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Excerpt from “An Insider’s Guide to the Mining Sector: An in-depth study of gold and mining shares”– by Michael Coulson

To order a copy of An Insider’s Guide to the Mining Sector, please click here: http://www.harriman-house.com/book/view/66/investing/michael-coulson/an-insiders-guide-to-the-mining-sector/

Madness in Mining Markets

This section looks at a few examples of the sort of madness that can infect mining share markets. Such events are sometimes loosely described as scams, although often what happens is far more an issue of wild over enthusiasm on the part of investors. However, we start with a genuine scam, and a fairly recent one at that, with plenty of lessons to teach about market navigation – Bre-X and its gold project on Kalimantan.

Bre-X Minerals

The company was incorporated in Canada in 1988. The two key personalities in Bre-X were John Felderhof and David Walsh, the former a geologist and the latter a stockbroker. Both men had been short of money in their early professional years, and in its early days Bre-X seemed infected with the same problem. Interestingly Felderhof and Walsh’s first venture together was a trip to the island of Kalimantan in Indonesia some five years before Bre-X was founded.

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Excerpt from “An Insider’s Guide to the Mining Sector: An in-depth study of gold and mining shares”– by Michael Coulson

To order a copy of An Insider’s Guide to the Mining Sector, please click here: http://www.harriman-house.com/book/view/66/investing/michael-coulson/an-insiders-guide-to-the-mining-sector/

United Kingdom: Little mining activity left

One of the most interesting business developments in recent years has been the relocation to and re-incorporation in the UK of a number of major mining companies. This has meant that four of the largest mining companies in the world – Rio Tinto, Anglo American, Xstrata and BHP Billiton – have UK incorporation; all are part of the FTSE100 share index. It is important to appreciate, however, that any UK mining operations that these companies have are very small. Indeed, mining in the UK is itself confined to speciality minerals such as china clay, sand and gravel and a rapidly contracting (though once powerful) coal mining industry.

The financial attractions of London

Therefore, with little mining activity in the UK the reasons for the presence of these companies in London is primarily financial. The banking system is seen as sophisticated and experienced in financing mining developments. Operating as a UK company means that the cost of capital can be much lower than in countries like South Africa. The historic links between the City of London and the mining industry mean that there is understanding of the risks and rewards of financing mining companies.

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Afghan archaeology site faces rocky future – Jennifer Glasse (Aljazeera.com – May 20, 2013)

http://www.aljazeera.com/

Ancient ruins of Mes Aynak threatened by planned Chinese mining project.

Mes Aynak, Afghanistan – Ruins dot each hilltop in mountainous Mes Aynak, an hour’s drive south of the capital Kabul. Buddhist monasteries stood here for hundreds of years, and Afghan workers under the supervision of archaeologists are racing to uncover remnants of the past.

The four-square-kilometre site contains the remains of 2,000-year-old villages, but archaeologists say they believe the area has likely been inhabited for 5,000 years. Green-tinged rocks are everywhere: in the ancient walls, jutting out of the ground. That’s because this is one of the most copper-rich spots in the world.

It’s also why archaeologists have a sense of urgency to uncover Mes Aynak. The mining rights to the area have been sold to a Chinese company in a $3bn deal, Afghanistan’s largest commercial contract.

The prospect of mining threatens the ancient site.

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The fall of HKMEx and what it means for Hong Kong’s commodities dreams – by Lydia Guo (Financial Post – May 20, 2013)

http://blogs.ft.com/beyond-brics/#axzz2Tw94az00

The sudden blow-up of the Hong Kong Mercantile Exchange (HKMEx) not only represents the collapse of a commercial proposition. It is also a warning call to Hong Kong’s ambition to develop itself as a commodities trading centre.

After three years in preparation and exactly two years of operation, HKMEx said on May 18 its trading revenues were insufficient to support its operating expenses and it would surrender its authorisation to provide automated trading services to the regulator, the Hong Kong Securities and Futures Commission, with immediate effect. Since all HKMEx’s trading is by ATS, it is effectively shut down.

The SFC confirmed that it had withdrawn HKMEx’s ATS authorisation.

HKMEx offers only two products, a gold futures contract and a silver futures contract, both denominated in US dollars. It began operating on May 18, 2011; until the end of April this year, trading volume for the two products added up to less than 2.4m contracts. HKMEx does not reveal it revenues but, since it charges a fee of 50 US cents a contract (and assuming it charges only sellers), its total revenues for the past two years were probably about $1.2m.

Not much. But things got worse this year: trading volume dropped more than 70 per cent in the first four months, from 455,527 to 135,699 contracts, or an average of about 34,000 contracts a month.

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Freeport Death Toll Reaches 28 as Indonesia Reviews Mines – by Madelene Pearson & Yoga Rusmana (Bloomberg News – May 21, 2013)

http://www.bloomberg.com/

The death toll from a collapsed tunnel at Freeport-McMoRan Copper & Gold Inc.’s (FCX) Grasberg complex reached 28 as Indonesia said it would review all mining operations following one of its worst mining accidents.

The rescue team recovered the remaining bodies that were buried at the accident site of the world’s second-largest copper mine, Thamrin Sihite, director general of coal and minerals at the Energy and Mineral Resources Ministry, told reporters today in Jakarta. Operations at the mine in Mimika, Papua province, about 3,120 kilometers (1,940 miles) east of Jakarta, will remain suspended until after an investigation is concluded, the government said.

President Susilo Bambang Yudhoyono ordered related ministries to review safety at all mines in Indonesia, Sihite said earlier. Phoenix, Arizona-based Freeport, which got 20 percent of its operating income from Indonesia last year, was still shipping material produced from the mine as of May 17, its local unit said last week.

Ten workers have been rescued from the site, Freeport said today. The “Freeport accident is one of the worst mining accidents in Indonesia,” Sihite told reporters in Jakarta today. “I don’t want this to happen again.”

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James Passin, the American Who Bought Mongolia – by Brett Forrest (Bloomberg Business Week – May 16, 2013)

http://www.businessweek.com/

The Mongolian Stock Exchange occupies a single room inside a gray building that once housed a children’s movie theater, just off Sükhbaatar Square in the capital city of Ulaanbaatar. On any given day, it’s quieter than the nearby National Library, as 20 or so traders in cubicles click away softly on their laptops.

This muted bourse hardly seems a place to make a fortune, but James Passin, who needs no prompting to declare that he’s “super bullish on Mongolia,” swears it is. Passin, who’s just flown across 12 time zones from New York City, has as much reason to promote Mongolia’s potential as any foreign investor in the country. His future is riding on it.

Passin, 41, has at least $130 million in three funds that he oversees for his employer, Firebird Management, a Manhattan firm that specializes in emerging markets. Passin controls four companies listed on the Mongolian Stock Exchange—in coal, fluorite, and real estate—as well as an undisclosed number of private enterprises. His placements make Firebird one of Mongolia’s largest and most diversified foreign private equity funds.

Until a few months ago, many other international investors shared Passin’s enthusiasm for the Mongolian market. The country, with a 17.3 percent growth rate in 2011, had the fastest-growing economy in the world. A sparsely populated nation of 3.2 million run by communists until 1990, Mongolia has discovered a bounty of natural resources.

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Critical alternative rare earths sources still not secured since China’s 2010 export restrictions – by Henry Lazenby (MiningWeekly.com – May 17, 2013)

http://www.miningweekly.com/page/home

TORONTO (miningweekly.com) – Following the global economic downturn of 2008/9 and a series of events and press reports in 2010 that coined what some referred to as the “rare-earths crisis”, there has been a glut of new rare earths projects starting out, yet few have progressed up the value curve, and rare earths supplies in the West still largely depend on Chinese production.

During 2010, there was global concern when China cut its rare earths exports and appeared to be restricting the world’s access to rare earths, sending the rare earths market into a flurry of action and rare earths prices sky high. This led to a growing realisation that an almost total US dependence on China for rare-earths elements, including oxides, phosphors, metals, alloys and magnets, was a matter of national security.

Some policymakers also expressed concern that the US had lost its domestic capacity to produce strategic and critical materials, and queried what implications this had for US national security.

Strategic management consultancy Cansource International president and CEO Ron MacDonald recently told Mining Weekly that solving rare earths supply security still remained an issue.

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Freeport suspends Indonesia mine after tunnel collapse – by Randy Fabi and Michael Taylor (Reuters U.S. – May 15, 2013)

http://www.reuters.com/

JAKARTA – (Reuters) – Freeport-McMoRan Copper & Gold Inc halted operations at the world’s second largest copper mine in Indonesia on Wednesday as rescue workers scrambled to find 25 workers caught underground in a tunnel collapse a day earlier.

The head of Freeport Indonesia said he would travel to the remote West Papua site later on Wednesday to assess rescue operations and decide on when to resume production at the Grasberg mine, which also holds the world’s largest gold reserves.

Thirty-nine workers were attending an underground training class near the mine when a tunnel collapsed on them early on Tuesday morning, the company said. Rescue crews evacuated 14 people, four of whom died, the company said.

The Grasberg mine, which employees more than 24,000 workers, was not significantly affected, but production was suspended to pay homage to those involved in the accident.

“There is no direct impact on our operation but as a sign of sympathy we have suspended the operation,” Rozik Soetjipto, president director of Freeport Indonesia, told reporters. “I will go to the site tonight and from there we can decide what is the next step.”

Rescuers were using jacks, saws and other hand tools to free the remaining workers, as the tight space in the collapsed underground tunnel prevented them from using heavy earth-moving equipment, the company said.

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Mongolia Scolds Rio Tinto on Costs as Mine Riches Replace Yurts – by Michael Kohn & William Mellor (Bloomberg Markets Magazine – April 9, 2013)

http://www.bloomberg.com/markets-magazine/

Outside, it’s minus 30 degrees Celsius as a February wind blasts across the Central Asian steppe and through the Mongolian capital, Ulaanbaatar. Inside Government House, President Tsakhia Elbegdorj delivers a televised speech that simultaneously warms his people and chills foreign investors.

The country’s 76 legislators have convened to debate the future of one of the planet’s richest copper and gold mines, Oyu Tolgoi, which is 66 percent owned by London-based Rio Tinto Group (RIO) and 34 percent owned by the state. Elbegdorj tells them Rio Tinto has let the project’s total cost balloon by $10 billion. The higher expenses, which Rio Tinto disputes, would diminish and delay profits the government shares in, Bloomberg Markets magazine will report in its May issue.

“The time has come for the Mongolian government to take Oyu Tolgoi matters into its own hands,” Elbegdorj says to cheers from the lawmakers. His demands include giving Mongolian employees more management positions on the project, which is scheduled to begin exporting copper concentrate by June.

Few things matter more today in the political and economic life of this landlocked country of 2.8 million people than foreign investment to develop its mineral wealth. Mining money has spawned gleaming office towers, pricey gated communities and luxury-car dealerships in the capital. And yet, half of all Mongolians still live like their nomadic ancestors in circular felt yurts that can be dismantled and moved.

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Precious Holdings [Rare Earth Metals] – by Austin Ramzy (Time Magazine – Feb. 18, 2013)

http://science.time.com/

From smart phones to weaponry, cutting-edge technologies depend on access to elements called rare earths. What happened when China tried too hard to control them

In the dystopia imagined in the video game Call of Duty: Black Ops II, the year 2025 is defined by a rampaging cult, a zombie apocalypse–and a war between the U.S. and China for control of the world’s supply of rare earths, materials crucial to the production of everything from mobile phones to weapons. Early in the game, a character waves around a smart phone, lecturing on the importance of rare earths. “Who controls all of it?” he asks ominously. “China.”

It’s only a video game, but not long ago that scenario–minus the zombies–seemed uncomfortably close to reality. China, the world’s dominant producer of rare-earth elements, announced in 2010 that it was drastically cutting its exports, triggering a global panic. Rare earths are a fundamental ingredient across much of the $1 trillion high-tech manufacturing industry. Consumer companies feared shortages of the rare-earth elements that go into computer screens and lightbulbs; U.S. weapons manufacturers worried that a supply shock would imperil production of Abrams tanks and Tomahawk cruise missiles.

“The scope of this crisis is enormous, and only a concerted national effort will lead us out of this mess,” warned U.S. Representative Donald Manzullo, an Illinois Republican. Paul Krugman, a Nobel Prize–winning Princeton economist and New York Times columnist, wrote that China had achieved “a monopoly position exceeding the wildest dreams of Middle Eastern oil-fueled tyrants.”

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UPDATE 2-Rio Tinto expects Mongolia nod for copper exports soon – by James Regan (Reuters U.S. – May 9, 2013)

http://www.reuters.com/

SYDNEY, May 9 (Reuters) – Rio Tinto could be two weeks away from gaining Mongolian approval to ship copper from its Oyu Tolgoi mine, helping offset a slide in revenue from its U.S. copper business as it faces pressure to slash costs and sell non-core assets.

A landslide at the firm’s Bingham Canyon copper mine in Utah in April, which could result in over $700 million in lost sales revenue based on Reuters calculations, was unlikely to force a rethink on assets sales, Chief Executive Sam Walsh told shareholders at the annual meeting in Sydney on Thursday.

There has been speculation that moves by Rio Tinto to sell its Northparkes copper mine in Australia could be delayed until full production resumed at Bingham Canyon.

“We are not expecting that that (the landslide) will have a difference” on divestment decisions, said Walsh, adding the firm would also not be draw into a “fire sale” of businesses.

Rio Tinto hired Macquarie Bank to sell its majority stake in Northparkes, a source familiar with the matter told Reuters. . Rio Tinto and Macquarie declined comment. Japan’s Sumitomo Corp. own 20 percent of the mine.

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UPDATE 2-POSCO moves closer to iron ore access for $12 bln India steel plant – by Suchitra Mohanty and Krishna N Das (Reuters India – May 10, 2013)

http://in.reuters.com/

NEW DELHI, May 10 (Reuters) – POSCO’s planned $12 billion steel project in India moved a step forward on Friday after a court handed a decision on a mining licence to the federal government, raising the South Korean firm’s chances of getting preferential access to iron ore.

The world’s fourth-largest steel producer has waited eight years to get necessary clearances, land and an iron ore mining licence to start work on the project, billed as India’s largest foreign direct investment.

While the project planned in eastern Odisha state may still face hurdles from protesters and over issues such as land ownership, a supportive federal government is expected to clear the path for POSCO’s top concern – a captive mine that will give it steelmaking raw material iron ore.

“This is positive for the company because the central government has been supporting this project,” said Rakesh Arora, a metals expert and head of research at Macquarie Capital Securities (India). “There’s no doubt that without iron ore, this project was not starting at all.”

India was concerned about the delays and Prime Minister Manmohan Singh himself is monitoring the project’s progress, Trade Minister Anand Sharma had said in January.

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In Indian mining town, the barons are back – by Rama Lakshmi (Washington Post – May 2, 2013)

http://www.washingtonpost.com/

Bellary, India — Until recently, this iron-ore mining district in southern India was a byword for cronyism and plunder. Now it represents redemption, though not everyone is cheering.

It was steel that made Bellary a boomtown; steel sought by China in the run-up to the 2008 Olympic Games. As demand soared, prices leapt 15-fold. Indians who cut corners and mined illegally while the government looked away got rich, including a modern-day robber baron named Gali Janardhana Reddy, whose 60-room mansion stood out among his spoils.

A government crackdown in 2011 shuttered the mines in the name of lawbreaking and corruption, and led to a prison sentence for Reddy, accused of treating Bellary like his private fiefdom.

But now other barons are back and unapologetically so. Their rebound reflects complicated attitudes about ambition, corruption and the law in an India where uneven enforcement of rules has fueled the rise of a new wealthy class in fields such as mining and real estate.

In a district election campaign underway here in the southern state of Karnataka, the candidates include a millionaire named Anil Lad, whose mining licenses were recently canceled for irregularities, as well as dozens of candidates fielded by a new political party launched by Somashekar Reddy, the mansion builder’s older brother.

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China’s ruthless foreign policy is changing the world in dangerous ways – by Jonathan Kay (National Post – April 30, 2013)

The National Post is Canada’s second largest national paper.

Are we witnessing the end of the “American age”? It depends whom you ask. But one thing is certain: Thanks to the near-bankruptcy of the American welfare state, Washington is losing both the means and desire to project power across the world. Inevitably, nations with deeper pockets — China, most notably — will fill the void.

This process already is underway in many parts of the world. That includes large swathes of Central Asia, where Beijing’s billions are beginning to revolutionize regional infrastructure and alliances — in dazzling but potentially dangerous ways.

Analyzing Beijing’s foreign policy is a relatively simple exercise. That’s because, unlike the United States and other Western nations, China doesn’t even pretend to operate on any other principle except naked self-interest.

On one hand, China has courted Israel as a partner in developing Mediterranean gas fields — but it also has been happy to do business with Israel’s arch-enemy, Iran, and has sold weapons that ended up in Hezbollah’s arsenal. In South Asia, meanwhile, China has cynically helped Pakistan check India’s regional role, even as China’s state-controlled press has warned Pakistan that Beijing may “intervene militarily” in South Asia if Pakistani-origin jihadis continue to infiltrate Muslim areas of Western China.

In the east, China’s policy has been to claim every square inch of the South China Sea, and intimidate every smaller country that dares to oppose its claims.

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Antam, Vale back on their feet due to increased sales volume – by Raras Cahyafitri (Jakarta Post – May 01 2013)

http://www.thejakartapost.com/

Listed nickel miners PT Aneka Tambang and PT Vale Indonesia are reporting increased net profits in the first quarter of the year due to higher sales volumes offsetting price pressure.

Aneka Tambang (Antam) reported booking Rp 462.43 billion (US$47 million) in net profits in the first three months of the year, up from Rp 379.19 billion in the same period last year, while Vale recorded $31.5 million in net profits, up 728 percent from $3.8 million.

“In the first quarter, our export volume of nickel ore increased and gold sales also rose, although their prices were almost similar to last year,” outgoing Antam president director Alwinsyah Lubis said after the company’s annual general meeting of shareholders on Tuesday.

Antam also reported that its sales volume for gold in the first quarter was up 63 percent to 93,526 troy ounces. Meanwhile, the firm’s gold sales were Rp 1.55 trillion, up 71 percent year-on-year, contributing 46.5 percent to Antam’s total revenues of Rp 3.34 trillion during the January-to-March period, up 35.5 percent from Rp 2.46 trillion in the same period last year.

Antam’s sales of nickel ore contributed about 33 percent of toal revenues, or Rp 1.12 trillion in the first three months of the year, up 67 percent compared to Rp 662 billion year-on-year, according to the company’s financial report.

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