Gold prices going to $1000?
Newmont Mining's gold predictions
"...it is in Indonesia... which means that it is not always predictable what happens."
Throughout this year Business Sunday has been bringing you updates on the six mining executives who work for the world's biggest gold producer, Newmont, and their detention in Indonesia. With the company still being pursued on civil charges, we speak with Newmont's president Pierre Lassonde about the Indonesian situation and his prediction of gold prices climbing to a staggering US$1000 an ounce.
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INTRO: Throughout this year we've been bringing you updates on our story of the six mining executives who work for the world's biggest gold producer, Newmont, and have been embroiled in a pollution case in Indonesia. Indonesian authorities claim Newmont dumped mine waste in local waters in north Sulawesi, while operating a now closed gold mine. The executives, including Australian Phil Turner, were jailed for a month, then banned from leaving the country.. until eventually officials dropped their claims, citing a lack of evidence. They are however, still pursuing Newmont's Indonesian boss, Rick Ness, and the company itself, which operates another mine in the country, called Batu Hijau. The case is a continuing dark spot for Newmont, which is riding the wave of rising gold prices, at 495 US dollars an ounce, bullion is at its highest level for almost two decades. Newmont's President, Pierre Lassonde, was in Australia this week. I caught up with him in Sydney, and began by asking whether he was hopeful of winning the pollution case in Indonesia.
PIERRE LASSONDE, President, Newmonth Mining Corp: We are of course optimistic. We haven’t done anything wrong so if the judges look at the evidence I think they are overwhelmingly in Newmont’ favour and yes we are optimistic. On the other side of the coin it is in Indonesia. So which means that it is not always predictable what happens.
ALI MOORE: Given that the problems that you‘ve got, the jail term that some of our executives have already served, the issues now facing Ritness, you are still happy to do business there?
LASSONDE: Look, when you have a great operation like Bantoo you have to understand that it comes with some difficulty so would we rather not have them absolutely,
MOORE: Essentially what you are saying is you are paying the price for the profit?
LASSONDE: You are paying the price to be in the country where there are great oil buoys, yes.
MOORE: If we can turn to gold, how hot is the gold market?
LASSONDE: As you know we’ve reached a seventeen and a half year high, it is hot and it is going to get hotter.
MOORE: Five hundred US dollars an ounce?
LASSONDE: Oh well passed that. I believe that by early next year you are going to see five twenty five and down the road even a lot higher than that.
MOORE: What is a lot higher?
LASSONDE: The question is gold prices will have three zeros after the first number.
MOORE: Three zeros?
LASSONDE: Ah huh.
MOORE: So you are looking at a thousand US dollars an ounce?
LASSONDE: And plus, yeh.
MOORE: But when, in what time frame?
LASSONDE: Five to seven years.
MOORE: Not talking your own book here?
LASSONDE: Well of course I’m talking my own book but I’m also talking from history.
MOORE: What is driving it, in the short term and the long term?
LASSONDE: Right now what is driving it more than anything else is supply demand fundamentals, just pure supply demand. On the supply side what we’ve seen is production falling for the last four years, about two percent per year. In fact last year production world wide fill by five percent. The largest decline in thirty nine years. And it is going to continue for at least another couple of years simply because the industry didn’t put money back into their ground when the gold price was very low and it is a long cycle so it takes like seven to ten years to recoup that. And then on the other side demand is just surging everywhere.
MOORE: Inflation driven?
LASSONDE: No not necessarily, mostly just pure economic growth and it is driven mostly by Asia, China and India. India for example, the largest gold market in the world demand year over year to June was up forty seven percent. China was up fourteen percent. You know two weeks ago I was in Beijing, I went to visit a jewellery store which is the size of let’s say four regular Starbucks, and in that store the annual sales are a hundred million dollars of gold a year. Just one store in Beijing, a hundred million a year and their sales were going up by fifteen to seventeen percent per year.
MOORE: So if you are talking a thousand US dollars an ounce in the next five to seven years what is realistic beyond that, what is sustainable?
LASSONDE: What is realistic and sustainable, it is too early to tell, we don’t know how high inflation is going to go. I mean I know everybody thinks inflation is going to stay at two percent, I don’t believe it. There has been way too much money printing in the world for that to happen. I just look at my experience from the nineteen seventies and then you go back to the nineteen twenties and one of the charts we use, which is a very crude way to put things but it works perfectly if you want, you divide the Dow Jones industrial divided by the gold price and it is a ratio really of financial assets vis a vis hard assets. And at every bardom of financial assets that ratio has come back to one to one. Just to give you an idea of what it means is that in 1980 the gold price was eight hundred, the Dow was eight hundred, one to one. In nineteen 1934 the gold price was thirty five, the Dow was thirty seven. The Dow today is ten thousand five hundred…
MOORE: And the gold price is four hundred and?
LASSONDE: That’s right, that ratio is twenty four to one. Now if it goes back to one to one, what does it mean for the Dow, what does it mean for the gold price. And I can assure you the Dow is not going back below a thousand.
MOORE: Would the sort of forecast that you are giving for the gold price it would make sense that you would want to get your hands on as much gold as possible.
LASSONDE: Well that would be nice.
MOORE: In that context Barrack gold is bidding for Placadome, would you come in as a rival?
LASSONDE: I think it would be fair to say that we have to at least think about it but whether or not we are going to do something is far from evident. When there is a good reason why it has never been done in the past three years. I mean Plasser has been out there and I think the suite of assets is not totally complimentary to what we have at Newmont.
MOORE: But you are saying on the one hand you’ve got to consider it and yet on the other you are virtually ruling it out?
LASSONDE: Well that is kind of where I am right now.
MOORE: Not sure?
LASSONDE: Yeh, that’s a good way to put it.
AI
