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Jim Rogers...
Commodities bull run not at an end - Jim Rogers, investment guru
In an interview on ClassicFM @ 18:15 on Monday, 2 July 2007
[miningmx.com] -- THE commodities bull run was expected to continue because there was no extra supply to drive prices down, said investment guru, Jim Rogers.
"We can expect to see some corrections along the way, but the idea that the commodities bull run has come to an end is ludicrous," Rogers said. He was speaking on Classic Business, a week nightly radio broadcast.
"Where is the oil going to come from?" said Rogers. "Where is the lead that is going to drive the lead price down and keep it down going to come from?" There had been no new lead mines brought on stream in the last 25 years, Rogers said.
"It's madness [to say] there is enough oil to bring the price down and keep it down; and even if there were gigantic amounts of oil in the world, it would take many years to find and bring it to the markets," he said.
He added: "The bull run will not last forever, but it would take more than the price of oil to bring it down," he said.
However, India was not likely to rival China in future in terms of future demand. "People speak of India and China as the same but they are very different.
"It's like South Africa and Zimbabwe, just because they are neighbors doesn't mean that they are the same. I would not bet my money on India," Rogers said.
2008-09 Toyota Prius
93 mpg...
http://www.hybridcars.com/concept-hybrids/toyota-hybrid-x.html
The Toyota Prius rose from almost complete obscurity in 2003 to become a mega-superstar in the automotive world. In May 2007, Prius sales reached platinum-record levels—more than 24,000 units in a single month, making it the sixth most popular of all passenger vehicles sold in the United States.
Breathless—yet unsubstantiated—claims about the next Prius began circulating in early 2006. The UK’s Auto Express credited a Toyota engineer as saying that the next Prius would achieve 94 miles per gallon, use lithium ion batteries, and be on the road as early as 2008. The auto and eco-minded bloggers went crazy with excitement, speculating further about the potential for the next Prius to break the 100-mpg mark with plug-in capabilities.
Fantasies about the next Prius took visible shape when Toyota showed off its “Hybrid X” design concept at the Geneva Motor Show in March. It was sleek, groovy and futuristic.
Then, the high hopes of hybrid fans crashed back to earth in May when the Wall Street Journal and a Japanese industrial daily, Nikkan Kogyo Shimbun, reported that the third-generation Prius would not switch from nickel metal hydride to lithium ion batteries and that Toyota would not release the vehicle until spring 2009. According to the newspapers, Toyota had decided to take its time to ensure quality and safety—logical, yet not so dreamy.
Toyota’s reluctance to use lithium batteries in the next Prius may reveal more about the company’s corporate strategy than the state of lithium chemistry or plug-in technology. Why is Toyota holding back on the advanced battery technology for the next Prius?
We can find clues in recent comments from Jim Press, president of Toyota Motor North America. “The approach the company takes is a more conservative decision-making process that tries to avoid wrong decisions and therefore it takes longer to make decisions,” said Press in an April interview in Edmunds’ Auto Observer. “We have a saying that before a Toyota person crosses a bridge, we check every rock.” As alluring as it may be to push the Prius over the 100-mpg mark with lithium batteries and plug-in capabilities, Toyota can afford to be patient, avoid risk, and allow the production levels of its current crop of hybrids to reach economies of scale.
Where does that leave the next Prius when it comes out in 2009? Bill Reinert, national manager of the advanced technologies group at Toyota, predicted a continuation of the previous 30 percent jump in fuel economy from the previous Prius generation. Based on that calculus, the next Prius could boost real-world combined fuel efficiency from the current high-40s to the low 60s—still rock star status among motor vehicles today.
Read more:
http://www.hybridcars.com/compacts-sedans/high-hopes-next-prius.html
PS3, Sony how you killed your brand....
same group has another video on Sony & PS3.
http://www.collegehumor.com/video:1744652
Apple i-Phone, NO WAY... I am going with the Microsoft table!!
http://gizmodo.com/gadgets/clips/microsoft-surface-the-parody-270782.php
central bank gold sales
http://amarks.homestead.com/CBGold.html
iran - interesting article...
Middle East
May 30, 2007
Why Iran will fight, not compromise
By Spengler
What can the West offer the Islamic Republic of Iran in return for giving up its nuclear ambitions and kenneling its puppies of war? The problem calls to mind the question regarding what to give a man who has everything: cancer, AIDS, Alzheimer's, diabetes, kidney failure, and so forth. Iran's economy is so damaged that it is impossible to tell how bad things are. Except perhaps for the oilfields of southern Iraq, and perhaps also northern Saudi Arabia, there is nothing the West can give Iran to forestall an internal breakdown.
Iranian dissidents put overall unemployment at 30% and youth
unemployment at 50%. Government subsidies sustain a very large portion of the population; 42% of the non-agricultural population is employed by the Iranian state, compared with 17% in Pakistan.
Within fewer than 10 years, Iran will become a net importer, at which point the government no longer will be able to provide subsidies. Iran's economic implosion is a source of imminent strategic risk.
What most analysts, including this writer, foresaw as a medium-term problem seems to have confronted Iran much sooner than expected. The present inflation rate of about 20%, driven by a 40% rate of monetary expansion, suggests that government resources are already exhausted. Governments resort to the printing press when they no longer can raise sufficient funds through taxation, sales of state-owned commodities such as oil, or borrowing. That is surprising, considering that Iran reported a current-account surplus of US$13 billion last year. The fact that Iran cannot stabilize its currency suggests a breakdown of political consensus within the regime, and a scramble by different elements in the regime to lay hands on whatever resources it can.
Another possibility is that the official numbers are entirely false, and that Iran already has fallen into a current-account deficit. In a May 19 statement reported by the official Islamic Republic News Agency (IRNA), President Mahmud Ahmadinejad denied a report that Iran's imports now exceed $60 billion, against an official estimate of $45 billion. This sort of discrepancy typically occurs when capital flight is disguised as imports through fraudulent invoices and similar devices. A small current-account deficit would be of little concern for a nation with normal access to world capital markets, but Iran is unable to borrow.
That is the background to Ahmadinejad's decree last week reducing private and state bank lending rates to 12% from 14%, that is, 5-10 percentage points below the rate of inflation. If Ahmadinejad were in the pay of a hostile intelligence service, he could not have found a more effective way to sabotage Iran's economy. If the price of goods rises faster than the cost of money, everyone who can will borrow money to purchase and hoard goods. The result will be higher prices and reduced economic activity, and the eventual prospect of hyperinflation, which no government ever has survived. Last week's rate reduction augmented the incentives for capital flight.
Ahmadinejad took this foolhardy step against the explicit advice of Iran's economic authorities, which suggests that the economic suffering of his political base commanded his undivided attention. After increasing gasoline prices earlier in the month, he evidently found it necessary to throw his constituents a bone.
Iran's prospective demographic implosion, I have argued for two years, pushes Tehran toward imperial expansion. [1] It is difficult to see a way out for Persia's pocket empire; the country exports nothing but oil, carpets and dried fruit (excluding the growing human traffic in Persian women), and manufactures nothing the world will buy. Its most pressing problem, unemployment among the 60% of its population now under the age of 30, will turn into a much worse problem as this generation ages. In two decades Iran will have half as many soldiers and twice as many pensioners.
If a future catastrophe is inevitable, its impact has a way of leaping back into the present. Monetary disorder of the magnitude we now observe suggests an internal collapse of confidence.
What strategic consequences ensue from Iran's economic misery? Broadly speaking, the choices are two. In the most benign scenario, Iran's clerical establishment will emulate the Soviet Union of 1987, when then-prime minister Mikhail Gorbachev acknowledged that communism had led Russia to the brink of ruin in the face of vibrant economic growth among the United States and its allies. Russia no longer had the resources to sustain an arms race with the US, and broke down under the pressure of America's military buildup.
The second choice is an imperial adventure. In fact, Iran is engaged in such an adventure, funding and arming Shi'ite allies from Basra to Beirut, and creating clients selectively among such Sunnis as Hamas in Palestine.
I continue to predict that Iran will gamble on adventure rather than go the way of Gorbachev. A fundamental difference in sociology distinguishes Iran from the Soviet Union at the cusp of the Cold War. Josef Stalin's terror saw to it that the only communist true believers left alive were lecturing at Western universities. All the communists in Russia were dead or in the gulags. By the 1980s, only the most cowardly, self-seeking, unprincipled careerists had survived to hold positions of seniority in the communist establishment. Only in the security services were a few hard and dedicated men still active, including Vladimir Putin. These were men who saw no reason to fight for communism 70 years after the Russian Revolution.
Iran, however, is not 70 years away from its revolution, but fewer than 30 years away. Ahmadinejad typifies the generation of Revolutionary Guards who followed the ayatollah Ruhollah Khomeini in 1979, and now hold senior positions in the state and military.
Ahmadinejad blames the country's economic problems on "certain elements", presumably his opponents within the regime, alleging that government agencies have falsified statistics to discredit him. As noted, he denied reports that imports were fully a third higher than officially reported, an astonishing statement for a head of government to have to make. The president also claimed that unemployment had declined to 11.3% from 11.5% in 2006, adding, "The government is now striving hard to provide employment opportunities for the country's jobless people." The IRNA report concluded with this less-than-confidence-building comment about inflation:
On [the] inflation rate, he said the government is quite successful in controlling [the] spiraling inflation rate while other factors such as the country's development projects and worldwide price hikes should be taken into consideration.
"Unfortunately, certain elements are now issuing fabricated statistics and try to tarnish reality, but we strive to remove all existing weaknesses," said the president.
"Certain elements" no doubt refers to Ayatollah Akbar Rafsanjani, his opponent in the 2006 presidential election and leader of the faction more inclined to compromise with the West. Rafsanjani continues to maintain excellent contacts in Germany, and European diplomats have placed their hopes on the prospect of his replacing Ahmadinejad. It would not be out of character for Rafsanjani and his allies to make matters more irksome for Ahmadinejad by diverting large amounts of money out of state revenues into their own pockets.
As a way of changing the Tehran regime, however, pushing Iran toward hyperinflation would be akin to cutting the brake lines of a car to spite its driver, when one is a passenger in the same car. It is easy to hasten the deterioration of Iran's economy, for it is headed downhill in any event, but very difficult to reverse the process.
An old piece of diplomatic wisdom states that one always should give one's enemy a way out. But I see no way out for the pocket empire of Persia. Ahmadinejad and his generation of Revolutionary Guards will fight, and cautious old men like Rafsanjani will not be able to stop them.
Note
1. Demographics and Iran's imperial design, Asia Times Online, September 13, 2005.
(Copyright 2007 Asia Times Online Ltd
on vacation to Cairo until 6/19, in case you're wondering...
Screaming beans.
http://simon.supermegaactionplus.com/beans.html
central bank gold sales
http://amarks.homestead.com/CBGold.html
article on CB gold sales
http://www.resourceinvestor.com/pebble.asp?relid=31420
tell me about ISZ.v (bad ticker?)
"Added some ISZ.V today (fertilizer play)."
central bank gold sales, large sale this week by 2 banks.
http://amarks.homestead.com/CBGold.html
appears my Central Bank Gold Sales numbers are very accurate. this per GFMS:
"In the current CBGA year (these run from September 27th to
September 26th), signatories have sold 177 tonnes as of
April 11. France has been the most active seller in the third
year of the agreement, having sold 62 tonnes of gold as at
the end of February, in line with its announced plans to sell
between 500-600 tonnes over the five-year life span of the
second agreement. Spain is a close second, having sold
54.6 tonnes of gold by the end of March, although unlike
France, it has not made clear how much gold it intends to
sell. The other main sellers have been the European Central
Bank and the Netherlands, which had sold 23 tonnes and 14
tonnes respectively by the end of February. There have also
been some further, though modest, purchases from banks
outside the agreement."
My calcs have gold sale tonnes at 178 tonnes vs. GFMS at 177 tonnes.
for all you Apple enthusiasts...
http://www.funnieststuff.net/viewmovie.php?ad_key=VNXPWJOJOTGD&tracking_id=633958&type=wmv&a...
central bank gold sales
http://amarks.homestead.com/CBGold.html
YTD actual sales are now 178.0 tonnes versus expected 274.0 tonnes. About 96.0 tonnes behind scheduled sales.
looks like you beat me to that Martin M article..., he is the best gold analyst there is, IMO.
also, like Don Coxe current viewpoint, and Coxe is bullish in the long term citing:
1) If we get agricultural prices going up at same time as oil, then there will be inflation and very beneficial to price of gold. Food/Ag Prices going up in conjunction with Oil Price has always led to inflation per Coxe and thus VERY good for gold price.
2) Coxe very impressed by physical gold buying of Indians and to lesser extent China. (My opinion, watch those monsoon rains in India, always a key indicator of mine).
Nonetheless, Martin M is cautious short term, thus so am I...
i.e. I find this as cautious since we are at about $680 now:
"On a probability-weighted basis this gives us an average this year of $680, a year-end price of $730 and an average next year of $765."
Martin M
That was the conclusion drawn by Dr. Martin Murenbeeld, one of the most respected economists analysing the gold market, in his presentation to the Investing in Americas Summit, the conference run by Global Investment Conferences in Nassau this week.
Author: Rhona O'Connell
Posted: Friday , 06 Apr 2007
NASSAU -
In a wide-ranging review of the market and the essential parameters that govern it, Dr Murenbeeld presented eight bullish factors driving the gold price at the moment. In the interests of balance he naturally looked also at the bearish factors, of which he identified just two, so we shall deal with these first and then revert to the bullish arguments.
The first bearish influence is that monetary policy has tightened and that liquidity conditions could deteriorate. This would reduce gold demand (and as he pointed out, also supply) and the price would come down accordingly. Real US interest rates are in the danger zone; Dr Murenbeeld notes that gold prices tend to stall when real short term US rates are approaching 3%. Furthermore the rise in global liquidity has moderated in recent years. The second factor is that recessions reduce demand for commodities, reduce inflationary pressures and gold falls foul of both those changes. The gold price often declines during and after recessions; the only reason it did not do so last time was because of the speed of the reaction of the Federal Reserve in cutting rates.
In his outline Dr Murenbeeld displayed his Gold Monitor Model, which factors in a series of external parameters that have an impact on the price and, running the series back to 1998, calculates that the model pitched gold on Friday 30th March at $640. The fix that Friday afternoon was $661.75 so on that basis, gold is at about the right level and in his words, "there is nothing fluffy about this gold price". Furthermore, trend analysis shows that mining equities, as measured by the XAU index, are undervalued, both with respect to gold and, more importantly, with respect to the S+P 500.
The eight bullish factors:
Ø The dollar must decline further
Ø Dollar reserves are excessive
Ø Gold is "cheap"
Ø Monetary reflation is coming
Ø Supply is limited
Ø Demand developments are revolutionary
Ø The commodity cycle lasts years
Ø The geopolitical environment favours gold
The dollar. Plenty of arguments here with respect to over-valuation but the key parameters are that the current account deficit suggests the dollar is overvalued by up to 25%, certainly when compared with the dollar's decline in 1985 - 1987. This is underpinned by recent arguments from the IMF, which has said that the dollar's real exchange rate appears to be overvalued by between 15% and 35%. Dr Murenbeeld, like many others, also argues that the renminbi needs to be revalued and reminds us that the unification of the renminbi at the end of 1993, prior to which there were two rates, an internal and an external exchange rate, was an effective 34% devaluation of the RMB in the international currency markets and that it is arguable that the Chinese Government should let the RMB float up to the pre-1994 level.
Dollar reserves. He points also to the ballooning level of dollar foreign exchange reserves, notably in the Far East, where the Big Six hold $2.7 trillion between them, roughly 56% of the world total. He notes that while diversification would do wonders for the gold price, it is not feasible even just for China and Japan to raise their holdings to 15% of gold+foreign exchange combined as it would require (at $600/ounce) 16,300 tonnes just for those two nations and that it simply is not going to happen.
A key relationship to note is gold and the OPEC nations' current account surplus. It is no coincidence that the last time gold peaked, so did OPEC's current account surplus. It is well documented, though often forgotten that when the oil price was very strong in the past, the Middle East was a heavy buyer of gold and this fanned the rise in price. Having attained critical mass last time around, it is not necessarily the case that the region would be an exceptionally strong buyer this time, but there is clear evidence of lively buying in the region.
Risk diversification theory would suggest that a shift out of the dollar is inevitable, as is the pervading fear of further dollar declines along with geopolitical trends (note, for example, that some OPEC nations are now invoicing in euros rather than dollars). There is a counter argument to this, however, which relates to the overwhelming size of the dollar market compared with other currencies, which means that widespread diversification is not on the cards.
Gold is "cheap". In constant dollars going back to 1970, gold is not far above its average price for the period ($564/ounce) while it is at an all time low in terms of oil at a ratio of less than seven compared with a 1970 - 2007 average of 16.98:1. It is also cheap in terms of other financial assets, with the ratio to the S+P 500 standing at just over ten.
Monetary reflation looks to be imminent; note that Dr Bernanke has recently referred to the fact that demographic changes (the retirement of the baby-boomers) and increased medical costs mean that federal expenditures are likely to rise sharply and pose difficult choices; while David Dodge has said that policy makers have a responsibility to mitigate the impact of the risks of a drop in US demand not being matched by higher demand in other countries. All of which points, in Dr Murenbeeld's view, to monetary reflation.
Furthermore it is arguable that the housing sector could force monetary easing in the short term while rising government liabilities could make it necessary in the longer term. He argues that we cannot afford the US to go into a recession as it is vital to keep propelling the Chinese and Indian markets in particular and they need US purchasing to remain healthy. Government choices are therefore limited either to unpopular measures with the voters (service cuts, tax hikes) or possibly the printing of more money.
Gold supply is limited. The long lead time between exploration, discovery and coming on stream suggest that in the wake of the price weakness in the 1990s, gold mine output should be declining in the near future while the amount of central bank gold that is potentially in loose hands is very limited, standing at just over 3,740 tonnes. It is also noteworthy that some non-signatories to the CBGA are actually buyers of gold rather than potential sellers.
Demand is healthy. Consumer expenditure in gold demand has risen dramatically in recent years and is likely to continue to do so, while investment demand has been stimulated by the Exchange Traded Funds, while gold is also benefiting from the fresh acceptance of commodities as an asset class. Meanwhile there has been substantial further stimulus for gold demand across Asia with the deregulation of the gold market, notably in India in the 1990s and now in China.
The commodity cycle: Dr Murenbeeld argues that, going all the way back to 1800, the shortest bull cycle in gold has been ten years (1970 to 1980) and also reminds us that there is always at least one counter-cyclical year within the period.
The final bullish argument is the geopolitical arena, which is clearly conducive to higher gold prices and which is well-documented.
Dr Murenbeeld's conclusion is as follows.
There is a ten per cent chance of a "lousy" environment for gold with prices below $600 this year and next. There is a 45% chance of an environment that sees gold end this year at $700 and average $665 in 2007 and $720 in 2008, and also a 45% chance of a high road scenario in which gold touches $805 this year after an average of $717 and averages $863 next year.
On a probability-weighted basis this gives us an average this year of $680, a year-end price of $730 and an average next year of $765.
Blanchard analysis-Central Bank Gold Sales
Out of the office starting later this afternoon to begin the holidays and hope that everyone has a great vacation. We're going to have a few data points out on Friday that should move markets…on Monday. Markets across the globe except for the Treasury market that has some note auctions on Friday will all be closed.
So why's the precious metals market heading higher today on seemingly little bullish news?
For the same reason the market wasn't performing the last three weeks. The selling pressure from bank sales has abated and precious metals have become a more direct reflection of market circumstance we're currently seeing.
Been running some figures on the recent ECB sales and thought you'd like to see them, consider this the extended note before the vacation!
Since they announced their selling program with the CBGA II signing, the Bank of France has sold 380 tonnes of gold (using rough numbers total is actually 379.85). When they signed the agreement in 2004, they announced that over the 5 years of the 2nd agreement, they would sell 500-600 tonnes of gold.
By my calculations, they've got 120-220 tonnes of sales left to push out into the market over the next 28 months of the 2nd agreement to reach the low or high end of their announced sales. Broken out that's 4.2 to 7.8 tonnes of sales a month. Sales have averaged 26 tonnes a month in the latest CBGA II fiscal year. We believe that number is set to fall drastically.
Switzerland's done with their selling program, the Bank of England didn't even sign the 2nd agreement, Spain and Portugal seem to be finished selling after dumping millions of ounces on the market in the last two years, and the Netherlands are finished their announced sales as is the Bank of Denmark.
France is the only announced seller left out in the market of any size. Other banks are certainly selling a tonne here or a tonne there, but France is the only bank transacting in any volume. Germany has said they won't sell any gold reserves in 2007 and have yet to decide about 2008. Italy has made no announced plans to sell and has not sold one tonne of gold over the life of both agreements (I'd have to say knowing the little bit I do about their cash management acumen and fractured governmental system, any agreement on selling from them is remote).
So…what's it all mean?
In my mind, it means we've got one remaining seller left out in the market of any size who was more than likely behind the major sales in the last 3 weeks. We'll get an update on who sold the gold in a month. It also means that after purging over 11 million ounces from their reserves in two and a half years, the Bank of France is nearly done with their announced program and only have between 3.8 to 7 million ounce left to sell.
Unless Germany makes an announcement about 2008 or Italy changes their routine and begins selling, there are no more captive ECB banks who either have any gold sales announced or own enough gold in reserve to transact at the same levels that France has been selling in the last 3 years.
We're not only going to see CBGA II sales miss the mark this year by over 150 tonnes, we're going to see CBGA II sales for 2008 and 2009 miss the mark by 200-300 tonnes each. Supply side thoughts for further down the road, but one that is looming very large on the horizon. We're talking another 6-10% drop in both 2008 and 2009 in supply into the market.
We've seen significantly lower mine production in the last five years, we've watched 75 million ounces of gold get dehedged off of the market (with 40 million left to go), investment demand has picked up some(we still believe it will grow another 25-50% in the coming years), outside of the ECB captive banks, central banks made net additions to gold holdings in 2006…Seeing central bank sales dry up like this while so many other supply/demand factors are coming into play is a major, major bullish signal for the market. Central Bank activity (or lack thereof) and supply/demand factors are what will push gold past $800 this year and into the four digit range in the next several years. See the coming trend, understand it and prepare for it.
central bank gold sales
fairly large sales relatively these past 3 weeks, still 90 tonnes behind schedule
http://amarks.homestead.com/CBGold.html
video
http://langephoto.com/video/video_flipbook_12_26_06.html
Cell phones, GPS and Google maps! Track down and get a
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Only ECB Banks are included. ECB banks are almost all the central bank sellers in the world right now and for the past 10+ years.
nice quote
"An investor is better off doing nothing until he sees money in the corner just waiting to be picked up." - Jim Rogers
central bank gold sales
http://amarks.homestead.com/CBGold.html
central bank gold sales, large sales by 2 banks this week...
still 100 tonnes behind scheduled sales...
http://amarks.homestead.com/CBGold.html
February 8, 2007
http://www.kaiserbottomfish.com/s/Trackers.asp?ReportID=170037&_Type=Trackers&_Title=Tracker....
Imminent merger between American Gold and Chesapeake a marriage made in heaven
Synopsis: American Gold Capital Corp (AAU-V: $2.71) was recommended a medium priority bottom-fish buy in the $0.75-$1.00 range on January 5, 2006 (Tip of the Day - January 5, 2006). The basis for the recommendation was the ownership of two "out of the money" gold deposits in Mexico and Nevada called Metates and Talapoosa that Sun Valley sponsored American Gold acquired while gold was below $400 per oz. The stock jumped in March 2006 when the Chesapeake merger was announced. After analyzing the merger terms I issued a Good Relative Spec Value Buy recommendation at $2.09 (Tracker 2006-08 - March 20, 2006) on the premise that the value of the share, warrant and conversion "right" American Gold would receive upon completion of the merger would be worth much more than the prevailing price. These terms have changed somewhat to accommodate jurisdictional and tax issues, but their effect for American Gold shareholders remains largely unchanged. American Gold stock traded as high as $2.80 in May 2006 before succumbing to the double whammy of the general market sell-off and delays encountered with the details of the merger. We are now close to the merger's completion, and we have a gold price once again in an uptrend that is at the highest level since the sell-off in May 2006.
For those of you adhering to the bottom-fishing strategy American Gold remains a Spec Cycle 100% Hold because 1) I expect the 3 pieces of paper you will get during the next couple weeks will soon be worth a lot more than the $2.71 you could get today by selling American Gold, and, 2) the bottom-fishing strategy forbids adding to your position once a speculation cycle gets underway. For those of you who are Spec Value Hunters, namely sophisticated investors seeking to exploit inequities in the resource sector, I recommend not only holding the American Gold shares you bought when I recommended the stock at $2.09, but I also recommend adding to your position at the current price of $2.71 before the merger to secure a position that not only gives you a stake in Randy Reifel's ability to repeat the success he achieved with Francisco Gold through the El Sauzal and Marlin gold discoveries, but to also secure a stake in the possibility that the price of gold will soar well above $850 during the next 5-6 years. However, I qualify this recommendation in that if you are a hard money or apocalyptic gold bug (Paul van Eeden, Ian Gordon etc), you should ignore this recommendation, for if you believe gold will go up because the US dollar collapses or the global economy goes to hell in a handbasket, you will probably lose money buying American Gold because in your scenario American Gold's assets will remain out of the money regardless of the price of gold. But if you are a conspiracy gold bug (GATA, John Embry, James Turk etc) who thinks the price of gold has been artificially suppressed and will slingshot to a much higher "real" level without a corresponding rise in capital and operating costs, then buying American Gold now before the merger makes a lot of sense. And if you are a "prosperity" gold bug such as myself who believes that gold's increasingly obvious irrelevance as "money" makes it highly attractive as an asset class independent of sovereign and corporate risk in an expanding global economy whose eventual power structure 10-20 years from now strikes you as rather murky, meaning that in the interim raw gold ownership demand will outstrip incremental mine supply as everybody hedges a portion of their wealth in something that is not readily "fabricated", "printed" or otherwise bestowed with the ontological quality of "existence", then you too will (hopefully) see wisdom in owning American Gold before the merger is consummated.
The merger between American Gold and Chesapeake Gold Corp (CKG-V: $6.88) is expected to close by February 14 (a suitable day for a marriage made in heaven), at which point I will close out the American Gold bottom-fish cycle because it will become too complicated to track the value of the 0.29 Chesapeake shares, 0.145 Chesapeake warrants and 0.029 Chesapeake Series 1 Class A (possibly non-trading) shareholders will get for each American Gold share. For those of you who are math challenged or averse to complexity, or just plain skeptical that gold will rise much above $850 during the next five years, I recommend the simplicity of just buying Chesapeake Gold at $6.88. In formal terms, Chesapeake Gold is a Good Relative Spec Value Buy at $6.88 based on the $300 million implied project value of Metates based on 43 million fully diluted Chesapeake shares. This alternative of ignoring American Gold and buying Chesapeake instead is valid because the merger gives Randy Reifel's Chesapeake the critical mass needed to attract an institutional audience leery of mother nature's willingness to cough up new world class discoveries, but cognizant of the Reifel team's willingness to squeeze value out of an existing deposit. Sun Valley's strategy of accumulating "out of the money" deposits with an optimistic macro commodity outlook was essentially passive, but in merging with Chesapeake this strategy gains an active component where the Chesapeake management will look hard at making Metates and Talapoosa work at a gold price below $850. Metates has a resource of 3.4 million ounces gold and 61 million ounces silver, while Talapoosa has a resource of 1 million ounces gold and 14 million ounces silver. Randy Reifel thinks his team can make Metates and Talapoosa valuable at prices below $850 gold. Chesapeake is thus very attractive to speculators who think gold will oscillate between $500 and $1,000 during the next 5-6 years without triggering the $850 conversion privilege, and who think Randy Reifel's team has the smarts and will to extract value from Metates and Talapoosa below $850 gold. The American Gold/Chesapeake merger is an example of where the sum of the parts is worth more than the value of the parts on their own. Beyond telling KBFO members that buying American Gold at $2.71 and Chesapeake Gold at $6.88 constitutes rational speculation, Tracker 2007-01 tries to explain how these various pieces of paper American Gold shareholders will get will work.
Breaking down the value of the post merger securities
Shareholders have approved the merger between Randy Reifel's Chesapeake Gold Corp (CKG-V: $6.88) and American Gold Capital Corp (AAU-V: $2.71), with completion expected by February 14, 2007. The merger terms are straightforward for Chesapeake shareholders who keep their shares in the new company which will continue with Chesapeake's name. American Gold shareholders will receive 0.29 Chesapeake shares, 0.145 of a warrant to buy Chesapeake at $8.00 for 5 years (expected to be listed for trading), and 0.029 of a Series 1 Class A share (TSX-V still thinking about listing it for trading). At current prices for American Gold ($2.71) and Chesapeake ($6.88), the value of these three securities breaks down as follows. The 0.29 Chesapeake shares American Gold shareholders will receive are worth $2.00 at $6.88 Chesapeake. A five year warrant exercisable at $8.00 is bound to be worth at least $1.00. That, at least, is what I would be willing to pay; I have not attempted a Black and Scholes valuation because the leverage implicit in Chesapeake's price as linked to Metates suggests an off the scale volatility. On my terms the 0.145 warrant received for each American Gold share would be worth about $0.15. At $6.88 Chesapeake, if the $850 magic number was triggered, the 0.029 Class A shares would convert into 0.29 Chesapeake shares worth $2.00. This $2.00 value for the 0.029 Class A shares, however, is not realistic because of the uncertainty that their convertibility will be triggered during the next 5-6 years. They would thus have a market value lower than the converted value. For the value of American Gold now and the 3 securities issued after the merger to be a wash, the 0.029 Class A share would have to be worth $0.56 ($2.71 AAU price minus $2.00 for 0.29 CKG at $6.88 minus $0.15 for the 0.145 CKG warrant trading at $1.00). In other words, if the Class A shares were listed, they should trade at $19.31 to make the American Gold merger exchange a wash. Since the Class A share converts into 10 Chesapeake shares if gold trades at $850 average for 90 days, it would have a theoretical value of $68.80 on conversion if Chesapeake is at $6.88. The current pricing of American Gold relative to Chesapeake is assigning a 72% discount to the Class A shares.
Why make the Class A shares convertible into Chesapeake 10:1?
If the Class A share were trading, what would one expect its value to be? The Series 1 Class A share is an unprecedented instrument whose value is tied to the price of gold and the share price of Chesapeake. If the LME afternoon gold fix averages at least $850 per oz during any 90 day period, the Series 1 Class A share converts into 10 Chesapeake shares. One might ask why American Gold shareholders receive 0.029 Class A shares that convert into 0.29 Chesapeake shares rather than 0.29 Class A shares that convert 1:1. The answer is that Class A shares carry the same voting rights as common shares, which would have given American Gold shareholders nearly 50% of the votes of Chesapeake in the 1:1 scenario. In effect, this signals that control of the destiny of American Gold's "sleeper" assets shifts from Sun Valley (Peter Palmedo and Chris Falck) to Randy Reifel. Lurking in the background as a significant shareholder of the merged company will be Goldcorp, which has now swallowed the swallower (Glamis Gold) of Randy Reifel's past success stories.
The Class A share is an external event driven security
The merger was first announced on March 3, 2006, and has taken a long time to complete because of complex jurisdictional and tax issues. What started out as a merger structure viewed as brilliant by people like myself, got bogged down in consequences for American and Canadian shareholders, as well as regulatory concerns about exchange values and other arcane issues. The biggest trouble has been caused by the Class A share, a hybrid security whose value is linked both to the future price of gold and the value of Chesapeake. It is an "event driven" security, meaning that it has no intrinsic value until an event external to the security it converts into has occurred. Gold could swing between $650 and $1,000 during the next 5 years without ever producing that $850 average price over 90 days needed to make the Class A convertible into Chesapeake stock. While everybody is focused on Chesapeake's ability to demonstrate Metates economic at less than $850 gold, Chesapeake could make a world class discovery on one of its grassroots exploration plays in Mexico which takes the stock to $50. That would make the Class A portion shareholders got for their American Gold stock worth $14.50 if it became convertible. But until that trigger is achieved, the intrinsic value is zero. In this scenario the price of gold becomes unrelated to the price of Chesapeake. The market value of the Class A share would thus be based on the probability that the Class A share would become convertible into common Chesapeake stock. That probability would be exclusively linked to the gold price.
What about Chesapeake speculation that conversion will never be triggered?
The pricing of the Class A share, however, is more complicated than estimating the probability that gold will average at least $850 for 90 days during the next five years and looking up the price of Chesapeake. There is nothing special about the $850 price in terms of the economic value of the Metates deposit. At $849 gold the Metates deposit could be worth a lot to Chesapeake, especially if metallurgical breakthroughs are achieved. If the Class A shares expire in 5 years without the conversion trigger occurring, about 9 million shares of potential Chesapeake dilution will disappear. Assuming the trigger is within achievable range given the volatility of the gold price, the market would be expected to price Chesapeake on the basis of its projects' economic value divided by Cheaspeake's fully diluted capitalization. For example, suppose nearly 5 years from now the market decided Metates, Talapoosa and Chesapeake's other assets were worth $2.2 billion. At 43 million fully diluted shares that translates into about $50 per share. Suppose the Bank of England decides it is time to sell some more gold with great fanfare, knocking back the price of gold just enough so that the magic 90 day average price of $850 is not achieved. The Class A shares that would have converted into 9 million common shares evaporate, reducing the fully diluted capitalization of Chesapeake to 34 million shares. Because a 5% swing above or below $850 gold is not going to materially change the market's economic assessment of Chesapeake's gold assets, the new Chesapeake stock price should be $2.2 billion divided by 34 million, or about $65. But how much of that post-expiry jump will already be built into the Chesapeake price? At $65 Chesapeake the Class A portion received for each American Gold share would have a conversion value of about $19 rather than the $14.50 at $50 Chesapeake. The point I'm trying to make is that the pricing dynamic underlying the Class A shares becomes circular as we approach boundary conditions.
Another wrinkle: the gold price can extend the Class A expiry by 1 year
The merger terms also include a provision that if the Class A shares are listed for trading on a stock exchange, and LME gold manages to close at $850 or higher for only 1 day during the final 6 months of the 5 year expiration period, the expiry will be extended to 6 years. Here a single day's price fix could prevent the Class A share from becoming worthless, and bestow on it another year to actualize the conversion triggered underlying value. This is not a simple matter of calculating time and volatility premiums. The pricing of the Class A shares in these boundary conditions involving unrelated forces interwoven in a non-linear dynamic will keep some mathematician very busy.
Sad, but no surprise that the TSX is reluctant to list the Class A shares
That the TSX regulators are mulling the Class A shares with furrowed brows is no surprise, because this instrument is precedent setting and will be much copied, especially if an exchange accepts them for trading. It creates a way for apples and oranges to merge. For example, both Stornoway and Ashton shareholders might have been happier with a takeover bid which included a security with a time limit that converted into Stornoway stock only if a certain milestone were achieved. In the case of Ashton the milestone would not have involved linkage to a diamond price, but rather some sort of diamond resource size threshold like those which trigger back-in rights in property option agreements. The case of American Gold is different in that the resource is already known, and it is a commodity price change which would create value. Chesapeake, of course, would have no control over the price of gold. At a time when there is great uncertainty about the level of long term metal prices - witness the ongoing battle between the structural bulls and cyclical bears - at the same time there is the will and capital to consolidate assets that could be developed into mines if current metal prices prove sustainable, one would expect Class A scenarios such as pioneered by Chesapeake and American Gold to become a popular negotiating term.
The Chesapeake Class A share is a blueprint for a novel merger and acquisitions strategy
For example, consider Blue Pearl, a medium sized molybdenum producer. There are a number of juniors with molybdenum deposits that are economic at $25/lb molybdenum, but are trading well below the value of the deposit in discounted cash flow terms because the market is unwilling to plug current metal prices into cash flow models. The gap between the market value of these juniors and the project DCF at current base metal prices is often enormous. This gap could be closed by a Blue Pearl issuing Chesapeake style Class A shares with a conversion trigger linked to long term molybdenum prices when acquiring strategic molybdenum deposits.. Blue Pearl would only suffer the dilution from the conversion if molybdenum prices hold up over the long run. In such a scenario the acquired deposit would likely be worth much more than the acquisition price paid in common and convertible stock, because the negotiated value would be somewhere between the company's market value and the DCF value of the assets at prevailing metal prices. What clinches the deal is the expectation that the shareholders of the acquired junior would receive a bonus through the conversion of their "Class A" shares in the event that the rosy metal price scenario transpires. If such contingently convertible securities are allowed to trade, the initial recipients could collect a premium before the trigger is fulfilled. It would be a way for both the acquiring and acquired company to shift commodity price risk to the market. It would encourage more merger and acquisitions activity involving the juniors, which is a way of cementing the value created by a venture capital oriented stock exchange such as the TSX-V. It would also encourage larger companies to include "strategic" considerations in their decision-making, such as Inco did in 1996 when it bid 4 times more for Diamond Fields than Voisey's Bay was worth in discounted cash flow terms. (Readers may recall that Inco also used time limited securities in the bundle it issued for Diamond Fields.)
Could Class A style shares be the niche CNQ needs to put itself on the map?
It is understandable that the TSX would prefer to keep its distance from securities with complex pricing dynamics. It has been suggested that such shares get listed on the Montreal Exchange which specializes in derivatives, but the Chesapeake Class A shares are not a true derivative and the Montreal Exchange is apparently not interested in this type of security. Could it be that this is the niche which could put Canada's fledging CNQ stock exchange on the map? I don't bother to follow anything which lists on the CNQ because the universe of juniors offered by the TSX-TSXV is large enough and CNQ appears to be a destination for companies whose corporate transactions are rejected by the TSX. If CNQ can offer efficient order execution for the Chesapeake Series 1 Class A shares, and accepts listing of these securities which convert into the shares of companies listed on bigger exchanges, it would make itself relevant to a very broad audience.
If the TSXV lists the Class A shares, the convertibility changes
At the moment Chesapeake management is pessimistic that the TSXV will accept the Class A shares for trading, in which case the recipients will have to hold them or try to sell them in the grey market. If they are listed for trading, the conversion terms would change slightly, thanks to an obscure exchange requirement. Key to the conversion ratio is the price of Chesapeake on the day that the conversion trigger is deemed to have been achieved. The conversion ratio will be the Chesapeake price less $1.00 divided by the Chesapeake price and multiplied by 10. So if Chesapeake is at $8.00, one Class A share would convert into 8.75 Chesapeake shares. If Chesapeake were trading at $50, the Class A share would convert into 9.8 shares. (The higher the stock price, the closer to 1.0 will be the conversion ratio.) Of course, if Chesapeake's price has collapsed to $1.00 or lower, the conversion ratio would be zero. The formula protects Chesapeake from a dilutionary death spiral. This sliding conversion ratio applies only if the Class A shares are listed for trading within 60 days of the merger. I don't like this feature because it adds another layer of uncertainty to the value of the Class A shares, and because this provision was at the insistence of the TSX, which is backing off from letting the Class A shares trade, I would hope that Chesapeake abandons this formula if it gets the Class A shares listed on another exchange such as the CNQ.
The merger of American Gold and Chesapeake creates a strong company
The Series I Class A instrument was created because American Gold's primary asset is the Metates gold-silver deposit in Mexico whose various metallurgical, environmental and location challenges require $850 gold or better to be economic. When the merger plan was announced in March 2006 Chesapeake was cash rich and busy generating gold-silver projects in Mexico with the goal of duplicating its discovery successes, El Sauzal and Marlin. American Gold wanted to acquire additional "out-of-the-money" gold deposits, but its ability to do so on lucrative terms was hampered by the fact that higher gold prices were needed to justify a higher stock price based on Metates and Talapoosa. For both companies it was a waiting game whose outcome neither management could speed up. The merger would combine an exploration machine with a couple advanced gold-silver deposits whose value would blossom with a rising gold price. The merged company will have about $40 million working capital. It is a good example of the Plan A-Plan B-Plan C strategy which I think is perfect for that phase of the market cycle where one is uncertain that this is as good as it will ever get, or just a lull before it gets a lot better.
Randy Reifel not a fan of hard money or apocalyptic gold bug thinking
In designing the terms of the Series I Class A share Chesapeake's Randy Reifel has distanced himself from the "hard money" gold bug crowd which anticipates a much higher gold price due to the collapse of "fiat money". Unfortunately, real costs do not shrink when a fiat currency is debased, with the result that a higher gold price created by rampant inflation is accompanied by correspondingly higher cost thresholds. In accepting the terms of the Series 1 Class A shares, Reifel is gambling that the cost of developing Metates stays put while the price of gold soars above $850. If anything, he is expecting an increase in the real price of gold. For those who tie the price of gold to the fate of the US dollar, this merger has dilutionary implications for Cheasapeake, which may be forced to issue extra stock when the price of gold goes up even though Metates remains worthless thanks to a corresponding increase in costs. This group would include "hard money" gold bugs like Paul Van Eeden as well as apocalyptic gold bugs like Ian Gordon for whom the only way to benefit from a rising gold price is to own gold itself.
The new Chesapeake will appeal to conspiracy and prosperity gold bugs
The deal does, however, make sense to the conspiracy type of gold bug such as GATA and John Embry, who believe that the price of gold has been artificially suppressed. In this view the inflation has already happened and is reflected in the real cost of developing Metates. What the conspiracy gold bugs are looking for is a slingshot effect where gold jumps to a much higher level without a corresponding increase in costs. This "catchup" is similar in outcome to that expected by "prosperity" gold bugs, among whom I would count myself. But while a conspiracy gold bug thinks that the market for gold is manipulated by a cabal of masterminds trying to hide the true state of affairs, a prosperity gold bug thinks that the gold market is free in the sense that all gold owners are acting to maximize their own interest, and that a higher gold price will develop if demand for gold ownership outstrips new supply in the long run. Furthermore, such demand will not develop because the economic apocalypse has arrived, but rather because the growing prosperity of a global economy engenders new demand for an asset class that is independent of sovereign and corporate risk. In this scenario the size of the global economy vastly eclipses the current value of the 4 billion ounce above ground stock of gold, and is growing at a faster rate than the incremental new supply added to the gold stock by mine production. For the prosperity gold bug the real price of gold has to go higher precisely because gold is no longer relevant as that accounting system called "money", but has become relevant as a passive physical asset class whose value lies in the fact that it costs resources to bring more of it into existence. (To put gold's irrelevance in context, consider that all the gold in the world sitting in vaults doing nothing is worth just $2.6 trillion while $1 trillion worth of oil gets burned up annually to keep wheels turning.)
Hoping gold does not go to the moon, but not minding if it does
While it would be foolish for hard money and apocalyptic gold bugs to speculate on gold projects that are marginal at current prices, it makes perfect sense for both conspiracy and prosperity gold bugs to speculate on marginal projects such as Metates. And because Chesapeake will have both a Plan A bet on better real gold prices, and a Plan B exploration bet on new discoveries that work at current or lower gold-silver prices, the sum of the two parts will be more than the value of the parts alone. For his part, Chesapeake's Randy Reifel concedes that he is not a gold bug of the hard money or apocalyptic type, and is in fact hoping that gold averages $849 for the next six years while he tries to improve metallurgical recoveries and identify higher grade zones within Metates that make the deposit valuable below $850 gold. But he will not complain about a $1,000 or higher gold price if costs stay put, because that extra $150 per ounce all flows to the bottom line. High cost gold deposits offer extraordinary leverage to scenarios where the real price of gold increases substantially.
Nice post. Am glad that SHY will be the operator on 2 of these 3 wells. If SHY can hit on these 2, then several new prospects in their land area become more attractive. Best thing about SHY is these are very long life wells in politically safe USA (over 10 years life). Worst thing, very expensive drilling these deep plays. A dry hole would not be good right now...
CPM Gold Forecast
CPM forecasts central bank gold sales to decline, increased gold supply and more fabrication demand
"Never before in history have so many investors, spread throughout a truly global array of geographic and demographic universe, spent so much money buying so much gold over such an extended period of time" - CPM
Author: Dorothy Kosich
Posted: Thursday , 15 Mar 2007
RENO, NV -
Precious metals and commodities consultants CPM said Thursday that the rush of new investors remains the single most important factor in determining gold prices.
In their 2007 Gold Yearbook released Thursday, CPM predicted that central bank gold sales will decrease this year. The New York based consultants also asserted that a gold rush of unprecedented proportions is on-going, and advised that gold ETFs have yet to face a real test.
CPM's research determined that the average annual price of gold increased 35.9% to $606.67, the second highest annual average price in history. The current bull market was 69 months old as of December 30, 2006. The next longest bull market in gold prices was 59 months from January 1970 through December 1974.
INVESTMENT DEMAND
"Never before in history have so many investors, spread throughout a truly global array of geographic and demographic universe, spent so much money buying so much gold over such an extended period of time," CPM declared.
Investors added 43.5 million ounces of gold to their holdings last year, down slightly from 46.7 million ounces in 2005. "Investors are projected to add another 39.7 million ounces of gold this year on a net worldwide basis."
CPM's analysis suggested that "investors may be less worried this year than they have been over the past two years. One or two major political crisis in any number of current trouble-spots, a major interruption in international petroleum flows, a currency crisis, or some other such global crisis, could change this overnight, however."
The build up of gold bullion in market centers raises concern for CPM. "Enormous volumes of gold have flowed into major market centers, including London, Dubai, and Canada, and have not flowed out. This partly reflects a bullish trend: Investors are buying gold for storage in major market centers. It also partly reflects a bearish trend: There is a large amount of gold flowing into markets centers that is not being sold and moved on to jewelers and others in other parts of the world."
"Some of it appears to represent metal that is being bought by bullion dealers in their roles as market makers, who hedge their positions and now find themselves sitting on large bullion inventories that do not have ready buyers eager to acquire them'" according to CPM.
"The influx of new investors and new type of investors is reflected in the rise of new gold exchanges in Dubai, Mumbai and Chicago, and the creation of new investment products catering to various types of investors."
"The amount of gold that may be purchased may decline from 2006 levels during 2007, but the overall pace of investment demand is expected to remain very high by historical standards."
GOLD ETF
"Clearly ETFs have captured the imagination of the investors," CPM declared. "This is true not only with gold but in the myriad of other ETFs based on an infinite number of financial assets and basket assets."
While CPM considered gold ETFs to be an initial success, which have stimulated gold demand, made it easier for investors to buy physical gold, and taken the metal off of the gold lease market, "whether they will be a long-term success remains to be seen."
"Gold ETFs have not been tested in a bear market, and gold is notorious for having extended bear markets. How investors will behave with their ETF shares if and when gold prices turn lower in the future for any extended period of time will be very important to watch," CPM said. "That said, ETFs in general and gold ETFs will continue to grow in importance to the markets."
Meanwhile, as some investors are investing in metals through ETFs, ‘an even greater volume of gold continues to be purchased in more traditional methods," CPM noted.
GOLD SUPPLY
Total gold supply was 105.7 million ounces last year from mine production, secondary recovery and net shipments from transitional economies. This was a 3% decline from 2005 and down from a peak of 110.5 million ounces in 2003, according to CPM.
Total gold supply this year is projected to rise 4.4% this year to 110.3 million ounces, which CPM said is the second largest annual total gold supply of newly refined gold.
Last year, declines in both mine production and in secondary recovery of gold from scrap occurred in a year when gold mine production and total supply had been projected to increase. CPM blamed the declines on the delays in bringing new mines on stream, and supply bottlenecks worldwide in the mining industry "caused by a massive rush of investment into new mines developments and expansions, has slowed the advent of new capacity."
Meanwhile, gold mining costs have risen sharply during the past two years, according to CPM. While higher input costs, such as commodities and labor, are normally blamed for the increase, CPM's analysis suggested that "it also represents a tendency on the part of existing mining operations to work higher-cost mining surfaces during periods of high metal prices."
Nevertheless, CPM predicted that mine output is still projected to increase 4% this year to 63.8 million ounces. Gold mine production declined 2.4% to 61.4 million ounces in 2006.
"There is a gold rush of unprecedented proportions under way around the world today," CPM declared. "The modernization, deregulation, and opening up of many countries, including vast regions of the earth's surface in China, Russia, and other parts of the world, is contributing to the enormous scope of this expansion of exploration and development. More money is being spent on mine exploration and development than ever before in history. As a result, new deposits are and will continue to be discovered, and new mines are and will continue to be developed."
CPM's research determined that 50 mines with a combined annual capacity of 14.5 million ounces are undergoing development, and will begin producing gold between 2007 and 2011. Total reserves at these mines is estimated at 274.4 million ounces, representing an average mine life of 19 years.
CENTRAL BANK SALES
CPM's research revealed that central banks appear to have been net sellers of 11.4 million ounces of gold last year, down from 20.6 million ounces in 2005 and below typical central government sales levels over the past 17 years.
"This year central bank sales may decline even further, and could total no more than 9 million ounces," CPM projected. "The basic reality is that while central banks still own 977.1 million ounces of gold, they appear to have sold most of the gold that they wish to sell."
"Going forward, there will be further sales, but the annual flow of gold may dwindle significantly from the 14 million ounces or so per year that central banks were selling over the past 18 years," they said.
FABRICATION DEMAND
The use of gold in jewelry and other products fell sharply in 2006, "hammered down by the high price of gold," CPM said. Jewelry demand declined 13.3% in 2006, down to 63.3 million ounces.
However, CPM suggested that total fabrication demand could recover slightly this year. "Total demand may increase 8.2% to 79.6 million ounces. Jewelry use of gold is projected to rise 9.1% to 69.1 million ounces as jewelry consumers adjust to higher gold prices," CPM forecast. "Gold use in electronics is projected to continue rising, boosting non-jewelry use 2.5% to around 10.5 million ounces."
Meanwhile, money formerly spent in gold jewelry is now being divided among "a more diverse range of luxury or discretionary purchases, including jewelry but also encompassing home electronics, automobiles, watches, and handheld electronic devices, and clothes," CPM advised.
This has resulted in another trend to buying gold bullion, coins, and medallions for gold investments, instead of jewelry, they added.
Gold use in electronics and electrical equipment increased 10% in 2006. CPM forecasts that gold use in electronics is "projected to continue rising at healthy rate," for a 4.1% increase to 6.3 million ounces in 2007.
Gold use in dental and medical applications declined 2.9% to 2.36 million ounces in 2006. CPM projects that gold for use in dental and mental products could fall 1% to 2.34 million ounces this year.
GOLD MARKET
CPM estimated that the total gold market amounted to 9.1 billion ounces in 2006, up 33.9% from 2005. Combined trading volumes in futures and options were up 43.5% to 3.2 billion ounces in 2006.
Combined warehouse inventories, including the exchange stocks of NYMEX, CBOT and Tocom totaled 7.9 million ounces at the end of 2006, up from 6.9 million ounces at the end of 2005.
CPM Group's Gold Yearbook 2007 may be ordered and downloaded online at http://www.cpmgroup.com/
central bank gold sales
YTD actual sales are now 118.6 tonnes versus expected 226.0 tonnes. About 107.3 tonnes behind scheduled sales.
http://amarks.homestead.com/CBGold.html
Great Basin's Dippenaar defends 'pioneering' empowerment deal
By: Matthew Hill
Published: 07 Mar 07 - 9:01
South Africa’s Department of Minerals and Energy (DME) should consider JSE- and TSX-listed Great Basin Gold’s (GBG’s) mining rights application in its entirety, rather than making a "preemptive" decision regarding its black economic-empowerment (BEE) transaction, which involves Gold Fields giving GBG’s empowerment partner, Tranter Gold, R80-million, in the hopes of getting BEE credits in return, CEO Ferdi Dippenaar said.
This was after the DME said that companies could not donate cash to a BEE firm expecting to receive empowerment credits in return.
"Usually with a new mining project, the banks are paid off first, which sees the BEE company waiting for a few years to see any underlying benefits."However, it also said that there was no legal framework covering such a transaction.
Lawyers canvassed by Mining Weekly Online were of the view that the proposed deal had uncovered a legal grey area.
In the deal, GBG would pay Gold Fields the R80-million that it owed for a smelter royalty, and Gold Fields would immediately donate this to Tranter Gold to help the junior miner pay for the stake it was acquiring in GBG.
If Gold Fields did not score empowerment credits as a result, it would get the cash back.
However, speaking from Canada in a telephone interview, Dippenaar emphasised his belief that the gold-mining giant should get credits, as the donation would facilitate the establishment of a new BEE junior miner.
"I can't prescribe what the DME allocates credits for, but the cash will increase Tranter Gold's sustainability and provide it with the ability to grow in the resources market, which currently offers a lot of opportunities," he said.
He said that the R80-million would help the junior mining company to pay off debt to its bank, allowing it to see quicker returns from GBG's Burnstone gold project.
"Usually with a new mining project, the banks are paid off first, which sees the BEE company waiting for a few years to see any underlying benefits," Dippenaar highlighted. "Hopefully this is where our deal will be different."
Tranter Gold was holding back R10-million of the donation, which would ensure that the firm had solid cash flows.
"This model is altogether different," he noted. "But, if it works, we hope that it will be followed by others."
Dippenaar concluded by saying that the deal would help create a sustainable junior BEE miner, which the country needed at the moment.
Edited by: Liezel Hill
See whats blowing up in your neighborhood! Now we can monitor
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central bank gold sales
YTD actual sales are now 115.8 tonnes versus expected 206.8 tonnes. About 91 tonnes behind scheduled sales.
http://amarks.homestead.com/CBGold.html
central bank gold sales
YTD actual sales are now 1115.8 tonnes versus expected 206.8 tonnes. About 91 tonnes behind scheduled sales.
http://amarks.homestead.com/CBGold.html
Great Basin deal unearths legal grey zone over 'buying' empowerment credits
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A black economic-empowerment (BEE) deal in the gold sector, unveiled last week, has raised questions as to how far mining companies can push the line when it comes to 'buying' empowerment credits.
South Africa's Department of Minerals and Energy (DME) on Thursday said that firms could not “buy” empowerment credits, with reference to reports that gold major Gold Fields would “donate” R80-million to a black-owned miner, in exchange for empowerment credits.
Gold Fields said that it would give R80-million in cash to black-owned Tranter Gold, to facilitate the BEE company's purchase of shares in another gold-mining firm - Great Basin Gold - in the hope that the move would increase its empowerment credits.
“You cannot donate money to a BEE company and expect to get empowerment credits in return,” Chief Director of Mineral Regulation Futhi Zikalala told Mining Weekly Online in a telephone interview. “There is no legal framework covering such transactions.”
Last week, Canada-based gold exploration and development firm Great Basin Gold (GBG) unveiled a BEE plan, which involved the company extinguishing a net smelter royalty agreement that it would have to pay Gold Fields' subsidiary GFL, for R80-million.
Gold Fields would then give the cash to Tranter, to allow it to partly pay for the shares that it would acquire in GBG.
Gold Fields head of investor relations Nerina Bodasing told Mining Weekly Online in a telephone interview that the company would, however, get the cash back if it did not receive empowerment credits.
“The basic rationale for the deal was to get empowerment credits, and if we don't get the credits, we get the cash back,” she stated.
Zikalala stressed that there was a “big difference” between offering shares at a discount rate, and donating cash to get empowerment credits.
“There are also other elements to empowerment, including who participates in the transactions and who benefits, particularly historically disadvantaged South Africans,” she said.
Mining Weekly Online spoke to two experts on South African mining law, both of whom asked not to be named, and both agreed that this was a vague area.
“If Gold Fields is claiming credits strictly on the grounds that it is facilitating a BEE transaction, then it could claim, but it would be difficult,” the first expert said. “The legal test would be placing BEE-attributable units of production from the transaction.”
“A company can claim credits for the continuing effects of a BEE transaction,” stated the second lawyer.
“It's a difficult question, it's quite a vague area,” he added.
Gold Fields corporate finance senior manager Paul Harris agreed that it was a vague area.
“This is a test case,” he conceded in a telephone interview. “We will be spending a lot of time with the DME, Great Basin and Tranter Gold to see what empowerment credits we can get.”
He stressed that Gold Fields was “happy” to help facilitate the empowerment transaction, and he hoped that the DME would consider giving the firm empowerment credits for it.
Harris pointed out that the R80-million gift would result in production units attributable to a BEE company.
South Africa's new mining legislation, introduced in 2004, requires mining firms to sell a portion of their shares to black-empowered companies, encouraging the upliftment of black people, who were previously excluded from the economy, under the apartheid regime.
Gave Kip a call last week and added to my position. Drilling should start about March 15, SHY should have 3 rigs drilling on all their US properties later this year.
FWIW, Ferdi can build a mine... No more partners, IMO, GBN will build Hollister/Ivanhoe itself.
Well, the deal worked out well for HL, but there were only delays for GBN.
As stated heretofore, the primary problem was that the silver price spiked which caused HL to have other, better opportunities to invest (i.e. its existing silver mine capex), which were more profitable.
Great Basin Gold appoints Nedbank Capital as sponsor
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JSE- and TSX-listed gold exploration and development company Great Basin Gold (GBG) on Monday announced the appointment of Nedbank Capital, a division of Nedbank Limited, as its sponsor.
This was with immediate effect, the gold-miner said in a note to the Johannesburg bourse.
GBG was in “the final throes” of its black economic-empowerment (BEE) transaction negotiations with partner Tranter Gold, and it hoped to have the deal's terms finalised by the end of February, CE and president Ferdi Dippenaar said in January.
The Canada-based company viewed this as the “final addition” to completing its mining rights application, which would be submitted “within weeks” of the BEE deal being sealed. Dippenaar was confident of the application's likelihood for success, saying that the firm has closely followed the relevant framework.
The estimated time for a mining right to be granted in South Africa is 12 months from the date of application.
Meanwhile, GBG's prospecting rights allowed it to take a bulk sample before receiving the actual mining right. Dippenaar said that early-stage production at Burnstone could occur at the end of the year, which would be stockpiled until the project's metallurgical plant began its production build-up in 2008, reaching full production in 2011.
I'm thinking we are going to see a large central bank sale to spook the market, let the commercials cover, but who knows.
Always liked it better when Central Banks were ahead of quota during first part of fiscal year (as in prior 4 years), then you knew the maximum of what was likely to come to market for the rest of year.