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KEYNES AND THE GOLD MINE: MORE DEBUNKING

Friday, October 12th, 2012

By Mark Rogers

Keynes believed that a “scientific” approach to the study of economics would replace the classical morality that he so much loathed: “I believe … the right solution will involve intellectual and scientific elements which must be above the heads of the vast mass of more or less illiterate voters.”

The adoption of the pose of science would go a long way to explaining why Keynes was accepted as the economic guru of a technological age, and why Hayek has been ignored (see the discussion here).

After all, we have had “scientific socialism” handed down from Marx and Engels, Lenin, Stalin and Mao, to the likes of Ralph Miliband (father of the Labour Party double act of recent years) and his cohorts at the London School of Economics. Hayek resolutely punctured the pretensions of “scientism”, as he preferred to call the illegitimate borrowing of the methods of the hard sciences by the humanities.

Hunter Lewis in his splendid Where Keynes Went Wrong (first referred to here) occasionally makes fun of what he calls Keynes’s satirical burlesques, Keynes’s only half-jesting suggestions as to how to make an economy function. One of the most famous is his recommendation that the government fill old bottles with money and bury them. This comes as a conclusion to other ways that might be envisaged of using up the “glut” of savings that he saw as “impoverishing” an economy.

We could create enough unemployment to render people incapable of saving. Millionaires might build huge mansions to live in and mausoleums to preserve them after life, or even build cathedrals and endow monasteries; we could hope for a war or two, or a natural disaster to “increase wealth”, as he madly puts it, by depleting savings.

And then this moment of inspiration: governments

“could fill old bottles with bank notes, bury them at suitable depths in disused coal mines which are then filled … with town rubbish, and leave it to private enterprise to dig the notes up again.” Of course, governments would be “more sensible to build houses … but digging up bank notes is not so different from ‘gold mining’ and would equally serve as a way to consume excessive savings.”

Now why is gold mining, the real thing, wholly different from a Nazi-style make-work programme? Because it requires investment and effort to extract the metal from the earth’s crust, it not having been craftily, and indeed somewhat pointlessly, planted there in the first place. And why investment and effort? To ensure that the mines are genuine and have sufficient gold in them to reward the effort.

And Mr Lewis makes this crucial point:

“The comparison of buried paper money to gold is rather a joke on Keynes. His advice to print more and more money has, over the years, resulted in a rapidly depreciating currency. It will be recalled that the dollar, since the formation of the Federal Reserve in 1913, has lost over 95% of its purchasing power. By contrast, gold has kept its purchasing power, and become an investment refuge for those who wonder what governments, inspired by Keynes, will do next.”

The problem with Keynes is not that he was clever – he was – but that he appeared to think that cleverness was a virtue. Cleverness is not a virtue, it is a faculty. We may be intelligent enough to distinguish vice from virtue; we may be clever enough to engage in obfuscation and pretend that a vice (quantitative easing) is a virtue. Indeed, we may even be too clever and actually believe that a vice has been transformed into a virtue – as Alan Greenspan, Ben Bernanke, George Osborne and Sir Melvyn King all appear to have done – overcoming both moral sense and intelligence.

And this is the heart of the problem: intelligent men have been lured into folly by the frivolities of Keynes – to say that this is outrageous wouldn’t get us anywhere, as I suspect that the camper side of Keynes would have made him take delight in being called outrageous. But, “scientific” or otherwise, this is not an economic policy.

JOHANNESBURG – THE GOLDEN

Wednesday, March 21st, 2012

A Portrait from circa 1895

(Adapted from Cochran, Robert, The Romance of Industry and Invention, W.&R. Chambers, London, no date, but clues in the text imply 1895)

“The railway journey from Capetown to Johannesburg of almost three days is through a seemingly endless sandy country, with range succeeding range of distant mountains, all alike, and strikes a greater sense of vastness and desolation than an expanse of naked ocean itself. Well, we reach Johannesburg, which has not even yet, with all its wealth, a covered-in railway station; whilst by way of contrast, just across the road is a huge club, with tennis, cricket, football, and cycling grounds, gymnasium, military band, halls for dancing, operas, and oratorios, &c., which will bear comparison with any you please. Its members are millionaires and clerks, lodgers and their lodging-house keepers, all equal there; for we have left behind caste, cliques, and cathedral cities, and are cosmopolitan, or, in a word, colonial. An institution like this gives us the state of society there in a nutshell, for, as wages are very high, any one in anything like lucrative employment can belong to it; and the grades in society are determined by money, and money only.

“Johannesburg, the London of South Africa, which was a barren veldt previous to 1886, is now the centre of some one hundred thousand inhabitants, and increasing about as fast as bricks and mortar can be obtained. It is situated directly on top of the gold, and on looking down from the high ground above, it looks to the English eye like a huge, long-drawn-out mass of tin sheds, with its painted iron mine-chimneys running in a straight line all along the quartz gold-reef as far as you can see in either direction. The largest or main reef runs for thirty miles uninterruptedly, gold-bearing and honeycombed with mines throughout. This, even it were alone, could speak for the stability and continued prosperity of the Transvaal gold trade. In a mail-steamer arriving from the Cape there is sometimes as much as between £300,000 and £400,000 worth of gold, and the newspapers show that usually about £100,000 worth is consigned by each mail-boat.

“It was one Sunday evening in 1886 that the great ‘find’ was made which laid the base of the prosperity of the Johannesburg-to-be. A farm-servant of the brothers Struben went over to visit a friend at a neighbouring farm, and as he trekked homeward in the evening, he knocked off a bit of rock, the appearance of which led him to take it home to his employer. It corresponded with what Struben had himself found in another part, and following up both leads, revealed what became famous as the Main Reef, which was traced for miles east and west.

“With this discovery the name and fame of ‘the Rand’ were established, and for years the district became the happy hunting ground of the financiers and company promoters. The Rand, or Witwatersrand, is the topmost plateau of the High Veldt of the Transvaal, and on the summit of the plateau is the gold-city of Johannesburg.

“Soon the principal feature in Johannesburg was the Stock Exchange, and the main occupation of the inhabitants was the buying and selling of shares in mining companies, many of them bogus, at fabulous prices. Today the city is the centre of a great mining industry, and the roar of the ‘stamps’ is heard all round it, night and day. From a haunt of gamblers and ‘wild-catters’, it has grown into a comparatively sedate town of industry, commerce and finance, and the gold-fever which maddened its populace has been transferred (not wholly, perhaps) to London and Paris.

“The Stock Exchange of Johannesburg sprang into existence in 1887, and before the end of that year some sixty-eight mining companies were on its list, with an aggregate nominal capital of £3,000,000.

“In 1887 the Transvaal produced only about 25,000 ounces of gold; in 1894 the output was 2,024,159 ounces; in 1895 it was 2,277,633 ounces.

“As to the future of the South African sources of supply, it is estimated by Messrs Hatch and Chalmers, mining engineers, who have published an exhaustive work on the subject, that before the end of the century the Witwatersrand mines alone will be yielding gold to the value of £20,000,000 annually; that early next century they will turn out £26,000,000 annually; and that the known resources of the district are equal to a total production within the next half century of £700,000,000, of which, probably, £200,000,000 will be clear profit over the cost of mining.”

The other side of Gold mines in Peru

Friday, November 11th, 2011

Open mine in Madre de Dios

Mother Nature has been extremely generous with Peru, and has presented it with a valuable treasure such as its exuberant Amazon Forest and in the depths of its earth, the presence of the coveted golden mineral, which has given rise to the existence of numerous mines and gold washing places in the country.

Over the years, many national and international companies have heard of the treasures which may be extracted in Peru and have settled in its provinces. In this process methods have evolved and they have the Escuela de Minas, whose object is to train competent professionals, capable of offering a better organisation in order to guarantee the optimum achievement of the mining companies’ aims.

But there is another side to the story, beside the great mining companies and their expensive equipment and potential, sits the illegal extraction of this mineral in far away areas of the Amazon Forest, where control by the Government environmental and financial agencies has proven difficult. There are different reasons why this illicit activity has arisen such as shortage of employment in rural areas, increase in the gold price and tax avoidance which in turn results in an increase in profits. But all this is being done without control and the heads of these illegal extraction operations do not take into consideration environmental conservation issues provoking in turn further erosion (than that caused by any mineral extractions, even when using appropriate means) and an increase in the contamination of rivers as mercury and cyanide are being poured inappropriately into water sources.

In this scenario, problems are not only environmental but also social. According to studies undertaken by Peruvian authorities, the business of illegal extraction creates problems such as child prostitution (in the area known as Madre de Dios, it is thought that over 300 children work in prostitution in bars near the illegal mines) and that others are subject to child labour, having to work from a very early age without being paid for it. Other consequences of illegal extractions are smuggling and illegal trafficking of arms.

It is not just a matter of gold. In these crossroads, the wish of the few to quickly enrich themselves provokes serious problems, which may be more difficult to eradicate than illegal mining itself.

Article by : Lizette Paternina

Valcambi s.a, Swiss gold and precious metals refiner

Sunday, October 9th, 2011

Last week our friends at LinGOLD.com and AuCOFFRE.com invited us along to visit the “Fort Knox” style location of the Valcambi refinery and mint.
This site is impossible to enter without a previous invitation and the appropriate credentials and papers (passports etc). These help to gain entrance past the bombproof glass and metal detectors but only under official escort at all times. However unnerving at the time our friends told us it was rather reassuring to know that the site is so well protected as they are customers of Valcambi and therefore have a vested interest in the security of their stock.

This Swiss precious metals refiner is based in Balerna not far from the Italian border. This company is one of the leading four Swiss – and world – refiners of gold. Valcambi are also the first private organisation to offer “green gold” by industrial production which is traced at every step from the mine through to the finished refined goods.
Independent auditors monitor the integrity of the supplies and process ensuring that the “green gold” is always kept separate from other supplies. This includes the cleaning down of containers and production lines as well as having dedicated facilities for “green gold” only.

During the visit we accompanied the Management team of AuCOFFRE.com & LinGOLD.com who were there to validate their newfound status among the exclusive list of Valcambi clients. Their market-leading company in France is now the only one to offer Valcambi supplies in France.

We asked Paul McGowan, the Managing Director of AuCOFFRE.com, what was the interest in negotiating directly with a refiner of precious metals?

“The answer is obvious; reduce the middle-men and to be able to offer totally innovative, ethical “green gold” products which enable us to have total traceability on the products we offer. Valcambi were also an ideal partner for us to launch our own innovative product, the Vera Valor, which is a 1 once pure gold 999.9 “round bar” and a coin made only with gold of clean extraction provided by Valcambi “green gold”. We know that there is only the one intermediary, Valcambi the refiner, between us and the Newmont gold mine in Nevada which has a dedicated system of clean extraction. With respect to the Vera Valor it was important that we had complete control over the production chain in the sense that every stage is carefully monitored by independent auditors to ensure the integrity of our product – from extraction to the sale, from producing blanks to minting them.

In the context of fake gold bars and coins, this partnership allows us to have a total guarantee over the product which we can offer to our Members and one we can produce on an industrial scale.

Valcambi are the only refiners who can offer and guarantee the complete separation of “clean extraction” gold from the rest of production which is fundamental to the conditions of our “clean extraction” charter. There can be no contamination of the two sources if we are to guarantee the quality to our Members”.

Valcambi is currently celebrating 50 years in business. Their celebration includes a beautiful book of illustrative photographs which they have kindly allowed us to use below. They show Valcambi workers during various stages of the refining process. Hopefully more to follow …..


1 Billion+ Investors to Buy Gold as Chinese Gold Rush Grows

Wednesday, March 30th, 2011

We have previously reported at Goldcoin.org in Chinese queue at malls to beat Bernanke’s inflation with gold that the a Chinese Gold rush is underway from investors who are looking to beat inflation and devaluing currencies by buying and hoarding gold bullion and gold coins.

In January 2010, China recorded an inflation rate of 1.5%. But just 12 months later, the rate of Chinese inflation has climbed to 4.9%.

Rising inflation has sent food and property prices in China skyrocketing.

The price of food in China has increased 10.3% on an annual basis. The price of grain rose 15.1% and fruit prices were up 34.8% since January of last year.

Chinese inflation has been fuelled by an economic stimulus during the financial crisis two years ago of $585 which has resulted in excesses of liquidity in the economy.

The Chinese Government has tried to curb the inflation with measures such as raising interest rates several times and tightening lending requirements but so far this hasn’t worked. Even worse is the fear sweeping through the Chinese economy that inflation could go out of control and even lead to hyperinflation.

This has already prompted Chinese citizens to buy gold and their appetite for the yellow metal is insatiable.

This trend is not only set to increase but possibly explode into action following recent reports that the People’s Bank of China (PBOC) is actively recommending that over 1 Billion Chinese citizens buy gold as a way of preserving and protecting their wealth against inflation, economic crisis and the falling values of major currencies .

This recommendation was given in the Financial Markets Review from the PBOC and its publication coincided with the decline of several major currencies against the value of gold notably, the Swiss Franc fell 2.5%, The Japanese Yen 2%, The Pound Sterling 2% and of course the US Dollar  which fell 1%.

Chinese buy almost half the Gold produced in the world

According to the gold-specialising Swiss Bank UBS the Chinese demand for gold in the first 2 months of 2011 exceeded  7.05 Million ounces.

This unbelievable demand is the equivalent of 47% of all gold produced in the world during the same period. So the Chinese are buying almost half of the world’s gold production.

If this continues then the Chinese are set to buy in excess of 42.3 Million Ounces of Gold this year!

To put this quantity into context it is more gold than China’s Central Bank officially stores in its reserves.

The Financial Times recently quoted a senior executive at the Industrial and Commercial Bank of China ICBC, who spoke of the “voracious” appetite for gold in China…

China’s largest bank started a physically-backed gold savings account in December with the World Gold Council. Account openings have already surpassed 1 million, with more than 12 tonnes of gold already stored on behalf of investors.

Zhou Ming, deputy head of ICBC’s precious metals department, said the nation’s largest bank sold nearly 250,000 ounces of physical gold in January — the equivalent of 50% of all the bullion ICBC sold last year.

Added to this is the continuing diversification out of Forex by the People’s Bank of China into gold and other precious metals. They have around $3 Trillion which they would like to change because the weakening dollar is eroding its real value. How much gold will they need for $3 Trillion?

We know that China has been accumulating gold surreptitiously by buying up its own domestic production.

This suggests that increasing gold production was part of a long-term strategic plan to become a global leader in gold investments among governments.

The World Gold Council even reported:

Some market participants believe that China may also be continuing to buy local mine production, which it has done regularly in the past. There is certainly no shortage of experts, both domestic and from overseas, advising China to do so.

The World Gold Council estimates China’s gold demand could double in 10 years as more investors embrace precious metals.

But even in the short term, the expected demand for gold in China over the coming month will be enough to put significant strain on global supplies.

According to Tom Bulford  “China has spent the last decade buying every ounce of gold it can lay its hands on.

In fact, the Chinese have increased their deposits by 1,054 tonnes since 2001.

That’s 76% more than it was buying just a decade ago!

And it’s not just the Government we’re talking about here.

Ever since private gold ownership was legalised in China…and the Shanghai Gold Exchange opened – regular Chinese citizens have also started buying up gold in a BIG way”.

Quite simply, the Chinese seem to want to buy ANYTHING gold…

…gold coins…gold bullion…even foreign gold miners.

In fact, according to Want China Times…

“Chinese state-owned gold miner China National Gold Group announced… that it will step up overseas mergers and acquisitions in an effort to increase its gold stockpiles by 100 tonnes this year.”

Chinese production figures

China Produced $35 Billion in Gold in 2010

According to China’s Ministry of Industry and Information Technology, gross output from domestic production increased 67% to 230 billion yuan ($35 billion) in 2010.

Of this, China’s gold industry earned 5 billion yuan ($3.8 billion) in profit — 78% more than in the previous year.

China’s gold mines produced 9.9 million ounces of gold in 2010 — an increase of 7% over 2009.

Meanwhile, total domestic gold output grew 9% to 12.0 million ounces. (source WGC)

India is also encouraging Gold acquisition

Traditionally there has always been a strong demand for gold in India  with its specific seasonal demands for weddings and a cultural attachment to jewellery. However, they are also strengthening demand in Asia which is fast becoming the most important Continent for gold investment.  Gold is selling extremely well to the ordinary citizens looking for wealth protection and preservation. There are over 460 Post Offices that sell gold direct to the people. India also has public companies that offer credit to anyone wishing to purchase gold – in other words you can get a loan to buy gold!

This incredible demand throughout Asia is sure to impact the price of gold which may not have been factored in to the so-called expert calculations/ predictions/guesses.

Gold Price set to go skyward with Asian demand and World events

Similarly there are other significant factors that cannot have previously been factored in to annual gold price predictions such as;

  • The continuing European Sovereign debt crisis with Portugal the latest Eurozone country in difficulty,
  • The on-going Japanese catastrophe following the Earthquake, Tsunami and nuclear crisis,
  • The popular uprisings in North Africa and around the Middle East with Syria and Yemen on the brink and the conflict in Libya worsening by the day. This has drawn military (and therefore financial)  resources from France, the UK and the US which have their own deficit problems and now has involved NATO countries.

It is becoming increasingly difficult to see how all of this can be paid for or accommodated in a World Economy already faltering.

It is no wonder that the Chinese are hedging against another crisis and with their ever increasing hoards of gold they are aiming to back the Yuan with gold and ultimately replace the Dollar as the world’s reserve currency.

We are heading for a spot of $1500 within weeks – and then…..$3000+

In view of the colossal demands for gold already discussed, the possible collapse of the dollar and the unknown outcomes of other world events a crisis bigger than 2008 looms large and we cannot predict which event will trigger it but be sure that it will happen. When it does make sure you have copied the Chinese and secured your wealth in the only safe haven for the crisis ahead. Buy Gold and buy now before the price takes off exponentially surpassing $2000 and even £3000 an ounce before the end of the year. The worthless dollar, hyperinflation, extraordinary demand and debt crisis dictate the course of gold to re-establish itself as the only real measure of currency and wealth. When the dust settles and re-evaluations have been made just pray you have gold as it will be worth upwards of $3000 an ounce.

China and India are importing gold and driving the price increase

Friday, January 14th, 2011

The weakness of the dollar, the instability of the European economies and the volatility of United States bonds has scared investors. India is the principal consumer of gold. China is the principal global gold producer. Is there any link here? Despite this reality, and with gold prices at historic highs, China and India are continuing to buy major quantities of precious metals. In fact, the quantities are so high that they are becoming the pillars which are supporting the upward trend in the value of the troy ounce for 2011.

The gigantic Chinese economy is driving the bullion market, coins and gold assets upwards. Bloomberg obtained a report from Shanghai Gold Exchange in which it states that China moved from purchasing 45 metric tonnes of gold in 2009 to a projected 230 metric tonnes for 2010.

At the same time, China’s Ministry of Industry and Technology reported last December that the exporting and importing of non-ferrous metals for this country grew year on year in the first eleven months of the year and reached 108,480 million dollars.

Individual Investment pushes up demand

The increased demand comes mainly from individual investors who prefer to hold physical gold as a safe haven for their wealth. Shen Xuangrong, Chairman of the Shanghai Gold Exchange, stated a few days ago that this interest was mainly due to the expectations of an increase in inflation in this Asian country.

Between January and October last year, the amount of precious metal traded on the Shanghai Gold Exchange increased by 43%, according to its Chairman, Shen Xuangrong. Approximately 20% of these transactions were made on behalf of individuals.

In August of 2010, the Central Bank of China reported that it was going to authorise more Banks to be able to buy and sell gold. It also stated that it was going to makes the regulations for the gold market more flexible to enable more firms to be able to operate in this segment.

More than a million Indian Weddings this Spring!

India has already demonstrated that it occupies a prominent place in the purchasing of bullion, coins and gold assets due to jewellery being accumulated in March in readiness for the wedding season. This year it is very probably that the trend will be repeated: there are more than a million weddings planned to take place in April and May in India and this triggers a strong demand for precious metals, especially gold.

The growing demand for gold jewellery, together with an increase in the demand for bullion and gold coins, demonstrates the popularity of the metal in India. Moreover, for many Indians it represents a safe investment compared with the volatility of paper money.

India is responsible for one quarter of the global imports of gold. China has made changes to its regulations for importing precious metals. Everything seems to indicate that it will shortly become the new leader in gold imports. And not only that: “In the medium and long term, China will be a decisive factor in determining the price of gold “, said Yuichi Ikemizu, Chief commodities analyst at Standard Bank in Tokyo.

Is the gold bull finished – 1980 v 2010 ?

Friday, April 23rd, 2010

People are questioning whether the bull  run on gold over the last decade reached its climax with the December 2009 high of $1227 and we are on a downward slope. Let’s compare the conditions in 1980 with today and we will find that they are quite different.

1980

In 1971, the United States suspended the free exchange of U.S. gold for foreign-held dollars, then in 1974 lifted its four-decade ban on the private purchase of gold. At that time, gold bullion was being traded in European markets at highs approaching $200 an ounce. In 1975, the U.S. government began to sell some of its holdings on the open market and in 1978, along with most other nations, officially abandoned the gold standard. After being released from government control, the price of gold soared and touched $850 in January 1980.  In the three years before 1980 gold price grew eightfold  as the result of mainly fear but also greed

In Dec 2009 the gold price soared to $1227 per ounce. So was this the zenith and comparable to the 1980 high? Was this the end of the bull market that was running for almost a decade?.

There are many differences between 1980 and today not least of which the world is not the same following the most significant financial crisis since the great depression of the 1930’s, global warming threatening our existence and the economic balance between East and West swinging to the East. In 1980 the cold war still raged, the Berlin wall separated East and West Germany, and Eastern Europe was in soviet control, the Russian bear was feared. We must also remember that gold in real terms is trading at only half of the high reached in 1980 as the $850 to day equates to approximately $2200 when inflation is applied.

Political Fear – The Soviets had  signed a “bilateral treaty of cooperation” with Afghanistan in 1978, but by the next year relations had deteriorated and  the Soviet Invasion of Afganistan, which began around Christmas 1979, was a terrible global shock., Russian forces seized all major governmental, military and media buildings in Kabul, including their primary target – the Tajbeg Presidential Palace, where they killed President Hafizullah Amin and announced on Radio that Afghanistan had been liberated

It was a slap in the face to a cold war America.

At the same time the Russians were building up their strength  in southern Yemen close to Saudi Arabia and the oil fields. Also in Bulgaria’s border with Yugoslavia, a liberal communist country, whose 87 year old president Tito solely responsible for binding the  Serbs, Croatians and Muslims together since the end of WWII was very ill.

Iranian fundamentalists took over the US embassy in Tehran in November 1979 anther slap for America.  Ayatollah Khomeni became supreme leader in December and relations ships with Sadam Hussein’s Iraq were at an all time low eventually leading to the Iran –Iraq war.

Economic Fear – The 70’s were a period where inflation was spiraling out of control, stagflation unemployment, oil embargoes and subsequent spike in oil prices spread gloom and despair.  In 1979 inflation in the US was at 12% and was in double figures in most western countries  In the UK the winter of 1978-9 was known as the “winter of discontent” and during 1979 nearly 30 million working days were lost due to strikes.  Debt in the USA had risen to almost $1 trillion and the dollar was weak.

silverspikechartAnother catalyst that shook the markets was Bunker Hunt’s run on silver. Hunt, an oil billionaire, his brother and friends by October 1979 had bought up all the silver paper propositions to the tune of 192 million ounces.  In early January 1980 , it became evident that COMEX intended to change the rules to only allow 10 million/oz of contracts per trader and that all contracts over that amount must be liquidated before February 18th. Of course, the CFTC promptly backed up the ruling. The escape hatch for the Hunts and some of the other large longs was simply to convert their futures contracts into physicals, On January 17th silver hit $50/oz, Bunker had continued to buy. At that point in time the Hunt’s silver position was worth $4.5 billion dollars. This caused chaos as there was no silver to be had to supply and the Hunts were driven to ruin.

Oil revenue to Gold – The rapid rise in oil price produced a sudden surge of wealth in  Saudi Arabia and the Gulf States  and enormous sums were diverted into gold. This was further accelerated by the fall of the Shah which exposed vulnerability of people in power in the Middle East and led them to protect their positions. It was common for Saudi dealers to bid for 50-100,000 ounce in a morning and one bank was asked to buy 300,000 ounces for a single client.  Speculators also used the opportunity to dupe the market to increase the price of gold by bidding for huge sums  through a Gulf bank giving the impression that Arabs were pouring money into gold, a story carried by media for some time.

Greed – Of course speculation reached the phase of public awareness which is always the last phase close to the peak just before the decent.

The world was in turmoil and inflation was out of control so everyone was scared. When people are scared fiat currency is not enough. They return to traditions going back to the beginning of civilization to secure wealth in physical gold that gives portability and liquidity. During times of crisis and fear gold rises and individual governments can’t stop it; but in peaceful times governments are able to maintain control. The future of the American economy and American power did not feel at all certain. As a safe haven in times of panic and strife, gold simply reflected that fear. As soon as the emotion subdued and rationality returned  the buying panic quickly subsided and turned to selling phase taking down the price.

gold 1980The Fall – Prices will rise as supply cannot meet demand but in 1980  when the price touched $850 all over the world people began dishoarding their coins and  old jewellery in an unprecedented scale to the extent that dealers were running out of money to pay for the re cycled gold and Refinieries  had more than enough scrap gold. Thus supply quickly out grew demand.

In early 1980, Paul Volcker’s (Fed Chairman) new Fed policy began to bite. U.S. interest rates began to skyrocket. As they rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold was lured back into paper by this huge rise in interest rates – and by the prospect of a higher U.S. Dollar. The threat of financial meltdown was averted. There was a rush out of Gold and back to Dollars. The Dow was already rising in 1979 and really took off in 1982.

The gold price dropped off dramatically after its January 1980 high in short because people lost their fear as inflation the bane of the 1970s was finally coming under control, interest rates and the stock markets rose making other investments more attractive. Supply was greater than demand and the Middle abruptly exited the gold market.

2010

The financial crisis that rose its ugly head in 2008 and continued through 2009 is comparable to the fear generated in 1979-80 and was one of the reasons for the rise in gold as people sought a safe haven. The dollar has been weak, a norm for a corresponding high gold price and this was catalyzed by India buying 200 tonnes from the IMF to drive the price to the December high.

The Future – The difference between 1980 and today is that in 1980 we were exiting a terrible decade and the future looked bright economically. Today the future is far from bright and whilst we have managed the worst financial crisis since the depression and are even complacent; but the truth is we are not out of the crisis. The economy is recovering slowly and is still very volatile and in the UK we have £1.4 trillion in sovereign debt to face. According to the IMF spiralling sovereign debt in Europe, the US, and Japan has emerged as the top threat to the world economy and risks setting off a fresh financial storm. The eurozone is heading for one per cent growth this year, limping out of recession under the threat of a sovereign debt crisis. The main risk is that, if unchecked, market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion. The economies of Ireland, Spain and Portugal will shrink. The US’s ratio of total debt to GDP is likely to exceed 90% this year, making it more indebted even than Spain and Portugal. It is similar to Weimar Germany but for different reasons and has printed trillions of dollars of fiat currency which will eventually lead to debasement. The dollar is weak and is likely to get weaker. The Chinese Yuan is undervalued but it is not in China and the worlds interest to drop the dollar just yet but the time will come and dollar will fall. The Chinese are on the unmistakable path towards challenging the dollar and the ultimate aim is financial supremacy The dollar’s status as the worlds reserve currency is under threat and both Russia and China are pushing or an alternative in which gold must surely take a part.

Today we have a world of low interest rates where it is almost impossible to obtain an interest rate that does not lose on the capital invested each year when taking into account inflation and tax. With the right gold product tax on profit can be eliminated.

In 1980 Central banks were auctioning off gold, today central banks are turning to gold as many countries increase their gold reserves. Last year India bought 200 tonnes from the IMF to meet its international commitments. China has increased its reserves to 1054 tonnes and announced its intent to continue buying.

India is currently the largest consumer, China the largest producer and second largest consumer and Russia were not players in 1980 and it is these countries where the demand is currently driven. China is consuming all it can produce and quietly everything it can buy with out upsetting the price.

Public Awareness – In 1980 public awareness led to speculation and to frantic selling of gold, de hoarding which was contributory to the drop in price as the amount of scrap gold created an over supply. Today you can hardly open a newspaper or watch television without seeing an advert to persuade you to sell your old gold. This is the reverse of 1980 as the refineries need the re cycled gold to ease the demand. Also investment has not yet reached the public awareness stage. From the chart below  you will see that there is no slide just a correction which is normal

2year gold fixIn conclusion gold is still a safe hedge, the world is uncertain with threats of sovereign debt, inflation and the weakening of the dollar. Gold is finite all the gold ever produced would fit into a 20 metre cube. As mining becomes more difficult production costs are rising to almost $800. The demand from the East cannot be met so demand is greater than supply and there will be more pressure on supply as the gold fields dry up. I have seen an analogy where more gold can be extracted per ton by harvesting old mobile phones than the majority of modern mines. Were are currently in a period of correction fed by a certain amount of complacency but trends indicate that we should see a breakthrough of $1300 by Q4 2011.

Maurice Hall

China gold report – Year of the Tiger

Friday, April 9th, 2010

Over the past few years, China has experienced economic prosperity and rapidly increasing wealth.  During the same period, the Western world faced deep recession and is only now beginning to recover.  Today China has an insatiable appetite for gold which looks likely to continue in an environment where domestic mine supply lags behind demand. According to the latest World Gold Council Analysis, Chinese demand for gold is set to double in tonnage terms within just ten years. Over the past 5 years the demand for gold has risen by and average of 13% per annum and there is significant untapped potential in the Chinese gold market.

The rational behind the belief that a doubling of demand comprises of a number of elements:

  1. China’s need to diversify from USD assets without destroying the dollar as it holds 2.4 trillion in reserves
  2. China’s intention to increase it’s gold reserves from its current 1.6%
  3. Sustained GDP and subsequent wealth creating a higher saving rate
  4. China’s gold consumption per capita is very low in comparison with other gold consuming nations
  5. The growth in jewellery ownership is expected to take off in relation to the increase in spending power
  6. Citizens are encourage to put a proportion of their savings into gold and similarly the Central Bank is looking to diversify
  7. Gold demand is increasing as is production but according to WGC research reserves account for only 4% of known global gold mining reserves and could be exhausted in 6 years
  8. Its is likely that demand will outpace domestic supply with subsequent impact on the global gold market

1. Diversification

One factor that the Peoples Bank of China (PBoC) will consider is the future performance of the US dollar. Over the last 12 months, the US dollar has depreciated against major currencies and has not fared well as a preserver of capital. China, along with Japan, are the biggest single holders of US Treasuries and will certainly not benefit in precipitating a US dollar crisis since this will further devalue their trillions of US dollars in reserves and adversely impact the purchasing power of the US consumer – their major export customer. PBoC has been purchasing local gold mine production and local refining of recycled gold in local currency. The PBoC prefers not to be seen switching out of the US dollar at this juncture when such a large proportion of China’s foreign exchange reserves are already in dollar-denominated assets. A withdrawal of such significant volumes out of the gold-hungry domestic market would also further increase the domestic supply-demand gap in the Chinese private sector and escalate the “snowball” effect in China. Hence, we would not be surprised to see the PBoC proceed on a gradual strategy ( see article on China’s strategy and dilemma) , if it decides to increase its allocation. The media has stated that China should allow its currency to appreciate against the US dollar this year. This, in turn, would be bearish for the US dollar and positive for real asset prices, such as gold, that are denominated in dollars.

2. Reserves

The State Council advisor Ji Xiaonan believes China should start investing in at least 1,000 tonnes of gold per annum for its official reserves. Mr Ji has been quoted in the Chinese media as suggesting that the nation’s gold reserves should reach 6,000 tonnes in the next three to five years and perhaps 10,000 tonnes in eight to 10 years. The adjustments could be motivated by the following reasons:

  • Increasing gold as an essential component of PBoC’s book could help the country meet future requirements in terms of safety and diversification of the portfolio;
  • Purchasing gold using reserves would allow PBoC to withdraw billions of Yuan now in circulation, decrease the proportion of its US$2.4tn foreign currency reserves held in US dollar-linked investments and ease pressure on the appreciation of the Yuan. If the PBoC were to rebalance its reserve portfolio back to its recent peak ratio of 2.2%, we estimate that the incremental demand from taking this action would amount to around 400 tonnes at today’s gold price. Even an increase of 10% on its current gold reserve holding would translate to approximately 100 tonnes.

3 GDP

The Chinese economy grew at an unexpectedly high growth rate of 8.7% in 2009, with GDP reaching 10.7% in the last quarter. The country also saw rapid growth in foreign direct investment, fixed asset investment, new loans and rising money supply Continuous improvements in living standards, higher savings rates amongst private individuals and rising income levels are expected to generate robust gold demand in China. The World Bank (WB) recently raised its China GDP growth forecast for 2010 from 9.0% to 9.5%33. WB said that Chinese trade and household consumption should continue to grow strongly as the stimulus is withdrawn. The ongoing structural shift in Chinese gold demand and supply, as well as the structural trends within the world’s second largest gold market potentially creates a brave new world for China’s gold industry.

3. Consumption per capita

Global gold intensity

Chinese consumers are catching up relative to the Western world in terms of gold ownership. This is because market liberalization tends to have a dramatic impact in a local market. In India, for example its gold consumption more than doubled from roughly 300-350 tonnes in the early 1990s to over 700 tonnes at the end of 2008. Chinese gold demand has increased by 106% from 2002 to an estimated 443 tonnes in 2009, or an average of 8% per annum during the same period and 13% pa over the last 5 years. Nevertheless, the country has one of the lowest gold consumption intensity rates compared to Western economies, and to countries with similar gold cultures. In 2009, per capita gold consumption in China was 0.33gm, up from 0.17gm in 2002. WGC estimates that total incremental demand based on 2009 consumption and IMF population forecasts, ranges from 1,000 tonnes at USA and Japanese per capita consumption levels to more, if Chinese consumption per capita were to rise to Taiwanese levels.

4. Jewellery

China’s gold jewellery market is unique; local consumers are well aware of gold’s benefit as a store of value. Gold jewellery (especially 24 carat gold jewellery which accounts for at least 80% of total gold jewellery demand in China) has always been regarded as an investment by the Chinese. However, in recent years, there has been a shift of demand into 18 carat jewellery with Italian inspired design, which has been a success in attracting younger, urban cosmopolitan consumers to gold jewellery. During the last ten years, China’s jewellery off-take has averaged 250 tonnes of gold per annum. In 2009, the country ranked second in the global gold jewellery market, behind India. found per capita consumption of 0.26gm in 2009 to be low. If gold jewellery were consumed in China at the same rate per capita as in India, Hong Kong or Saudi Arabia, annual Chinese demand could increase by at least 100 tonnes to as much as 4,000 tonnes in the jewellery sector alone. There is also a significant potential for growth in Chinese gold jewellery demand,

5. Investment

Net retail gold investment is still developing in China. Investors looking to protect their wealth, and institutional and retail investors looking to manage portfolio risk are increasingly turning to gold. PBoC is also playing an increasingly supportive role on the demand side. We believe the reasons why central banks such as the PBoC would want to own gold are the same as the reasons why investors would want to own gold –namely its diversification properties, insurance against unexpected events and gold’s ability to outperform during crises. If PBoC  decides to rebalance its books back to its recent peak gold holding ratio of 2.2% at Q4 2002, we estimate that the incremental demand would amount to a further 400 tonnes at the current gold price. The ratio is nevertheless a fraction of the other key economies such as the USA (70.4%) and Germany (66.1%).

During China’s Eleventh Five-Year Plan period (2006-2010), gold investment among private individuals in China has been developing rapidly as Chinese investors catch up with their foreign counterparts in terms of gold ownership. There is a growing interest among the Chinese in commodity investment, stimulated by a high savings ratio, but also because there are not enough domestic investment opportunities available to Chinese investors. Chinese consumers are high savers, having accumulated wealth since 1978 when the Chinese government shifted the burden of retirement income to individual households. The Asian currency crisis added additional impetus to this savings culture. One should not forget that less than nine years ago there were regulatory restrictions on gold trading, ownership and investment in China. In 2001, the Chinese central bank announced the abolition of China’s long-term government monopoly of gold. Over the last century, the deregulatory tide in economic governance has helped to reduce the number of barriers to gold ownership around the world. In some cases the results have been spectacular. For example during the 1990s in India, when the liberalisation process was in full swing, Indian gold demand more than doubled from around 300-350 tonnes in 1992-93, to over 700 tonnes at the end of 2008. Chinese net retail investment in gold has increased from 65.9 tonnes in 2008 to 80.5 tonnes in 2009 (up 22% year-on-year). We expect this level to rise further despite recent gold price performance. In the WGC’s Gold Demand Trends Report for the fourth quarter and full year 2009, it was highlighted that Chinese consumers continue to buy gold in a rising gold price environment. Investment in China in the form of gold coins and bar hoarding has shown a strong growth momentum in recent years, although this market still accounted for less than a third of total domestic gold demand in 2009. The amount of Chinese gold coins and bar hoarding holdings in private hands is much less than in countries such as India and Vietnam. Chinese consumers are currently in the process of accumulating them, which may suggest that they are less willing to sell back their holdings as the gold price rises, compared to consumers in other parts of the world.

6. Internal Supply

Chinese mine production has been driven by gold prices. Despite being the largest producer in 2009 at 314 tonnes, the Chinese gold industry is simply not responding fast enough to bring in new supply. During the period from 2006 to 2009, average annual gold mine output grew by 8% per annum in China. This is more than targeted growth rate of 5% set out in its Eleventh Five-Year Plan (2006-2010) and it is more than three years since China moved three of its larger gold mines into production. On a longer term basis, supply issues such as higher mine development costs, rising input costs and potential threats relating to supply disruption, tougher safety regulations and depleting ore bodies could put a much higher floor under the gold price than was previously the case. During the last decade, Chinese gold miners have boosted output by 84 percent, but the nation’s known reserves account for just 4 percent of the total global gold reserves. China may exhaust its domestic supply within 6 years

China supply & Demand

7. Demand

Demand from China’s two largest sectors (jewellery and investment) reached a combined total of 423 tonnes in 2009 but domestic mine supply contributed only 314 tonnes during the same year. Chinese gold demand has the potential to double from today’s levels within a decade. Assuming that long term gold demand growth is in line with the supply growth target of 5% per annum (as set out in the Eleventh Five Year Plan), China could experience strong demand for decades to come. Demand growth looks set to continue to outpace global and domestic production capacity. The limited range of gold reserves and resources forecasts may restrict new supply, especially if existing domestic production lags behind demand. This shortfall creates a “snowball” effect as China’s gold industry may not be able to catch up with the annual leap in domestic consumption. This would effectively extend the gold cycle in China.

Conclusion

Over the past few years, China has experienced economic prosperity and rapidly increasing wealth. The Chinese economy grew at an unexpectedly high growth rate of 8.7% in 2009, with GDP reaching 10.7% in the last quarter. The country also saw rapid growth in foreign direct investment, fixed asset investment, new loans and rising money supply. During the same period, the Western world faced deep recession and is only now beginning to recover. Continuous improvements in living standards, higher savings rates amongst private individuals and rising income levels are expected to generate robust gold demand in China. The World Bank (WB) recently raised its China GDP growth forecast for 2010 from 9.0% to 9.5%. The ongoing structural shift in Chinese gold demand and supply, as well as the structural trends within the world’s second largest gold market potentially creates a brave new world for China’s gold industry. Today China has an insatiable appetite for gold which looks likely to continue in an environment where domestic mine supply lags behind demand. Looking further ahead, WGC expects Chinese gold demand to double from today’s levels over the next decade. Jewellery and investment growth are expected to be the chief drivers of this demand. The motives that drive demand in those sectors can differ: Jewellery is cyclical, and investment demand has both a cyclical and counter-cyclical element to it. There is a strong growth opportunity in the gold jewellery market given the very low per capita consumption of gold jewellery in China, which has almost doubled since the deregulation of the market. The recent financial crisis has also increased caution in Asia and made Asian investors aware of the need for a hedge against the possibility of further weakening in the US dollar, to which they are heavily exposed. Gold’s dollar hedging properties make it both appropriate and ideal for this purpose.

With ongoing uncertainties surrounding the economic recovery, currency and inflation, the search for alternative international asset choices for both investors and the central bank should clearly involve consideration of gold. The real value of gold for investors lies in the reliable diversification it provides and to consistently  deliver a lower average volatility than most mainstream assets and commodities.

Gold can be seen as an insurance policy, as an effective hedge and gives investors the confidence to manage unknown risk. Its value holds in good times and bad and show resilience during extreme conditions. Gold as an asset class has performed impressively for nearly a decade, both in China and internationally. Today, the combination of a healthy outlook for gold demand and its relatively inelastic supply creates a bright future for gold.

WGC report summarised by Maurice Hall

How Gold is Produced

Tuesday, March 9th, 2010

This chart illustrates the general steps in open-pit gold mining. The specifics of the process vary from mine to mine.

1. Geologists use the latest technology, such as satellite surveys and geochemistry, to locate an ore deposit.

2. Computers are used to design the mine, which requires precise and accurate measurement of the ore deposit. Construction begins following the lengthy process of receiving permits.

3.3 Samples of ore are examined to determine grade and metallurgical characteristics. Broken rock is marked by type for efficient processing.


4. Based on its metallurgical makeup, a dispatcher directs truck operators to deliver the ore to the correct processing location.


4b

5abtrans

6. The gold is absorbed (collected) out of solution onto activated carbon. The remaining cyanide solution is recycled.

7. 7The gold loaded carbon is moved into a vessel where the gold is chemically stripped from the carbon which is then recycled.

8. 8Gold is precipitated from the solution electrolytically or by chemical substitution.

9. The pure gold is then melted into dore’ bars containing up to 90 percent gold. Dore’ bars are then sent to an external refinery to be refined to bars of 999.9 parts per thousand pure gold.

Reclamation is a long-term investment made by every gold mining company, and can cost anywhere from $2,000 to $10,000 per acre. It is the cornerstone of every mine plan and is considered the first and last step of the mining process.

Gold is produced at some mines as part of the process of mining and refining other metals, such as copper. At those operations, gold is refined to an acceptable purity as part of the copper production process. At most gold mines, the gold “dore” is sent to a refinery for further processing.

low grade material

High grade material

Russia – Gold mining in some of the harshest conditions in the world

Tuesday, March 9th, 2010

Every winter, an ice road is laid across 400 km (250 miles) of tundra to carry supplies to one of the world’s most isolated gold mines.

kupol-mine

Kupol Russian Arctic Mine

There is no other way for heavy machinery to reach Kupol, the $700 million Arctic mine behind a resurgence in Russian gold production after five straight years of decline.”It’s one of the harshest climates I’ve worked in, and I’ve worked in the Atacama desert in Chile and at 15,000 feet in Indonesia,” said Patrick Dougherty, general manager at Kupol. “But I don’t get to pick where the gold is.”

Only South Africa holds more gold than Russia, but Moscow’s fragmented industry has struggled to access vast reserves in its inhospitable Far East. The region was first mined in the 1930s by prisoners of the Gulags set up by Soviet leader Josef Stalin.Russia is the world’s biggest energy supplier, but falling prices and reduced demand have cut income from natural resources to about 8 percent of its gross domestic product in the first quarter of 2009, from nearly 11 percent a year ago.

Gold, on the other hand, has been helped by recession. Its safe-haven appeal has shielded it from a demand slump that shredded other commodity prices, lifting it to over $1200 an ounce in December 2009

Chukotka, a region revived in the last eight years by the $2.5 billion investment of Chelsea soccer club owner Roman Abramovich, produced a fifth of Russia’s gold in the first half of this year. Gold is the region’s passport to growth after Abramovich quit as governor last July.Russia ranked fifth among the world’s gold miners last year, between Australia and Peru, with an 8 percent share of output. Production rose 13 percent in 2008, the first increase in six years, and jumped another 25 percent in the first half of 2009. “This was solely due to the commissioning of Kupol,” said Olga Okuneva, mining analyst at Deutsche Bank in Moscow. “If other large projects in the Far East start producing gold, this will be a major growth driver for the Russian gold industry.”

Kupol — meaning dome in Russian — is named after a rounded outcrop of rock that juts skyward from the tundra in central Chukotka, over 200 km (125 miles) from the nearest settlement. The mine took five years to build. It is the largest tax payer in Chukotka, a land twice the size of Germany where reindeer outnumber people four to one. “With a deposit as large as Kupol, mining’s contribution to the regional economy is expected almost to double to 37 percent this year,” said Roman Kopin, the 35-year-old who took over as governor when Abramovich resigned.

Kinross Gold Corp, the Canadian miner which owns 75 percent of Kupol, is unusual among foreign investors for holding a majority share in a major Russian mineral deposit. The government of Chukotka owns the other 25 percent. Untangling the red tape that stifles some foreign investors in other parts of Russia was one of the main achievements of Abramovich’s more than seven years as governor, Kopin said. “The investment climate here, perhaps, is a little bit different, because we understand that it’s very difficult to work in Chukotka,” he added.Kinross has been the top performing gold stock on the New York Stock Exchange for the last three years, when the company’s value rose more than 160 percent. Kupol will supply about a third of its total output this year and 15 of 24 equity analysts polled by Reuters retain a bullish rating on the stock

ARCTIC CORRIDOR

About 1,400 jobs are related directly to Kupol, and Chukotka’s population totals around 50,000. Miners and catering staff spend four weeks on site and four weeks off, earning an average monthly wage of 50,000 roubles, 25 percent above the regional average. “We have equipment that works here,” said Alexander Puzovets, 48, a drill rig operator who works 10-hour shifts at the pit face. “I’ve been in mines where we’ve used hammers.”The mine’s in-house electricity plant could generate enough to power the regional capital, Anadyr.In winter, miners walk the purpose-built Arctic Corridor — an enclosed, 900-meter tunnel from camp to mine — to avoid temperatures that drop more than 50 degrees Celsius below zero (minus 58 degrees Fahrenheit).

About 60 percent of Kupol’s gold is mined underground. Zurab Samteladze, a 55-year-old Georgian more than 7,000 km from home, hauls 45-tonne rock loads to the surface in a Caterpillar truck.In deeper parts of the mine, skilled operators maneuver drill rigs by remote control. This avoids the need for miners to work long hours beneath areas vulnerable to rock falls.

“With all the video games they play, the younger generation has a better chance of operating these units,” said Dougherty, a native of Arizona. Alcohol is banned. Miners pass their time playing pool, in the gym or watching television. Popcorn is a popular snack, while eight tons of reindeer meat was served up last year. “I play guitar — they have a music room. I like basketball — they have a sports hall,” said Andrei Aksanov, 34, a mechanic in the truck shop.Like 80 percent of the miners at Kupol, Aksanov comes from Magadan, the port city 1,500 km (940 miles) to the southwest.

russia miner

A worker cast an ingot at the Koylma refinery Magada

This is where mining began in Russia’s Far East. Stalin, needing bodies to unearth new-found gold reserves, sent hundreds of thousands of prisoners to slave in the region’s labor camps over two decades from the early 1930s.From such grisly beginnings, Magadan has developed into the hub of gold processing in the Russian Far East. Kupol flies its dore  (bullion bars)  to be processed into almost pure metal to be refined at the Kolyma Refinery to the north of the city. Vladislav Feoktistov, the refinery’s 71-year-old director, raised a glass of vodka to visiting officials from Kinross Gold. Supplies from Kupol will guarantee the plant’s biggest turnover in its 11-year history, he said.”This a business that’s only as good as its suppliers,” he said. From here, 15 kg (33 pound) gold bars worth more than $450,000 each at current prices are delivered to Russian banks.

Kinross report – The production at Kupol mine was started during the second half of 2008. During the second half of 2009, Kupol mine reported production of 234,265 gold equivalent ounces. Out of this, Kinross has produced 75% or 175,699 gold equivalent ounces. The production includes 151,327 ounces of gold and 1,633,673 ounces of silver. Kinross says that, with a cost of sales of about $205 per ounce on a co-product basis using a gold price of $400/oz and a silver price of $6/oz, Kupol will become one of the lowest-cost gold and silver mines in the world.

Processing – The Kupol mill is a conventional gold/silver cyanidation plant that incorporates a CCD thickener washing circuit and Merrill-Crowe zinc precipitation because of the high silver ore grade. Cyanide destruction is accomplished with calcium hypochlorite. The Kupol mill is designed to process about 3,000t of ore per day (1,100,000t per year). Run-of-mine ore is crushed in a jaw crusher and conveyed to a crushed ore storage bin. The crushed ore is ground in a SAG grinding mill followed by a ball mill. Gravity separation of free gold and silver will be carried out with a Knelson concentrator in the grinding circuit.

MORE GOLD TO MINE

There should be more to come. Polyus Gold, owned by billionaires Mikhail Prokhorov and Suleiman Kerimov, plans to launch Natalka, the world’s third-largest gold deposit, in 2013. Annual production of between 25 and 30 tonnes will put Natalka on the same scale as Kupol. Beyond 2017, Polyus plans to raise output to more than 40 tonnes a year. “It’s a deposit with reserves of more than 1,000 tonnes that will create jobs, infrastructure and become a major center for Magadan region,” said German Pikhoya, Polyus Gold’s deputy chief executive for strategy and corporate development. If Chukotka is to retain its leading position, it must do more. Current reserves at Kupol will last only until 2016. To extend the mine’s life beyond this date, more reserves must be found, mapped and registered with Russian authorities. Kinross and others are already exploring. “Chukotka is definitely a key gold-producing region, particularly in the long term,” said Vitaly Nesis, chief executive of St Petersburg-based miner Polymetal. His company plans to launch the Mayskoye gold deposit in Chukotka by 2011.

Maurice Hall from Sources Reuters, Kinross and mining-technology.com

The Australian gold rush – Gold creates a nation

Thursday, March 4th, 2010

The discovery of gold in Australia in the mid 19th Century had more of an affect on the nation than its discovery in any other country, transforming Australia from a British penal colony to a nation that integrated many nationalities. To this day a term of endearment for Australians is “Digger”.   It was not an easy passage and on the way there was greed, dispute, revolution, racism and a new type of outlaw “the bushranger; but gold was responsible for the building of infrastructure, the end of transportation and financial viability. Britain no longer had any excuse for withholding self-government from its Australian colonies eventually leading to the formation of the Federation of the Commonwealth of Australia after the referendum of 1900. As for gold itself some of the biggest nuggets ever formed came out of Australia which gave the name to famous “nugget” gold bullion coin of today.

It all began when Edward Hargraves returned from the Californian goldfields and was convinced that there was  similarity in geological features between Australia and the California. In February 1851, Hargraves took his pan and rocking-cradle and with his guide, John Lister, set out on horseback to Lewes Pond Creek, a tributary of the Macquarie River close to Bathurst where he filled and washed several pans, some of which did indeed produce gold. He named the place ‘Ophir’ after the biblical golden city, reported his discovery to the authorities, and was appointed a ‘Commissioner of Land’. He received a reward of £10,000, plus a life pension

Australian gold fields

Australian gold fields

Word spread quickly and within a few days 100 diggers were frantically tunneling for instant wealth. The road over the Blue Mountains from Sydney became choked with men from all walks of life, carrying tents, blankets, and rudimentary mining equipment hastily bought at inflated prices. By June there were over 2000 people digging at Bathurst, and thousands more were on their way. Gold fever gripped the nation and the colonial authorities responded by appointing ‘Commissioners of Land’ to regulate the diggings and collect licence fees for each ‘claim’.

Hargraves could never have dreamt how significant his discovery would be. New South Wales yielded 26.4 tonnes (850,000 ounces) of gold in 1852. This was a mere drop in the ocean compared to the yield from neighbouring Victoria when they joined the rush for gold.

The Victorian authorities, eager to prevent its population from joining the gold frenzy in NSW, offered a reward of £200 for any gold found within 200 miles of Melbourne. In 1851, six months after the New South Wales find, gold was discovered at Ballarat, and a short time later at Bendigo Creek.

Very soon the fabulously wealthy alluvial goldfields at Ballarat and Bendigo turned Victoria into a magnet for immigrant adventurers, who came in their hundreds of thousands – literally. The Australian gold rush would transform the British colonies, eventually into a nation. In 1851 the population of Victoria stood at around 80,000, and a decade later it had risen to over 500,000. In 1852 alone, 370,000 immigrants arrived in Australia and the economy of the nation boomed. The total population of Australia increased threefold from 430,000 in 1851 to 1.7 million in 1871.

Deposits were also uncovered in other states: Western Australia and Queensland in the early 1850s, the Northern Territory in 1865, and Tasmania in 1877, though the rich Kalgoorlie and Coolgardie fields in the west were not uncovered until the 1890s. But Victoria was the epicentre of the Australian gold rush.

holtermanns nugget

Holtermann's Nugget

In October 1872 Holtermann’s Nugget was found. At that time it was the world’s largest specimen of reef gold. It weighed 286 kg and measured 150cm by 66cm. The Hand of Faith (27.2 kg), the Welcome Stranger (73.4 kg) and the Welcome (69.9 kg) are other famous Australian nuggets. Between 1851 and 1861 Australia produced one third of the world’s gold

Despite the romantic attraction the reality was a harsh life with filthy and dangerous conditions made all the worse by the administration.  The system of licences caused great trouble at all the goldfields. Miners had to pay the fee of 30 shillings each month, which was exorbitant, whether or not they had found gold. They had to renew the licence each month. They had to carry their licence at all times to avoid prosecution. The frequent licence hunts caused great resentment within the mining communities, especially as the police employed to enforce the licencing system were notoriously corrupt and behaved with excessive brutality. As resentment and tension grew, under the leadership of Peter Lalor, an Irish immigrant, a group of several hundred miners erected a stockade of logs at Eureka near Ballarat. They withdrew into the stockade and unfurled the eureka flagSouthern Cross flag to proclaim an oath to fight to defend their rights and liberties. This was meant to be symbolic rather than revolutionary and most miners left after a day but some 400 troops stormed those that remained and 22 miners were killed and the leaders arrested and taken for trail. However, the courts refused to convict them and a following Royal Commission remedied the miner’s grievances and allowed them political representation  and Peter Lalor was elected to the Victoria parliament.

With Police concentrating on licence hunts they had little time to fight other crime and  travelers,  particularly those heading towards Melbourne from the gold fields were liable to be ambushed by groups of outlaws called bushrangers.

The diggers had come from many nations but by far the largest national contingent other than British and Irish were the 40,000 Chinese who had made their way to the Australian goldfields. They were mostly under contract to businessmen and worked the goldfield until the debt for their passage was paid off. As the deposits dwindled there were moves to restrict the Chinese diggers as they worked untiringly and were able to sustain the viability of their claims longer than their Western counterparts. They would rework ground abandoned by Europeans, and continue to work a claim until the whole of the gold bearing earth had been cleaned. There were campaigns to oust the Chinese from the goldfields and the motivation was based on racism and fear of competition for the  dwindling amounts. Victorian Parliament imposed a tax of £10 a head on all Chinese entering the colony and a poll tax of £1 per annum levied on every Chinese person on the goldfields. Restrictions were eventually placed on Asians in general, to prevent an influx from other nearby nations: Indonesia, Malaysia, and the Philippines. And of course the native Aborigine was rarely permitted to own gold.

At the turn of the century the Australian gold fields were the most productive in the world and today the hold second place ironically to China who have raced to the head of the gold producers in the last decade. The richness of the gold fields brought large numbers genuine traders who supplied the tools, timber and transportation plus the usual hotchpotch of drinking dens, hotels and prostitutes.  New towns and cities sprung up and merchants of all types flourished and hundreds of companies were floated and a new wealthy bourgeoisie was created. They eventually wanted to distance themselves from the riffraff so more respectable areas were built, trams were required for transport in the towns and railway networks were needed to join them. By 1853 under pressure from the new wealthy inhabitants the British ceased the process of transporting convicts to Australia. Many large public works programmes were undertaken as prosperity increased. This dramatic improvement in wealth and facilities led to the formation Federation of the Commonwealth of Australia after the referendum of 1900.  A new Nation was born

Maurice Hall

Carlin Trend’s gold

Wednesday, March 3rd, 2010
carlin PIT

Carlin Trend pit

The USA was the fourth  largest world producer of gold  in 2009 with the most prosperous mining region located in the state of Nevada. Millions of years ago, hot springs laden with flecks of gold boiled up through deep fractures in the earth’s crust. But the golden residue did not accumulate in rich veins, instead, it disseminated throughout the sedimentary rock laid down by an ancient ocean

The vast bulk of this production is from large mines where the deposits consist of microscopic particles principally hosted in this sedimentary (or sometimes volcanic) rock. Many of these deposits lie along a few well known geologic trends, and the two best known are the Carlin Trend, and the Eureka trend. Its tiny size also explains why the old timers never found these deposits as their principal means of exploration was the gold pan.

Carlin Trend’s largest mine is the Goldstrike Property. The two o clock siren indicates that it is time to leave the pits so that the daily explosions can begin in the mine.  Before the dust has time to settle, routine work resumes in the pits, 24 hours a day, 7 days a week.  The best way to achieve high productivity is to use the most advanced technology, and the bigger it is the better.  These six storey high shovels can load a truck with four shovel loads.  Each truck carries 190 tons of ore equalling about 107 kilos of gold but what differentiates Goldstrike from a conventional open pit is a computerised management system run from a tower located on the edge of the pits.

What we are trying to do here is to optimise the efficiency of all the equipment we have to run the mines.  All operations are computerised; each transportation or loading vehicle is fitted with a computer which communicates with the system in the tower.

carlin cranes

Cranes and giant trucks extract gold from Goldstrike mine. Around 100 kilos of gold per truck

This screen shows us which shovels are available and unloading areas to which we can send the trucks, we can see which trucks are leaving the shovels and those which are leaving the unloading areas to return to the shovels.

To extract gold from such low-grade deposits, miners must crush tons and tons of rock, which is piled into mammoth heaps and irrigated with cyanide. The cyanide percolates through the heap, extracting the gold. In the early days of the invisible-gold rush, a ton of ore might contain a few tenths of an ounce of gold. Today that minuscule amount would be considered high grade. Nevada mines are now digging up a ton of rock to get back as little as 0.025 oz. of gold which would have been considered waste rock back in 1961.”

After this process, the purified ore is melted and cast into ingots with a purity exceeding 92%.  Carlin Trend has become the industrial mining centre of America and has enabled the country to become the second biggest producer of gold in the world.

Timothy S Green, author of The World of Gold: “The boom in gold mining in the USA has created thousands and thousands of jobs.  Somehow it has enabled Nevada to be reborn as a State.  There is a whole life surrounding this industry which didn’t exist when I started being interested in gold in the mid 60’s.  In North America, you will find Homestake mine plus one or two small producers.  In Canada this industry lived off state subsidies and in the North of the Country we really struggled to keep mining towns standing.  Today, this industry has been totally transformed, it is alive and dynamic.

British Gold

Tuesday, February 2nd, 2010

welsh goldBritish gold is rare indeed. Unlike the vast mining industries in Nevada, China and South Africa, gold reserves in the UK are modest. Most mines have been alluvial where the precious metal has been sifted from rivers and silt rather than dug from rock. Gold has been mined in the UK since around 600 BC when the first mine was opened in Wales. One of the reasons the Romans invaded Britain was that they believed it to be rich in precious metals. More Roman gold artefacts have been found in Britain than anywhere else in Europe.

Wales

Gold has been mined in Dolaucothi Wales since prehistoric times. The pre-Christian Celtic chiefs wore fine gold torcs and armbands and became wealthy as a result of metal trading. The Romans later controlled some of the mines, developing large-scale mining operations. During the Roman occupation, British metalwork was widely circulated. Reaching their peak during the great expansion of the Celtic Church in the 8th century AD, welsh brochCeltic goldsmiths produced work of unrivalled craftsmanship. Later, the Welsh princes became wealthy and powerful rulers due to rich supplies of metal ores.

The Acts of Union passed in 1536 and 1542 made mining rights the property of the English Crown and royalties of 4% are still payable to the Crown on any gold mined in Wales. Welsh gold, which is mined by hand, is found in an area stretching from Barmouth, past Dolgellau and up towards Snowdonia. Welsh gold-bearing rock lies in seams, like coal, and has been known to yield up to thirty ounces per tonne.  Gwynfynydd Gold Mine in Dolgellau opened in the 1860s and was one of the richest gold mines in Britain with a recorded output since 1884 of more than 2,000 ounces of fine gold. Gold was first worked on a serious scale at. In 1862 a small scale British gold rush was triggered by the Clogau mine, which excavated more than 165,031 tons of ore and was a key producer of gold on a serious scale

Welsh gold due to its rarity is very expensive and has a distinctive rose colour.  The Clogau and Gwynfynydd mines are the only mines to have recently produced significant quantities of gold, and it is from these two mines that gold for the Royal wedding rings, traditionally made of Welsh gold, has been obtained. In is rumoured that the queen obtain a kilogram of welsh gold many years ago to ensure sufficient remained for more royal rings

Scotland

Scottish Highlands are famous for many things: ancient mountains, sparkling lochs, whisky and wildlife. But now a new and highly lucrative attraction has been found in the Highlands - gold.

An Australian-funded mining company has made several large finds of gold, potentially worth hundreds of millions of pounds, around the small village of Tyndrum.

The company, Scotgold, already owns a small mine near Tyndrum known as Cononish. First drilled 20 years ago, Cononish has never been commercially worked, until now where it is estimated that 4.5 tonnes of gold lie buried worth £100m..

The local community trust and tourism officials are discussing plans for a gold mine visitors centre in the village, gold panning “experiences” and jewellery boutiques selling rings, brooches and necklaces of “Tyndrum gold” to passing tourists at premium prices.

Chris Sangster, the director and CEO of Scotgold, said Cononish is expected to start producing 200kg of gold a year at the mine site when full-scale mining begins in 2011 – enough to produce 30,000 wedding rings a year – and another 500kg each year by sending rocks for processing elsewhere. Cononish will also produce roughly 17 tonnes of silver.

But Sangster said Cononish may only be the start of a major gold mining operation in the area. The company has a licence to explore a 2,200 sq km area of the southern Highlands for gold and it now believes there could be up to five times as much gold in the Tyndrum area.

The one-kilometre long shaft at Cononish has remained dormant until now because of the technical difficulty and cost of extracting the particles of gold from the quartz rock, which traps it. For every 10g of gold – roughly the weight of one wedding ring – about a tonne of rock will need to be crushed.

Most Tyndrum gold will be sold on the open market. The mine’s commercial value has been transformed by the sharp surge in its price during the recession.

Northern Ireland

The UK’s largest gold mine is in County Tyrone Northern Ireland, where 14 tonnes have been discovered in shallow deposits beneath a peat bog at Cavanacaw, in the same Dalradian rock strata that runs across the northern UK to the mine at Cononish in the Scottish Highlands.

In January 2007, after modern prospecting techniques discovered recoverable gold at Cavanacaw near Omagh in Co Tyrone, the first modern gold mine came into production. “This is Ireland’s first for two millennia”, announced Galantas, the Canadian company who owns and operates it.

It announced that Galantas expected to produce 30,000 ounces of gold a year – which alone would net close to 15 million pounds. Deposits were claimed to hold 14 tonnes of Irish gold. While most was to be sold as gold concentrate, a small part of what the company billed as “rare Irish gold” was to be used to make a range of branded 18-carat jewellery – Galantas Irish gold jewellery.

In addition to the Omagh gold mine, there are at least three other projects that are being explored.

Maurice Hall