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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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Sweden’s LKAB Doubles Spending to Find ‘Elephant’ Iron Mine – by Niklas Magnusson (Bloomberg News – May 22, 2013)

http://www.bloomberg.com/

LKAB is doubling spending on exploration in Sweden’s Arctic as the state-owned company targets finding a deposit to match its Kiirunavaara mine, the world’s largest contiguous body of iron ore.

LKAB will boost its exploration spending to 200 million kronor ($30 million) annually from 100 million kronor and is hiring more geologists to guide it to potential deposits, Chief Executive Officer Lars-Eric Aaro said in a May 20 interview.

“There’s a saying in mining, especially when you’re looking for big volume bodies, that if you’re looking for elephants you have to go to elephant land — and our part of the world is elephant land,” he said. “We now have the equipment to look at rocks deeper down but what’s under there is so far totally unknown. But, the geology is there and there could be a new Kiirunavaara mine — it will just be deeper underground.”

Sweden sits on 60 percent of Europe’s known iron ore and 2 percent of the global total. Prime Minister Fredrik Reinfeldt has said that the resource ore is equivalent to what oil has meant for Norway since it was discovered in the 1960s.
LKAB, which is moving parts of the towns of Kiruna and Malmberget to ensure it can continue production in those two locations, had sales of 27 billion kronor and a profit of 8.8 billion kronor last year.

LKAB paid a dividend of 5 billion kronor to the Swedish state for 2012, equivalent to 0.6 percent of the government’s forecast income in 2013, as well as taxes of 3.77 billion kronor. Those contributions to Sweden’s budget are likely to increase as LKAB opens new mines and expands.

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Swedish City Is Displaced by Race for Arctic Iron – by Niklas Magnusson and Johan Carlstrom (Bloomberg Business Week – May 21, 2013)

http://www.businessweek.com/

Swedes living in the Arctic town of Kiruna are packing up their belongings before their homes are bulldozed to make way for iron ore mining driven by Chinese demand.

LKAB (LKAB), Sweden’s state-owned mining company, opened a new level yesterday, more than 1 kilometer (3,281 feet) below the town, to be able to continue tapping the world’s largest contiguous body of iron ore. Many of the 18,000 who live above the deposit in the Scandinavian nation’s fourth-richest county will move a few kilometers east to accommodate the mine.

The extreme measure underscores the lengths to which governments and companies are willing to go to gain access to commodities prized by importers like China, the world’s fastest-growing major economy. And with LKAB producing 90 percent of all iron in the European Union, the willingness of Swedes to move is proving key to the whole region’s access to the metal.

“The move is of course crucial for the continuation of mining in Kiruna,” LKAB Chief Executive Officer Lars-Eric Aaro said in a May 20 phone interview. “Being Sweden’s seventh-largest exporter and third-biggest taxpayer, in addition to the dividend we pay the state each year, this is a national matter.”

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What Norway did with its oil and we didn’t – by Esther Hsieh (Globe and Mail – May 16, 2013)

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

When oil was discovered in the Norwegian continental shelf in 1969, Norway was very aware of the finite nature of petroleum, and didn’t waste any time legislating policies to manage the new-found resource in a way that would give Norwegians long-term wealth, benefit their entire society and make them competitive beyond just a commodities exporter.

“Norway got the basics right quite early on,” says John Calvert, a political science professor at Simon Fraser University. “They understood what this was about and they put in place public policy that they have benefited so much from.”

This is in contrast to Canada’s free-market approach, he contends, where our government is discouraged from long-term public planning, in favour of allowing the market to determine the pace and scope of development.

“I would argue quite strongly that the Norwegians have done a much better job of managing their [petroleum] resource,” Prof. Calvert says. While No. 15 on the World Economic Forum’s global competitiveness rankings, Norway is ranked third out of all countries on its macroeconomic environment (up from fourth last year), “driven by windfall oil revenues combined with prudent fiscal management,” according to the Forum.

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Dirty Gold: Crisis Has Europe Clamoring to Mine – by Luke Dale-Harris (Spiegel Online International [Germany] – April 26, 2013)

http://www.spiegel.de/

In a bland and brightly lit ballroom in the center of Zurich, the leaders of a hundred of the world’s largest gold exploitation companies looked on as the European Gold Forum opened with a slide show of bank notes from Weimar Germany. One hundred marks, 500, 10,000, 1 million, 100 million, 500 million. It cut to some text, left hanging on the screen as the audience applauded. “Currency destruction through Hyperinflation. Will history repeat itself?”

Over the next three days of last week’s conference, many seemed to hope the answer would be “yes”. With the price of gold driven by economic instability, the current grim outlook suggests a bright future for gold, as investors shift their money into the relative safety offered by the precious metal.

Around the world, mining companies have been gearing themselves up accordingly and, for those at the conference, even the recent dramatic drop in the value of gold couldn’t hamper the optimistic atmosphere. “The price drop will be temporary,” insists Tim Wood, executive director of the forum’s host, Denver Gold Group. “The expectation is that gold will resume its climb and go to new record highs as ultimately the monetary policy of all these countries is going to fail.”

A markedly different mood became apparent on the street outside the venue, where a group of anti-mining protesters held banners and waved the flags of their home countries, the colors of Greece, Portugal and Bulgaria conspicuous among them.

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Eldorado Gold’s big Greek mining problem – by Eric Reguly (Globe and Mail – April 27, 2013)

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

IERISSOS, GREECE — The first mobilizations against the expansion of the old mines in the Halkidiki peninsula, the birthplace of Aristotle in northeastern Greece, began in late 2011. That’s when Vancouver’s Eldorado Gold Corp. grabbed most of the local mining industry and unveiled plans for a €1-billion ($1.32-billion) development that would turn the recession-stricken region into a gold-producing powerhouse.

But development skeptics asked: At what cost to the environment, tourism and agriculture? They concluded that the massive project, smack in the middle of a part of Greece that could pass for Tuscany, would do more harm than good and took to the streets. “To live, you need, air, soil and water,” explains Nina Karina, 50, an artist who opposes Eldorado. “This investment takes away all three from us.”

At first, the protests were fairly low key, although there were times when the trigger-happy Greek police flung tear gas canisters at hothead protesters armed with flares, rocks and gasoline bombs. By the autumn of 2012, something akin to civil war had broken out. The turning point came on Oct. 21 when about 2,500 protesters fought a pitched battle with more than 200 police along the forest road leading to Eldorado’s Skouries gold-and-copper deposit, the centrepiece of its Greek strategy.

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Mountain of Gold Sparks Battles in Greek Recovery Test – by Jonathan Stearns (Bloomberg.com – April 9, 2013)

http://www.bloomberg.com/

A mountain of gold has divided Aristotle’s birthplace in northern Greece. Violent opposition to Eldorado Gold Corp. (ELD)’s $500 million project to develop the site prompted Mayor Christos Pachtas to flee the county’s seaside capital for his home village in the highlands. In some communities, locals shun each other because of the planned mine. Torched heavy equipment on the mountaintop area cordoned with barbed wire testifies to the dispute.

For Greece’s devastated economy, the fight is more than a conventional standoff between the forces of development and environmental protection. Authorities’ ability to navigate the conflicting demands in the nation’s biggest-ever metals project provides a telling clue to how soon Greece emerges from six years of recession, a pair of bailouts and the biggest sovereign debt restructuring ever.

“This dispute is very significant because it will determine whether Greece can attract foreign investments in the future,” George Tzogopoulos, a research fellow at the Hellenic Foundation for European and Foreign Policy in Athens and the author of a book on media coverage of the Greek debt troubles, said by telephone on April 4. “This is the type of project that the country needs to overcome the economic crisis.”

Since 2008, Greece’s gross domestic product has shrunk by about a fifth and unemployment has soared to a record 27 percent, underscoring the urgency of investments like Vancouver- based Eldorado’s. Overall in Greece, Eldorado plans to invest more than $1 billion.

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FEATURE-Profit eludes accident-prone Finnish nickel mine – by Terhi Kinnunen (Reuters U.S. – April 10, 2013)

http://www.reuters.com/

SOTKAMO, Finland, April 10 (Reuters) – Talvivaara CEO Pekka Pera still has the one euro coin he used to buy the rights to ore deposits at the company’s nickel mine in Sotkamo, eastern Finland, a decade ago.

While the previous owner saw no future for the site, Pera was so sure it would succeed with the help of a pioneering metals extraction process called bioheapleaching that he bought the coin back as a keepsake.

But after waste water leaked last year, pushing up uranium levels in nearby lakes and rivers, and repeated failures to meet production targets, the mine is now saddled with debt and burning through cash. Investors are uncertain whether they will ever see a profit from what is supposed to become Europe’s biggest nickel mine.

A new leak from its waste pond last Sunday was the latest in a series of troubles which analysts say show the company has overestimated the benefits of the rarely-used bioheapleaching method, and underestimated its risks.

“During the last three to four years, there have been so many problems and they haven’t had success in ramping up production,” said Pohjola analyst Jari Raisanen. “I think nobody really knows what the future is.”

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No tears for Thatcher in Britain’s coal country – by Eric Reguly (Globe and Mail – April 10, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

ROTHERHAM, ENGLAND — The mood is festive in the County pub in Rotherham, the South Yorkshire town that was once at the heart of the country’s vast steel and coal industries, a place where high unemployment and profound grudges mar the social landscape.

The McEwan’s lager and the John Smith bitter, at £1.70 a pint, are flowing and it is not even noon – the first patrons arrived three hours earlier. Rosy-faced men raise glass after glass in celebration of the death of Margaret Thatcher.

“I went ‘whoopee’ when I heard she died,” says Austin Davies, 64, a former coalface worker who joined the 1984-85 coal workers’ strike that ultimately wrecked his career and broke the country’s union power. “Bury her in a mine shaft.”

His friend, Barry McGowan, 68, who was an ambulance driver during the year-long strike, says the economic legacy of Lady Thatcher – a divisive topic anywhere in the country – still haunts the South Yorkshire towns that lost their mines and foundries. “There is still a lot of bitterness here,” he says. “The scabs – some of us still don’t speak to them after 30 years.”

Rotherman (population about 120,000) is an old steel town that has seen better days. A plethora of chain stores have brought some life back to the centre, but the outskirts are cluttered with the remains of dead steel and clothing plants.

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Margaret Thatcher and the pit strike in Yorkshire – by Martin Coldrick (BBC News – April 8, 2013)

http://www.bbc.co.uk/

Yorkshire – In Yorkshire, the mere mention of Baroness Thatcher’s name is often likely to lead quickly to talk of the 1984-5 miners’ strike.

With the news of her death at the age of 87, emotions remain high in Yorkshire’s former pit communities about the miners’ strike and the role of then Prime Minister Margaret Thatcher.

At times, that strike – lasting from 5 March 1984 to 3 March 1985 – almost seemed to be a battle of wills between the Barnsley-born leader of the National Union of Mineworkers (NUM), Arthur Scargill, and the Conservative prime minister.

In 1984, when there were 170 working collieries in Britain, employing more than 190,000 people, Mr Scargill obtained a “hit list” of mines the Thatcher government was planning to close.

The ensuing strike against job losses, for which the NUM controversially never held a national ballot among its members, pitted striking miners against Mrs Thatcher’s government, the police and other miners, and led to divisions in families which remain to this day.

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Klondike in Lapland: Mining Companies Swarm to Finland’s Far North – by Renate Nimtz-Köster (Spiegel Online – November 2, 2012)

http://www.spiegel.de/international/

Mining companies are flocking to northern Finland as new deposits of gold, nickel and other minerals promise vast profits. But the area’s fragile wetland ecosystem is paying the price. Conservationists are so far fighting a losing battle.

Riikka Karppinen used to catch pike as long as her arm here. She and her brother would spend days exploring the marshy wilderness. It was eight years ago, when Riikka was just 10 years old, that she saw the first red sticks stuck into the ground. To begin with, there were only a few but before long there were hundreds. “No one cared much back then,” Riikka Karppinen recalls.

In the mean time, though, the red markers have given way to the machines. “You can hear the noise of the drills day and night,” says Karppinen. Anglo American (AA), one of the world’s biggest mining companies, went treasure hunting in Finnish Lapland, 120 kilometers north of the Polar Circle. And deep below the marshlands of Viiankiaapa are nickel deposits that AA has hailed as the find of the century.

Karppinen’s childhood paradise has now become a symbol of the rush for precious metals and minerals that has overcome the entire country. Foreign mining companies are flocking to Finland to mine its treasures. Here, in some of the oldest rock formations in Europe, lie reserves of valuable raw materials, with geologists describing the ore deposits as among the richest in the world.

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