tonnes a year because of ageing mines, which are deeper and harder to access, and new legislation.

"Before, mine owners had the right to exploit their holdings easily, but now they need to obtain licences and agree to create jobs, undergo environmental audits and build schools and hospitals," says Ross Norman, director of TheBullionDesk.com.

Supply constraints got worse this January, when Eskom, a South African state utility, declared wide-ranging power cuts, forcing mines to close their operations for safety reasons. Many of the mines extend five kilometres below ground and rely on lifts and electricity. If Eskom cannot ensure uninterrupted power supplies, the mines cannot take the chance their workers might be trapped underground.

Mark Bristow, president of Randgold Resources, focuses on attracting first world capital to reinvest in African mining projects in Ivory Coast, Mali and Tanzania. He describes how cost and risk profiles have changed as "across the board, miners constantly run into first world intervention". Resistance from green movements has made mining more challenging in places such as Canada, America and Australia, and shifted the focus to emerging markets.

Production is also falling in Australia and Canada. "Even in China," says Norman, "where they are going for the richer grades, they may have exhausted their mines by about 2014."

Also affecting production are a dire shortage of mining equipment, inadequate infrastructure and a dearth of professional skilled labour at all stages of the production process. Steele says the global commodities boom has strained the supply chain and compelled the gold industry to compete with coal, base metals and other precious metals for "scarce human and material resources".

In another ongoing trend, the larger gold miners have been buying back their hedge books. Smaller operations may still be hedging to obtain finance, since banks are not necessarily willing to lend if they fear the commodity's price might collapse.

The miners have undergone a massive mindset change since the late 1990s. "In the past, they used to sell forward into every rally and kill it, and the price would sink. Now they let the price levitate higher as it goes from elastic to inelastic," says Norman.

The real sea change is the conduit forged between the gold markets and the investment world. The physical gold market itself is small, "but the derivatives traded on its back are huge", Bristow points out.

"Despite the dehedging programmes, about 39m ounces of gold are still hedged in paper, and that must be delivered."

Hitherto, trading had been focused on the Comex in New York, the Tocom in Tokyo and the London spot interbank market. Now, exchanges are racing to open their doors to gold trading across a much broader jurisdiction. In January 2008, a new futures market was added to the two spot exchanges in China, along with new platforms in Dubai, India, Singapore and Vietnam.

The chief catalyst of demand is the development of the various new exchange traded gold funds, beginning in March 2003. ETFs, which must back the shares they issue with bullion, now command at least 10% of world demand, which is a quite a sprint from nothing, in five short years. Hotter explains that they are attractive to both institutions and individuals because they are so easy to invest in, with "no storage to arrange and no punt on the futures market."

Lyxor Gold Bullion Securities, Europe's largest gold exchange traded commodity, now holds 108 tonnes, with a value of about $3,186m. Overall holdings from all the gold ETFs constitute about 630 tonnes, which ranks them up there among the top 10 central bank holders, according to Jon Nadler, senior analyst at Kitco Bullion Dealers in Montreal.

In January 2006, David Davis, an analyst at Andisa Securities, famously described ETFs as the new "people's central bank - a force to be reckoned with". So far, the ETF money has tended to be sticky, apportioned 70% among individuals and 30% among institutions. "While central banks have been dumping gold, individuals have been quietly buying it and, even more amazingly, holding on to it," comments Owen Rees, head of business development, Europe, at Exchange Traded Gold, the World Gold Council's marketing arm for various ETFs.

Rees points out that the ETFs exhibit a volatility pattern similar to the S&Ps, compared with open interest on Comex, which "swings wildly". In mid-2006, when the gold sector corrected, the entire ETF franchise only lost about 3% of its assets, and then regained that value in about a month.

Those are the elements of the brew that has been simmering to keep the gold price soaring.

Is it ready to bubble over any time soon? That is the actionable question investors need to know. A quick survey of the drivers themselves - the dollar, the economic instability and supply and demand, especially investment demand - may reveal some clues as to why the price could head south.

If the fate of the dollar is the key determinant, much depends on its direction. While it has been in a long term downtrend, it is worth remembering that most dollar cycles last about seven years and this one is getting long in the tooth. "The dollar may continue to weaken against the euro to $1.60," suggests Lewis, "which could provide a last boost with overshooting and extreme misalignment." Every past cycle has ended with central banks coming to the rescue.

The currency team at HSBC holds a similar view. Based on purchasing power parity (how much it costs to buy the same items in different countries), it regards the euro as overbought already. It attributes much of the recent rally to capital inflows for the purchase of European equities, which are now quite expensive. Dollar bulls are beginning to emerge from the woodwork, though most agree that the Asian currencies will continue to pose formidable competition.

Next, look beyond the storm clouds gathered on the horizon. Imagine if the economic malaise began to clear up. At some point, the banks will finally write down the bulk of the subprime mortgages and leveraged loans that have triggered the credit contraction. Suppose that liquidity flows again in normalised patterns.

"When the credit markets settle, they will remove a supporting plank from gold," Steele predicts.

Even on the geopolitical front, there is some hope that military operations will wind down. Nadler believes we are now well into a speculative stage for gold - a last hurrah built on the post 9/11 anxiety premium. He says: "It began when the US invaded countries in the name of the war on terror, setting up an epic battle of religions, of good and evil. It snowballed over the past two years. Deficits mounted, with the haemorrhage of war expenditures. The panic may have peaked about the time Benazir Bhutto was shot."

Alternative asset classes have been commanding an increasing share of investors' portfolios as a method to boost risk-adjusted returns. At the same time, emerging markets, supported by the decoupling thesis, have been gaining popularity.

Part of the reason is that success breeds success, and those classes have generally outperformed. Yet commodities are no one-way street. Despite the ravenous appetite of emerging markets across the gamut, commodities remain volatile by nature. Nickel and zinc have fallen 50% from their 2007 highs. Copper has tumbled sharply and white sugar has declined from about 22 cents a pound in early 2006 to 14 cents this year.

How will the supply equation weigh up against the demand for gold? In a nutshell, jewellery fabrication demand is down, scrap sales are up, overall central bank sales are flat to sideways and investment demand is up - hugely so.

According to World Gold Council statistics, in the fourth quarter of 2007 the high price had a major impact on fabrication demand - most significantly in India, where identifiable tonnage demand fell by 17% from the year before.

Steele, who sailed with the Merchant Marines, uses a nautical metaphor. At sea, the first visible current is only 100 feet deep, moving on top of a massive subcurrent below. The shallow current is like investment demand - a driver for the gold price on any given day. The fabrication demand - the real bedrock - is like the current that flows beneath.

The supply story could also be ready to turn around. The mining community has spent more than $24 billion on exploration during the bull cycle, according to Nadler, and is now in a position to launch significant output. Between now and 2012, he foresees an increase of 25% a year. Whereas we are already seeing 2,200 tonnes of fresh mining output each year, by the end of that time-frame, expect a further 450 tonnes of additional supply. "Investors had better be willing to buy," Nadler warns.

Prospective buyers are not hailing from the central banks. Since the Washington Agreement established in 1999 that central banks could each sell 500 tonnes a year, many of the European institutions have been divesting their holdings. Many central bankers, newly minted MBAs, are keen to improve their investment returns, relying on equities and bonds instead. Their lending lease rates for gold are so low (about 0.35 for 12 months) that they have stopped lending it out altogether.

Only Russia, South Africa and Argentina are increasing reserves. The International Monetary Fund, whose 103m ounces of gold is second in quantity only to that of America and Germany, has announced plans to divest some of it soon.

Even the valiant ETFs may not be able to keep the party alive, but they helped to goose the price on the way up. They could add to selling pressure just as easily in the other direction. On January 16, the StreetTracks gold ETF dropped 21.5 tonnes in a record swoon.

Rees is not rattled. "It is the wrong question to ask, whether or not gold has gone too high," he insists. One should, of course, not always expect the price to go up, but should instead focus on assembling the right assets for protection, regardless of the economic environment. Studies from the World Gold Council demonstrate that gold is a more reliable diversifier than other commodities, and together with platinum exhibits the least volatility.

Rees adds: "We want people to invest responsibly, and we believe we can offer a sensible way to use a low-cost product."

Why gold?

King Midas learned the hard way. In India, people still eat it as a blood cleanser and use it as an aphrodisiac. John Maynard Keynes dismissed it as a barbaric relic. Many are curious as to how gold maintains its significance in a world driven by fiat currencies. Whatever the reasons, Joseph Schumpeter, the economist, acknowledged its predictive function as a barometer: "The modern mind dislikes gold because it blurts out unpleasant truths."

Jon Nadler, senior analyst at Kitco Bullion Dealers in Montreal: "It is portable money and universally acceptable. At the end of the day, it is a liability-free asset. No-one can print it at will so it is limited in quantity - unlike paper money." Dan Smith, gold analyst at Standard Chartered: "Across the metals complex, some - like zinc and copper - are leveraged to construction. But gold is not driven by fundamentals." Ross Norman, director of TheBullionDesk.com: "Gold is a bellwether of economic activity and goes both ways. It can tell you that things are very good or very bad." Axel Merk, manager of Hard Currency fund, California: "It's so dense, you can store a lot in a small space - unlike, say, silver. Another feature of gold is its lack of industrial applications. That makes it far less subject to the business cycle and a pure reference point for money. Gold cannot go to zero, but fiat money can." Michael Lewis, head of commodities research at Deutsche Bank: "It's indestructible, imperishable and can be stored. It is driven more by financial than by physical supply and demand. If you closed all the gold mines, you would run out in 45 years. If you closed every oil well, you would see power cuts in a couple of weeks." James Steele, chief commodities analyst at HSBC: "Other hard assets, like timber or property, can't be sold in such a hurry. And they are not fungible. Every parcel of land is different from every other one. The same goes for diamonds or rare coins."

The new global gold rush

by ANDY HOFFMAN
From Saturday's Globe and Mail
February 29, 2008 at 8:54 PM EST


Tye Burt has always been able to get the most out of the unwanted, the discarded and the overlooked.

As a young boy growing up in Green River, Ont., he would vigorously polish bruised apples from his family's orchard and then sell them to motorists on the side of the highway at full price.

It was a trait that he carried with him. Four years ago, on a trip to Nova Scotia, Mr. Burt purchased a decrepit wooden schooner, a vessel that had been a star exhibit at Expo 67 but had been so neglected it was barely seaworthy.

The mining executive oversaw painstaking work that restored the schooner's former grandeur to the point when last fall the Atlantica was suitable for the Duke of Edinburgh to enjoy as part of a Canadian charity tour.

Those were mere fix-up jobs, however, compared to what Mr. Burt has done since taking on the top job at Kinross Gold Corp. in 2005. He gutted the management team and orchestrated a corporate restructuring, and is now taking the Toronto-based miner into places many once feared to tread. His favourite destination? Russia.

"As we see the traditional sources of gold production, like South Africa, like the United States, like Canada in decline, Russia is growing in prominence and in prospect," Mr. Burt says. He suggests there are 300 million to 400 million ounces of untapped gold in Russia.

Kinross is by no means the only gold miner jetting off to wild and wooly regions. Amid record gold prices — bullion settled at $975 (U.S.) an ounce in New York after surging to a record $978.50 yesterday — the entire industry has had to look beyond its comfort zone. Way beyond.

"The places you can go to find and develop new deposits in a friendly way are shrinking," Mr. Burt says.

In what could be a new gilded age, countries like China, Russia and some developing parts of Africa are poised to become the new bullion-producing juggernauts, despite the fact that foreign miners have had trouble securing certainty of their land titles in these areas. Those willing to take on the risk of trying to build mines in these countries could be in for huge rewards — or humongous heartbreak.

"Regions that a few years ago the majors wouldn't look at are becoming increasingly attractive," said William Tankard, a senior analyst at GFMS Ltd., a London-based consulting firm to the precious metals mining industry.

China, with a hundreds of small gold mines operated by a seemingly inexhaustible labour force, recently ended South Africa's century-long reign as the world's top-producing gold nation, according to GFMS.

China produced 276 tonnes of gold in 2007, or roughly 9.7 million ounces. That was a 12-per-cent jump from 2006, GFMS said. By contrast, South Africa — the world's largest gold producer since 1905 — produced 272 tonnes, an 8-per-cent decline from the year before.

Faced with the rising technical and safety challenges to mine ever-deeper deposits, as well as production cuts due to electricity shortages, South Africa is unlikely to ever regain its title as the planet's best place to mine gold.

In South Africa's wake, the smart money is all over the map.

Just last month, Richard O'Brien, the head of Newmont Mining Corp., conceded that the world's second-largest gold company will have to travel to places it had once considered off limits in its quest for rich sources of the precious yellow metal.

"We enjoy staying in regions with a more stable environment like Canada," Mr. O'Brien told analysts. "[But] people ask when we will go to China, Russia or the Democratic Republic of Congo. I can't say when, but at some point, I anticipate we will be in all of those."

Gold miners have always had to go where the gold is but the current dearth of large-scale deposits in mining-friendly countries has created unprecedented challenges. The sands of the gold mining industry are shifting and they are headed toward places mired in alarming uncertainty.

"I'm going to predict that other major mining companies are going to go to Russia in some size in the future," Mr. Burt says. "There will be partnerships in multiple metals. So yes, we're well positioned."

KINROSS REBORN

That wasn't a claim Mr. Burt would have made when Kinross lured him from a senior management position at Barrick Gold Corp.

At the time, Kinross was a basket case of a gold company, burdened with a scattered portfolio of high-cost and mostly low-grade assets, largely controlled by the company's joint venture partners. Its prospects for growth were dismal.

Kinross looked destined to be stuck with shrinking reserves and flat production hovering around 1.5 million ounces of gold per year. The situation was so bleak that, in the midst of an investigation by the U.S. Securities and Exchange Commission into the way the company had accounted for a three-way merger with a pair of Canadian rivals, Kinross didn't published financial results for a year.

"Nobody was considering Kinross as a serious investment or a serious player," said Catherine Gignac, an analyst at Wellington West Capital.

Many investors thought its best hope was as a takeover candidate.

Less than three years later, Mr. Burt has orchestrated a stunning turnaround, positioning the company as a growth leader rather than suffering prey.

The company's gold mine portfolio has been transformed to focus on better-quality mines in fewer regions, including Chile and Brazil, where Kinross has full control of operations, cost expenditures and exploration spending.

A $3.5-billion takeover of Bema Gold that closed early last year helped give Kinross bragging rights to the best near-term growth prospects among major gold producers.

Annual production is forecast to rise 60 per cent over the next two years to 2.5 million ounces as a massive expansion of its low-grade but long-life Paracatu mine in Brazil comes to fruition, along with a new mine in Washington state.

Yet with the price of gold charging toward $1,000 an ounce, Kinross's most promising asset in the short term is also its most contentious.

Less than three months from now, Kinross will begin commercial production at its $705-million (U.S.) Kupol project in Russia, well north of the Arctic Circle.

The mine is endowed with an exceedingly high grade of roughly 19.5 grams of gold per tonne of ore. That will make it one of the lowest-cost gold mines in the world at a time when bullion producers are grappling with soaring costs.

In gold mining, however, a mine's location can be just as important as its economics. And with Kupol, more daunting than its remoteness is Moscow, nine time zones to the east.

'THE NEXT BIG PLACE'

Few dispute Russia's promising mineral potential. Currently the world's fifth-largest producer of gold, it has 9 per cent of the world's gold reserves.

Mr. Burt believes his company is blazing a trail that will soon be crowded with larger competitors looking to partner with Russia's domestic producers. "From a resource perspective, I think Russia is the next big place," he said.

Seventy-five per cent owned by Kinross, Kupol will be the largest foreign-controlled mining operation ever in Russia. (The minority is held by the local state government of Chukotka.) Kinross, of course, is no stranger to the country. The company has been mining gold in the far east of Russia for 12 years, first with its now mothballed Kubaka mine, which it sold to Russian producer Polymetal last year for $15-million, and currently with its Julietta mine, which it acquired as part of the Bema takeover along with Kupol.

Key to the company's success in Russia, according to Mr. Burt, has been keeping strong ties with Moscow, vigorously avoiding corruption and being a "good corporate citizen" by funding social programs and infrastructure development in the local areas where it operates. "You have to put in the time," he said.

Russia, he says, has proven to be a far more stable mining jurisdiction than countries such as Venezuela, Ecuador and Bolivia that have seized resource assets from foreign companies, or even Argentina, which recently imposed unexpected export duties on gold and base metals production.

"There has not been any history of government interference in the mining sector. Nobody has been expropriated. There have not been radical changes to the tax regime. That behaviour has been seen in many other jurisdictions. It has not been seen in Russia," he said.

THE MOSCOW FACTOR

Kupol is, however, a far more valuable deposit than either Kubaka or Julietta, particularly as gold prices hit new records. While Kupol has only 3.2 million ounces of proven and probable gold reserves, its high grade is expected to make it one of the world's highest-margin gold mines, with production costs averaging between $210 and $220 an ounce — more than $100 below the industry average.

Russia accounts for just 8 per cent of Kinross's 47 million ounces of gold reserves but TD Securities analyst Greg Barnes recently told clients that Kupol is the second-largest contributor to his calculation of Kinross's net asset value behind Paracatu.

"The company's significant exposure to Russia provides some cause for concern … any political interference in the mine would, in our view, have a materially negative impact on Kinross's valuation," Mr. Barnes wrote in a report.

Kinross maintains that the mine's ownership structure will be a crucial element to success. The mine is expected to create 1,200 local jobs and spinoff employment for local businesses. As well, Kinross will pay a corporate tax rate of 24 per cent and an off-the-top royalty of 6 per cent.

As for possible legislation that would deem major deposits "strategic assets," Kinross said Kupol will be grandfathered under any new law.

"As a currently permitted and already-built project, we are exempted from that. We have had assurances in writing and in the legislation," Mr. Burt said.

Canadian gold guru Pierre Lassonde thinks otherwise, saying in an interview: "I wouldn't put a dime in Russia."

Mr. Lassonde — the former president of Newmont Mining Corp. and current chairman of relaunched mining and energy royalty company Franco-Nevada Corp. — believes the rule of law in Russia is far too murky for a Western mining company to invest the hundreds of millions of dollars needed to build a mine.

"It's bandit capitalism. Every time a foreign company has success in Russia, they find a way to legally take it away from them," he said.

Well-regarded gold investor Charles Oliver of Sprott Asset Management said he is "cautiously optimistic" about Russia as a destination for mining firms, but he is not as enthusiastic as he once was.

"There are concerns on [mining] title. We haven't seen anybody had their mine taken away, but it is the kind of thing where you want to tread carefully," Mr. Oliver said.

Despite the political noise, Mr. Burt maintains that Russia, with its massive store of gold reserves, is simply too big to ignore and even his old employer Barrick will be lured back to country.

"The supermajors have no choice. That's why you see Barrick in Pakistan and that's why you hear [Newmont's] Richard O'Brien saying those things. They have a big tiger to feed and they are going to have to go to those places. Do we have a head start? I firmly believe we do. Are we going to be unique in five years? No. These big companies have lots of resources and they'll be coming, too. I think we have an edge. Part of the edge is our size, part is our experience and part is our relationships. We are there."

ADVANTAGE CANADA

Canada has seen its share of global gold production cut by nearly half over the past 13 years. In 1995, Canada accounted for 6.8 per cent of world gold production, but by last year, it had fallen to just 3.8 per cent, good enough for eighth place among gold producing nations, GFMS said.

Between 1995 and 2005 Canada's gold reserves plunged 40 per cent, according to the Mining Association of Canada, falling to 971 tonnes from 1,540 tonnes.

Yet with the largest concentration of junior mining firms, Canada as a country still ranks No. 1 in mineral exploration spending, accounting for 19 per cent of the $7-billion (U.S.) spent on exploration in 2006 according to Halifax-based Metals Economics Group.

Despite the current disconnect between exploration spending in Canada and gold production, Mr. Lassonde thinks the money is going to the right place. He believes more Canadian exploration success is certain because of improvements in geological technology.

"We are the second-largest land mass in the world, [behind Russia] and that gives us a huge advantage. Do you really believe that everything has been found in Canada? Absolutely not," he said.

OVER THE HORIZON

While Canada as a country is no longer a leader in gold production, Canadian gold miners still dominate the top of the bullion mining ranks. A willingness to operate in far-flung jurisdictions beyond their own borders has kept Barrick, Kinross and Goldcorp Inc. among the sector's heavyweights.

Producing roughly eight million ounces of gold a year, Toronto-based Barrick remains the world's largest gold miner but has just two small in mines Canada among its stable of 27 worldwide. It has been a prolific acquirer of foreign companies and assets and has major operations in Nevada, South America, Papua New Guinea, Australia and Tanzania.

Vancouver-based Goldcorp's Red Lake operations in Ontario were the largest single contributor to the company's overall production of 2.3 million gold ounces last year. Red Lake produced more than 700,000 ounces while two other Ontario mines brought the Canadian total to over one million ounces.

Yet like Barrick, Goldcorp has also been an aggressive buyer of foreign assets, avoiding the fate of Canadian nickel stalwarts Inco and Falconbridge, as well as aluminum major Alcan, which each had their flagship operations in Canada and were all snapped up by opportunistic foreign mining giants.

While the record gold price has given producers the financial incentive and wherewithal to look further afield for new gold deposits, China, the new world leader in gold production, has proven an elusive place for most. There are a few foreign companies operating relatively small deposits, including Australia's Sino Gold Mining Ltd. as well as Canada's Jinshan Gold Mines Inc. and Eldorado Gold Corp., but major Western gold producers have had little success in the country.

Barrick has had an office in Beijing since 1993 but has no mines in China.

"We have been there 15 years and we haven't found anything big enough geologically that makes sense," Alex Davidson, Barrick's executive vice-president in charge of exploration and corporate development, said in a phone interview from Tanzania.

Barrick has turned to places like Tanzania to replenish reserves, but has wrestled with labour problems that hampered production last year at one of its mines in the east African country. (Barrick fired the mine's entire work force but has since hired back more than half the workers.) Among a slew of development projects is a massive gold and copper project in Pakistan, where violence and political unrest marred recent elections.

THE LONG-TERM VIEW

In Russia, a lack of large-scale deposits has not been the problem. A survey of mining companies conducted by the Fraser Institute found that Russia ranked No. 1 out of 68 countries in terms of mineral potential.

However, it came second-to-last when it comes to regulatory duplication and inconsistencies and ranked 62nd in terms of stability of policies, narrowly besting the Congo and Mongolia but trailing behind nations like Honduras, Ecuador, Bolivia, Indonesia and China.

Russia, where an election tomorrow is expected to see Vladimir Putin's handpicked successor Dmitry Medvedev anointed president, is considering legislation that would deem all large-scale gold deposits "strategic assets." The law would prohibit foreign companies from controlling major mining operations. There have also been concerns that Russia's nationalization of oil and gas assets, in which major Western energy firms transferred ownership of assets to state-controlled Gazprom, could be repeated in the mining sector.

Political issues left Barrick so frustrated that it largely abandoned the former Soviet Union in 2006, shuffling its Russian exploration assets into producer Highland Gold Mining Ltd. for a minority stake in the company.

"I don't think it's possible for a company the size of Barrick to go into Russia and find a big deposit," Mr. Davidson said.

Turning 51 this month, Mr. Burt takes a longer view. He has been a part of the mining business for more than 20 years, first as an investment banker and as an industry executive for the past six. In 1985, he joined the former brokerage house Burns Fry, specializing in mining sector deals. In 1998, Deutsche Bank tapped him to create a global mining team — until low commodity prices led the brokerage giant to abandon the effort two years later.

In 2002, he came out of "retirement" to join Barrick. He spent much of his time in Russia and led the gold giant's foray into the country. Given the chance to skipper the Kinross ship instead of "being an admiral on an aircraft carrier" at Barrick, he made the switch.

Now Mr. Burt is heading a company with a stable of mines centred in what he believes are some of the world's most promising gold mining regions. He won't say where Kinross will look to expand next, but he certainly isn't ruling out a deal in Russia with a local partner.

"Russia, if you know your way around, is a global mining power that is on the come," he says.

***

Jason Hommel documents Barrick's continuing huge gold short

Silver Stock Report editor Jason Hommel has dug through the financial reports of Barrick Gold to verify the huge continuing short position in gold the company seems to be trying hard to conceal. Hommel's analysis is headlined "Sell Barrick, A Sneaky Hedger" and you can find it at the Silver Stock Report site HERE

Mineweb: Newmont predicts all major gold miners will see production decline

Newmont predicts all major gold miners will see production decline

As gold prices continually break records, Newmont Mining President and CEO Richard O’Brien warned analysts that the number of major gold prospects are declining globally.

Author: Dorothy Kosich
Posted: Monday , 11 Feb 2008

RENO, NV -

With only 800 known gold deposits globally that actually contain 100,000 or more ounces of gold--and as the number of new discoveries declines -- Newmont Mining President and CEO Richard O' Brien warned analysts and fund managers that every gold miner will experience production falls unless a technological breakthrough occurs.

During a presentation Friday to analysts, O'Brien and a number of Newmont executives discussed the dire predicament which is bound to be faced by any major gold company in the future. The number of new discoveries is trending down, fewer and fewer deposits are out there, and it takes much more money to find them.

And, O'Brien declared, it is "more and more unlikely that we are going to find big deposits near the surface that are going to be economical."

"Even if you find something, it's tough to get it over the line and it takes longer."

During the period from 1985 to 2003, 190 deposits were discovered by the international mining industry that ranged from 895 million to 1 million ounces of gold. Approximately five out of 10 deposits may contain about 3 million ounces of gold, while only 14 of the entire 190 deposits contained gold deposits equal to 10 million ounces.

The average cost for the greenfields and advanced projects was $32/oz, for a total cost of $28.6 billion.

One Newmont exploration manager estimated that the average cost of drilling alone will increase an average of 11% this year, while some contractor drilling costs have gone up 30%. The manager-identified only as Ian on the conference call-told analysts that Newmont has found 15 million ounces of gold from greenfields discoveries at an average cost of $15/oz. From those discoveries, a total of 49 millions ounces was realized, he said.

During the past five years, Newmont has added another 52 million ounces of gold to its portfolio, he noted.

This year Newmont will give its highest priority to the Hope Bay exploration project in Nunavut ($29.4 million in exploration dollars), the extension of drilling at the Boddington project near Perth, and the Nassau JV ($17.4 million in exploration) in the Guiana Shield of Suriname. O'Brien likened the geology of Nassau to the Rosebel mine.

O'Brien told the analysts that a number of Newmont mines "are getting older. We are dealing with some of the lowest grades in the industry." Nevertheless, he remains confident that "when we have a problem, we have the best people to focus on those problems." However, O'Brien admitted that Newmont missed on the timing, dollar amount, grade and throughput for mines including Leeville and Phoenix in Nevada.

"Nevada appears to be a bit of a black hole," he noted, due to complex ores at Phoenix and other issues.

K.J. Gerbino: "Gold Mining Stocks - What's Wrong With The Juniors"

Gold Mining Stocks - What's Wrong With The Juniors

Kenneth J. Gerbino

The reasons Junior mining stocks are underperforming are as follows:

• The larger companies are getting all the action from newly converted gold enthusiasts and interested investors.
• The junior market is still being weakened by insiders and promoters who are always sellers.
• There are hundreds if not thousands of new promotional mining stocks being foisted on the readers of gold pages in the last three years and there is just so much money to invest in this sector. Therefore premium prices are diluted.
• The invasion into the Hard Money camp by the Uranium companies. Every investor I know who owns gold and precious metal stocks but never owned a uranium stock now owns some. This diversion of capital to uranium diluted some funds that would have entered the Junior market.
• Gold ETFs. Investor money can now go into an easy way to invest in bullion. This also could be argued that it helps the miners as it creates demand for gold.
• Delays in drilling, engineering reports, permits.

A Big Rally Soon?

We are very near a major turning point in the mid tier and junior mining sector. The chart below shows the lowest junior mining valuation ratios in the last six years. We are using the TSX S&P Venture Index which is mostly mining stocks. The current ratios are at levels that in the past have signaled a major and substantial rise in the smaller gold and silver mining stocks.

As a reality check we can look at the ratio of the XAU to the Gold Price to see if this ratio is at a speculative level that may be signaling a major top in the making for all the gold stocks, which would of course include the juniors. During the above mentioned time period (September-November 2002) the Gold/XAU ratio was 4.8 (not shown). Today it is 4.8. This means the XAU gold stocks are tracking the gold rise at the same ratio when gold was $320, signifying a stable relationship. It confirms that the juniors on a relative basis are extremely undervalued and that a substantial rally should be starting soon.

New money into the gold arena is going into the big names. These managers and investors have not started to look at Canada and the junior sector yet. But as they eventually get more familiar and comfortable with the industry they start looking for smaller growth and value situations and that leads them into the junior sector. Quality juniors will eventually have a substantial move up from these levels but most others with speculative exploration programs will be left behind because of the stark reality that only one exploration stock out of a few thousand ever produces an ounce of minerals. This old ratio should change for the better as high metal prices, technology, more sophisticated exploration groups and increasing demand for resources increase their chances but it is still long shot investing.

The Three Amigos

Gold has many developments impacting it's price and we have mentioned them many times. But currently we see three drivers at work that spell out a higher gold price: 1) The dollar has no where to go but down since interest rates are being sent lower and lower by the Fed to bail out the banks and our friends on Wall Street. 2) The credit/mortgage/real estate bubble dictates inflating the money supply or face possible immense institutional disasters. 3) Global money supply increases are continuing at a torrid rate especially in India and China.

Mining Analysis

The mining sector despite the volatility allows one to have a very clear idea of value. This intrinsic value is an inventory of basically rocks. These rocks contain a certain known percent of minerals. When companies spend $20-50 million with hundreds of drill holes and thousands of man hours on an area the size of 3-4 city blocks (maybe 400 feet thick, and underground) you have a pretty good idea what is in that mass of rock and what it is worth at various metal prices. When they do sophisticated testing on sometimes 5-10 miles of drill core, one can evaluate how easy or hard and costly it might be to extract the minerals.

Basic mining costs are known from hundreds of other mining projects: the cost to build the roads, buy crushers, build small towns for the workers, power and food costs etc. These are known factors and estimates can be made. Then it's a matter of math and know how. That's how you find winners. That is how you know if you have a good project. That is all we care about at my company on hundreds of projects and mining companies. You should try and do the same if you want to get serious about investing in this sector.

The key to making an above average return is competent evaluations and patience. This sometimes takes many years. Patience will outweigh the volatility of the gold and silver mining sector as intrinsic value eventually gets recognized. The laws of supply and demand let you sleep comfortably.

Inflationary Future

With all the money, people, and industrial progress globally we are confident that minerals (especially the precious ones) will be well above average investments for the next decade.

We are at a time when the central banks should be at least attempting to control inflation but instead most are printing more money. As the future unfolds and inflation accelerates, tangible assets especially mining companies with known resources of valuable minerals should be a top priority for investors.

For more articles on Gold, the Economy and the Stock Market visit our website: www.kengerbino.com

Kenneth J. Gerbino
1 February 2008

Bullionvault: Gold supply tightening

Global gold supply experienced a two per cent fall in the 12 months to September 2007, according to a new report.

The Gold Investment Digest from the World Gold Council (WGC) said that mine supply fell to 2,145 tons, while mining production stayed stagnant at 2,504 tonnes, Mineweb reports.

This tightening could see gold bullion rise in value as a result - marking good news for those with gold investments.

De-hedging could stay at the fore this year as a result of AngloGold Ashanti's revealing last month that it is to close out its 330-ton hedge book, the Gold Investment Digest said.

It stated: "According to Virtual Metals, the global hedge book was reduced by a further 2.1 million ounces (65 tons) in third quarter 2007, reducing the hedge book to 29.1 million ounces (905 tons) from 101.4 million ounces (3,153 tons) in mid-2001."

Earlier this month, the WGC noted that the recent surge in gold prices can not only be attributed to short-term factors such as the weak dollar and high prices, but also to longer-term drivers including the higher cost of gold extraction and strong demand for jewelry.

A perfect storm for gold as mines left empty...

By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, November 15, 2007

The era of "peak gold" has arrived.

Try as they might, miners cannot find enough ore at viable costs to replace their fast-depleting reserves, even if they dig miles into the centre of the earth.

"There's not much gold out there," said Gregory Wilkins, chief executive of top producer Barrick Gold.

"Global mine supply is going to decrease at a much faster rate than people generally believe. Many of the new mines that people are anticipating will never come into production," he told the RBC Capital Markets gold conference in London.

"There is a great disparity between the money spent on exploration and success. It's hard to say where the price of gold is going because we're in uncharted waters. I would say it could easily move to $900, $1,000, or beyond. It could happen very quickly," he said.

We know from the US Academy of Sciences that some 26 percent of all the copper and 19 percent of all the zinc that ever existed in the earth's crust has already been lost to mankind, mostly wasted in milling or smelting or buried in landfills.

Data has never been collected for gold, and the 5 billion ounces of gold mined over history is still around. Roughly 1 billion are in central bank vaults. But the same patterns of exhaustion are emerging.

South Africa's output is down to the lowest since 1932. Much of what remains elsewhere is locked up in no-go countries run by demagogues or serial expropriators.

"You don't put yourself in harm's way. It's a non-starter to invest in a country that takes your mine away from you," said Mr Wilkins.

"The list of countries where we won't go is getting longer. There's Venezuela, and all the countries in Latin America that are influenced by (Hugo) Chavez.

"In Ecuador they withdraw licences after they have been issued. You can't tolerate that kind of instability. Russia is another country where things are deteriorating," he said.

Kevin McArthur, chief executive of Goldcorp, said his group was not setting foot outside North America.

"We won't build a mine where we won't go on holiday. We're even tending to stay out of the US because that has some of the highest political risk in terms of mining investment," he said.

The gripe is that revisions to the 1872 Mine Act in the United States will add royalty costs and allow regulators to shut down projects on a whim.

Mr McArthur said global output was on a relentless slide. "We'll see four-digit gold. It will have to reach $2,500 an ounce to equal the 1980 record in today's terms, so we have a long way to go," he said

Gold reached a 27-year high of $846 an ounce in early November following rate cuts by the US Federal Reserve, though it has fallen back on profit taking.

Investors seem to be betting on a "Bernanke reflation," suspecting that the Fed will turn the liquidity tap back on to cushion the US property slump.

Tony Fell, chairman of RBC Capital Markets, said the world money supply has been growing by 5-10 percent while the stock of mined gold has been rising at 1.6 percent, creating a mismatch that must be covered.

Mr Fell says the total debt burden in the US has exploded to 340 percent of GDP, in stark contrast to the steady levels of around 150 percent of the postwar era.

It almost insures further dollar debasement. "We're in the very early phases of a prolonged bull market," he said.

RBC argues that the global dollar system known as Bretton Woods II is "coming apart at the seams" as Asian, Mideast, and Latin American states start to break their dollar links to avoid importing US inflation.

The result is to resurrect gold, which is fast regaining its role as the world's benchmark currency.

It was the last currency bust-up -- caused by America's attempt to the fight the Vietnam War and fund the Great Society without adequate taxes -- that lay behind the 1970s bull market in gold.

"The fact that monetary policy in the core was too loose for the periphery triggered the demise of Bretton Woods 1. The late 1960s saw first France and then Germany and Britain all start to swap their dollar reserves for gold. We may well be witnessing a similar situation today as price pressures build in the emerging world," RBC said in a new report.

However, the bank warned that gold was looking toppy after the blistering autumn rally and faced a likely selloff in coming weeks, perhaps to $725-$750.

India's gold-buying season is coming to an end with the Diwali Festival. The country accounts for 22 percent of world gold demand.

The level of speculative "long" positions on New York's Comex futures market has remained above 20 million ounces for five weeks in a row. This sort of pattern is typically followed by a sharp slide, although the global credit crunch and bank scares may change the game this time.

RBC says any correction is likely to be short, with gold probing record highs of $900 an ounce early next year.

Whether the gold mining shares will at last join the party is far from clear. Many have languished through the bull market, and some are trading well below levels reached when gold was half the price.

Costs are rising at $60 an ounce annually. They will average of $460 by next year. From tires to diesel fuel and the geologists' salaries, mine inflation is running at 15 percent.

Ian Cockerill, head of Gold Fields, said the industry had "shot itself in the foot" by touting production cash costs that were not even close to the real figure.

Hence the fury of shareholders left trying to understand how so many mines could have gone bust when alleged costs per ounce were half the spot price of gold.

"We've deluded ourselves and we've deluded investors by failing telling them about all the other bills we have to pay. Until we tell them the total cost per ounce, we'll never have credibility," he said.

RBC is betting that the gold mining shares will soon start to shine again, enjoying their famed leverage to the spot price.

At $1000 an ounce, it forecasts a share feast: Barrick up 65 percent, Newmont 80 percent, IAMGOLD 90 percent, NovaGold 90 percent, and Centerra 100 percent.

Purists will always prefer ingots of glistening metal.

* * *

Reuters: Average gold price seen up 10 pct in 2007 and silver to outperform

A Reuters global poll of 33 analysts predicts average gold prices will continue to move upwards and that the silver price will outperform the gold price.

Author: Atul Prakash
Posted: Wednesday , 11 Jul 2007
LONDON (Reuters) -

Average gold prices will jump nearly 10 percent this year and gain further in 2008 as a weaker dollar outlook, less aggressive sales by central banks and physical demand will boost investor interest, a Reuters poll showed on Wednesday.

The global poll of 33 analysts and traders conducted over the past month arrived at a median price for gold of $670 a troy ounce, up from an average of $612.10 in 2006 and about three percent higher than the figure from a poll in January.

Gold is forecast to rise to an average of $681.00 in 2008, up four percent from the January poll for the same year. That compares with a 23 percent surge in 2006 and 18 percent in 2005 .

Spot gold was trading at around $665 on Wednesday.

Other precious metals are expected to perform more strongly than gold, with the average for silver seen surging by nearly 14 percent this year, platinum gaining more than 11 percent and palladium rising by over 13 percent.

"We believe the medium-term environment remains constructive for the gold price outlook," said Michael Lewis, global head of commodities research at Deutsche Bank in London.

"A further depreciation of the dollar, low real U.S. interest rates, the possibility of more skittish equity markets ahead as well as strong fabrication demand suggest to us that the recent correction in the gold price will be short lived."

Gold fell to a three-month low of $638.90 on June 27 before recovering, compared with last year's 26-year high of $730.

DRIVING FACTORS

Sentiment was expected to be bullish as the metal was likely to remain a part of the portfolio of funds and investors.

"The forces that have driven commodity prices higher in the past couple of years remain largely in place," said Donald W. Doyle, Jr, chairman and chief executive of U.S.-based Blanchard and Company, a precious metals dealer.

"Global economic growth is strong, liquidity is plentiful, investors appear to still have an appetite for risk and the demand for commodities will continue to grow in emerging Asia as the region industrialises and wealth grows," he said.

Analysts said physical demand, which suffered last year because of volatile prices, was seen increasing due to a reduction in sharp price fluctuations, which might underpin the metal.

"From a fundamental perspective, fabrication demand has shown signs of stabilising and, barring another surge in price and volatility, we expect demand to remain positive over the year," said Suki Cooper, precious metals analyst at Barclays Capital in London.

Forecasts for continued dollar weakness, strength in oil prices, a tense geopolitical environment and expectations of gold sales by European central banks falling below their annual target of 500 tonnes remained positive for gold, but other factors had turned bearish, analysts said.

The pace of closing hedge positions that entailed gold sales for delivery at a future date was expected to slow down, while there had been some reduction in the metal held by exchange traded funds (ETFs) in recent months.

"If this were a mid-term school report for gold, it might have read -- Does well with limited resources, needs to pay better attention to what is going on," Ross Norman, managing director of TheBullionDesk.com, said.

SILVER TO OUTPERFORM

Silver is seen stronger than other metals, with the average 2007 price surging 14 percent to $13.30 an ounce. But it is forecast to fall to $13.00 in 2008, against its spot price of $12.95 and a 25-year high of $15.17 in May last year.

"Silver remains somewhat linked to the fortunes of gold but we believe increasing investor demand will see silver prices outperform gold over the next 6-12 months," said Daniel Hynes, commodities analyst at Merrill Lynch in London.

Analysts said silver would need support from investments in ETFs as the market was expected to end 2007 in surplus on rising mine supply.

Platinum is forecast to rise 11 percent to $1,267.50 an ounce this year before falling to $1,250 in 2008, but will still be above last year's $1,138 and the January's forecast of $1,125. Spot was last quoted at around $1,305, far below its record high of $1,395 in November.

Palladium was predicted to track other metals, with prices seen rising 13 percent to $363 an ounce in 2007 and then to $380 in 2008.

Tanzanian Royalty Reports High Grade Assays

Tanzanian Royalty Reports High Grade Assays from Kigosi Project And Laboratory Results From its Kimberlite Exploration Program

Tanzanian Royalty is pleased to announce that a Phase 2 Reverse Circulation (RC) drilling program has confirmed the presence of two previously interpreted reef (vein) systems along with high grade gold values at its Kigosi Project in the Lake Victoria Goldfields of Tanzania.

The two shear zones that host the reefs have been traced along a strike length of at least one kilometre and are still open in both directions along strike and down dip.

The Phase 2 drill program consisted of 109 holes aggregating 4,057 metres. It focused on an area immediately adjacent to artisanal workings within the Luhwaika prospect area. Drilling was conducted along five control lines with a central baseline having a strike length of 2.8 kilometres. The lines varied in length from 300 metres near artisanal mine workings to approximately 1,100 metres on line 3250N where regional drilling was conducted to test coincident IP and soil anomalies.

The objective of this second phase of drilling was to test the strike continuity of the Luhwaika reef system which had never been drilled before. The program also provided the Company with an opportunity to evaluate surrounding gold-in-soil and geophysical anomalies. This particular phase of exploration was a continuation of the Phase 1 program that was prematurely abandoned towards the end of 2006 due to heavy rains. A third phase of drilling is presently under way at Kigosi.

The results presented below include the most significant gold mineralization intersected by drilling on all five lines. According to Tanzanian Royalty President, John Deane, "We can now confirm the existence of the two reef systems reported last year, namely the Luhwaika Main and Luhwaika West Reefs, and that they can be confidently traced out over a strike length of at least one kilometre."

The fifth line, line 3250N, intersected a quartz vein that hosted gold mineralization approximately 800 metres north of the last line drilled. Infill drilling will be required to establish if the gold mineralization in this quartz vein connects with the two known reefs.

Deane also said that because several zones of high-grade gold mineralization occur within the reef systems, the next phase of drilling will utilize 100 metres line spacing in order to identify the controls and trends for these high grade zones. "The reefs tend to flatten near surface, producing a gravel zone that may also hold potential to host goldbearing mineralization that can be extracted at very low cost," he added.

A summary of the drill highlights is given below:

Water hole (105m south of line 1450N
--------------------------------------------------------------------
Hole No. From To Intercept Gold Including Comments
(m) (m) (m) g/t
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KG20RC-W1 2 4 2 10.45 Gravels
--------------------------------------------------------------------
Line 1450N
--------------------------------------------------------------------
KG20RC-083 2 4 2 10.40 Gravels
KG20RC-085 6 7 1 4.01 Luhwaika Main
KG20RC-087 20 21 1 1.62 Luhwaika Main
KG20RC-088 0 3 3 2.48 Gravels
KG20RC-088 31 33 2 3.02 1m @ 4.89 Luhwaika Main
KG20RC-091 2 4 2 3.28 Gravels
KG20RC-093 1 3 2 1.62 Gravels
KG20RC-094 4 5 1 1.02 Gravels
--------------------------------------------------------------------
Line 1650N
--------------------------------------------------------------------
KG20RC-123 80 82 2 10.71 1m @ 20.30 Luhwaika West
--------------------------------------------------------------------
Line 2050N
--------------------------------------------------------------------
KG20RC-104 2 4 2 3.03 Gravels
KG20RC-107 4 9 5 2.39 1m @ 6.71 Luhwaika Main
KG20RC-109 15 16 1 7.21 Luhwaika Main
KG20RC-110 25 27 2 3.50 1m @ 6.39 Luhwaika Main
KG20RC-111 38 39 1 0.94 Luhwaika Main
KG20RC-116 2 4 2 4.79 Gravels
KG20RC-117 8 9 1 0.91 Luhwaika West
KG20RC-120 43 44 1 1.01 Luhwaika West
--------------------------------------------------------------------
Line 2450N
--------------------------------------------------------------------
KG20RC-033 3 5 2 0.99 Gravels
KG20RC-038 6 8 2 1.10 Luhwaika Main
KG20RC-039 14 16 2 8.83 1m @ 14.10 Luhwaika Main
KG20RC-040 24 27 3 0.94 1m @ 2.59 Luhwaika Main
KG20RC-041 31 33 2 6.33 1m @ 9.40 Luhwaika Main
KG20RC-042 39 41 2 0.78 Luhwaika Main
KG20RC-043 51 53 2 12.55 1m @ 23.00 Luhwaika Main
KG20RC-045 1 3 2 38.15 Gravels
KG20RC-045 74 75 1 1.13 Luhwaika Main
--------------------------------------------------------------------
Line 3250N
--------------------------------------------------------------------
KG20RC-076 23 24 1 2.66 Quartz vein
--------------------------------------------------------------------


The above intersections are estimated to be very close to true thicknesses with all the drill inclinations being -60 degrees and the dip of the reef being -22 degrees. All holes are drilled perpendicular to the assumed strike of the reef(s).

Drilling within the Luhwaika Main Reef indicates a dip of -22 degrees towards the southwest and a true thickness of 1-2 meters. Mineralization is hosted by a sheared, highly silicified and sericitized granite with gold values ranging up to 23.0 g/t (0.67 oz/t).

The Luhwaika West Reef, which sub-outcrops approximately 200 meters to the southwest of the Luhwaika Main Reef, is essentially a mineralized quartz vein, dipping 30 degrees to the southwest with a true thickness of 2-3 meters and with gold values ranging up to 11.63 g/t (0.34 oz/t)

Diamond Analytical Results

The Company has received results from eight 50 kilogram kimberlite samples that were sent in for micro-diamond analysis in the latter part of 2006. These samples were collected from RC drilling over eight separate kimberlites that were discovered on two of the Company's diamond licenses. Receipt of the analytical results took much longer than expected because of the heavy backlog of work in diamond laboratories worldwide. Two of the eight sample composites returned very low quantity (one from each sample) micro diamonds while the remaining six were non-diamondiferous. These results indicate that none of these pipes will be of economic interest and no further work will be conducted on them. Nonetheless, the Company intends to evaluate other licenses in its portfolio that are prospective for diamonds.

Analysis

Fire assay with flame AAS finish was conducted by Humac Laboratories in Mwanza, Tanzania, and SGS Laboratories in Mwanza. Duplicates and Standards were inserted in the sample stream sent to both Humac and SGS , and subsequent analysis shows that 95% of the standards fall within analytically acceptable (5% standard deviation) limits. Duplicates have a correlation coefficient of 87%, which is accounted for by the large nugget effect within the sampling. The figures used in this press release are the average grades taken for between one and three duplicates run by the labs on each analysis. Micro-diamond analysis was conducted at the SGS Lakefield Research laboratory in Lakefield, Ontario.

Qualified Person

The technical information contained in this document has been reviewed and approved by John Deane, President, Tanzanian Royalty Exploration Corporation Limited, a qualified person as defined by NI 43-101. He has an M.Sc. from the University of Cape Town (1993) and is a registered scientist with SACNASP (Reg. No.400005/05).

Respectfully Submitted,
"James E. Sinclair"
James E. Sinclair
Chairman and Chief Executive Officer