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Gold and Silver

Cost-cuts put gold miners between rock and a hard place – by Nicole Mordant (Reuters U.S. – September 4, 2014)

http://www.reuters.com/

(Reuters) – Deep cost cuts have helped to restore profits at gold miners pummeled by a one-third slide in bullion prices in the past three years, but the fix may only be short term and could be setting the industry up for even more long-term pain.

The all-in cost of producing an ounce of gold dropped by 23 percent to $1,331 an ounce in the year to end-March, according to data from Citigroup. The data, published on Aug. 13, covers miners producing about half of the world’s gold.

Data from five of the world’s biggest gold producers, including Canada’s Barrick Gold Corp, South Africa’s AngloGold Ashanti Ltd and Australia’s Newcrest Mining Ltd, show this trend continuing to the end of the latest quarter.

A closer look at the numbers reveal, however, that almost all of the cost reduction is due to miners pulling easy levers: slashing capital and exploration spending, cutting head office costs and shrinking mine plans to focus on extracting higher-grade gold.

“Even though this is a good short-term thing for the gold sector it is exactly the worst thing that they can do from a long-term value perspective,” said Johann Steyn, an analyst with Citigroup in Johannesburg.

As the gold price tanked and miners were forced to write down billions on underperforming assets, once growth-hungry investors demanded a new era of austerity. The subsequent cuts to exploration and capital spending threaten to shrink current output and future growth.

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Absolute change needed to mine Wits basin’s stranded 1.1bn gold ounces – by Martin Creamer (MiningWeekly.com – August 27, 2014)

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

CARLETONVILLE (miningweekly.com) – South Africa’s Witwatersrand basin contains another 1.3-billion ounces of gold, almost as much gold as has been mined there since 1886 – but miners can only get to another 200-million ounces of it using today’s mining methods.

If the industry does not come up with a new way of mining, more than a trillion dollars worth of gold will not be mined, because the 1.1-billion ounces in question are either below the cutoff for the current mining method, or they are at depths where there are no technical solutions to get to mine those ounces.

Moreover, safety has reached a plateau and unless significant change is made to what creates this plateau, death and injury in mines will continue, which is totally unacceptable.

There is thus an absolute need to change – and senior VP technology and projects Shaun Newberry is at the forefront of an AngloGold Ashanti move that could result in all three billion Wits basin ounces being mined and not merely 1.9-billion of them.

Individual technologies currently under investigation will make a significant impact on the current mining method, where reverse circulation drilling will ensure enhanced information and better planning.

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Deadly clashes continue at African Barrick gold mine – by Geoffrey York (Globe and Mail – August 27, 2014)

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.

JOHANNESBURG — Police have killed more villagers in clashes at a controversial Tanzanian gold mine owned by a Barrick Gold Corp. subsidiary, despite the company’s pledges to reduce the violence, researchers say.

The researchers, including a law firm and two civil society groups, say they’ve received reports that as many as 10 people have been killed this year as a result of “excessive force” by police and security guards at the North Mara mine, owned by African Barrick Gold, a subsidiary of Toronto-based Barrick.

A spokesman for African Barrick confirmed to The Globe and Mail that “fatalities” have occurred in clashes at the mine site this year, but declined to estimate how many. It is up to the Tanzanian police to release the information, he said.

Tanzanian police have repeatedly refused to give any details on fatalities at the site. Dozens of villagers have been killed by police at the mine in the past several years, according to frequent reports from civil society groups. The company occasionally confirms some of the deaths, including a clash in which police killed five people in 2011.

The deadly clashes occur when villagers walk into the mine site in search of waste rock, from which small bits of gold can be extracted. Hundreds or even thousands of “intruders,” as they are known locally, can be involved.

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UN agency to study organized crime’s role in illegal gold mining – by Dorothy Kosich (Mineweb.com – August 26, 2014)

http://www.mineweb.com/

“These criminals are stealing the minerals of the country”, says Capt. Paul Ramaloko of the South African police force investigative unit, Hawks.

RENO (MINEWEB) – The United Nations Interregional Crime and Justice Research Institute (UNICRI) is reportedly launching a global study in September examining the role organized crime allegedly plays in the production and distribution of precious metals such as gold, according to the Wall Street Journal.

Although Mineweb could not find a reference to the new study on the UNICRI website, the organization’s magazine, Freedom From Fear, has an article on illicit trafficking in precious metals in its latest issue.

The agency claims that illicit trafficking of precious metals has become the focus of organized criminal groups “in producing countries such as South Africa, Africa, Russia, the USA, South America and China”.

“Unfortunately, law enforcement in general has not recognized the emerging pattern of this global crime yielding high returns on the black market that funds other types of organized crime and terrorism and has thus not accorded it the same priority as they have other series crimes,” said F3 magazine in an article by South African Peter H. Bishop.

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Donlin gold mine brings hope of jobs — and fear of destruction – by Lisa Demer (Alaska Dispatch News – August 23, 2014)

http://www.adn.com/

DONLIN GOLD WORK CAMP — On a remote ridge in the big, open space between Bethel and Anchorage, where the land and minerals are owned by Alaska Native corporations, developers want to cut deep into the earth to extract microscopic bits of gold.

The Donlin Gold project is moving quietly forward. Backers are seeking key government permissions and trying to secure the trust of local residents.

Developers say the mine’s design will be the safest, most stable possible. A wealth of good jobs would open up in the cash-starved Western Alaska region if Donlin is developed, project sponsors say.

Still, the nature of large-scale gold mining incites anxiety and doubt among people who depend on the land and water as their sources of food.

The mine site is 10 miles from the Kuskokwim River near a salmon-producing stream, Crooked Creek. The project would disturb rock and soils laden with arsenic, mercury and other heavy metals; use cyanide in the production of the gold; bring barges loaded with diesel and other supplies upriver daily in ice-free months; and create a 2-mile-long, 1-mile-wide open pit where the hilltop used to be.

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Canadian sues Silvercorp over ‘false imprisonment’ in China – by Nathan Vanderklippe (Globe and Mail – August 20,2014)

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.

BEIJING — A Canadian man who spent years behind bars in China has filed a lawsuit accusing a mining company of conspiring with Chinese authorities to have him arrested and detained.

Kun Huang was an investigator for a hedge fund manager who in September, 2011, claimed that ore estimates at a Chinese mine owned by Vancouver-based Silvercorp Metals Inc. were too good to be true. Three months later, Chinese officials detained Mr. Huang at the Beijing airport, strip-searched him, seized his computer and placed him in a lengthy detention that culminated in a single-day closed-door trial and a two-year sentence for criminal defamation.

He was released on July 17, and returned to Canada the next day. Now, in a lawsuit filed Tuesday in the Supreme Court of British Columbia, Mr. Huang claims that Silvercorp masterminded his detention as a reprisal for his research, whose publication prompted a steep decline in the company’s share price.

Silvercorp, his court filing claims, effectively enlisted the local Chinese police as its “agent,” giving them money, encouragement and guidance “to falsely imprison and then later knowingly bring baseless criminal charges against Mr. Huang.”

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U.S. Mining Winning The Costs Race – by Tim Treadgold (Forbes Magazine – August 13, 2014)

http://www.forbes.com/

Mining booms are nearly always driven by rising commodity prices but what’s happening in the U.S. today indicates that falling costs are the driving force behind a revitalized interest in all forms of resources, from oil and gas to gold.

Activist investors, sometimes criticized for being too aggressive, have spotted the value gap developing between international mining and oil operations and those in the country winning the low-cost race, the U.S.

Cliffs Natural Resources CLF -3.04% and Apache APA -0.67% Corporation have been targeted by activist funds demanding the sale of high-cost, low-profit, assets in Australia, with Cliffs under pressure to sell an iron ore mine in Western Australia, and Apache planning to sell a 13% stake in a big Australian liquefied natural gas project being developed by Chevron CVX -0.5% Corporation.

Both U.S.-based companies will probably re-invest the capital generated in U.S. projects in much the same way some industrial companies are shifting their international operations back to the U.S. because it has become the global go-to destination, in some cases surpassing the long-term low-cost leaders, China and Germany.

Gold Cheapest To Mine In The Americas

In the commodity world, the value-gap is best illustrated by that universal material gold, with the cost profile of one company demonstrating why the U.S. is a preferred destination for new mine developments.

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Gold miners pressure suppliers for price cuts amid sector slump – by Rachelle Younglai (Globe and Mail – August 14, 2014)

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.

Goldcorp Inc. is leading an industry push to clamp down on suppliers, pressuring them to slash prices so the mining company can keep costs down amid the sector’s slump.

Miners are under siege after bullion lost about a third of its value over the past couple years. Big gold producers such as Barrick Gold Corp. and Kinross Gold Corp. overhauled operations and wrote down assets to mitigate the downturn. Smaller miners such as Iamgold Corp. have cut dividends to preserve cash. Now mining companies are pushing suppliers to slash prices on equipment, goods and services after years of escalating costs.

Goldcorp, a major producer and favourite among analysts and investors, is leaning on vendors to help reach the company’s goal of cutting costs by 17 per cent.

“We ask that you perform an immediate review of your costs and propose adjustments to your current pricing to meet our target,” the company said in a letter viewed by The Globe and Mail.

The pressure is bearing fruit. By the end of June, Goldcorp had realized $74-million in reductions from squeezing its supply chain – an area it has identified as “one source of significant cost savings.”

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Gold royalty firms Franco Nevada, Sandstorm Gold team up for first time as business evolves – by Peter Koven (National Post – August 13, 2014)

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

Two mining royalty firms have teamed up in a financing deal for the first time, a signal their business is evolving and more cooperation is likely across this sector in the future.

Franco-Nevada Corp. and Sandstorm Gold Ltd. announced this week that they will jointly provide at least US$100-million to True Gold Mining Inc. for the company’s Karma gold project in Burkina Faso. The transaction has two key elements: a fixed repayment in gold, and a long-term streaming agreement in which the royalty companies will acquire a portion of the gold from Karma.

It is a small deal, but insiders said it provides a glimpse of how this business is rapidly changing as royalty deals start to resemble more conventional project financing.

The major royalty firms (Franco, Silver Wheaton Corp., Royal Gold Inc. and Sandstorm) have become an increasingly crucial source of capital for emerging mining companies over the last several years. They have stepped up and done a large number of transactions as the banks became reluctant to deal with any single-asset miners.

Traditionally, the royalty companies provided capital to miners in exchange for a passive royalty on future production. Over the last decade, they also did more active streaming deals, in which they acquired gold and silver from the projects they invested in.

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One wedding ring’s journey from makeshift mine to fiancée’s finger – by Marco Chown Oved (Toronto Star – August 9, 2014)

 

The Toronto Star has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.

A Star reporter follows gold from a makeshift mine shaft on the edge of the Sahara desert all the way to his wedding ceremony, showing how dangerous practices continue in West Africa.

When I walk down the aisle this month, as is tradition, I’ll slide a gold band around my bride’s finger and then she’ll put one on mine.

But we didn’t pick out prefabricated rings at a local jewelry shop. Instead, they’re made from gold hammered out of the rock by barefoot miners in northern Burkina Faso, melted down in a shack in western Ghana and fashioned by a local jeweller in Ottawa.

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Hambro’s Dream of Russian Gold Runs Into Mountain of Debt – by Thomas Biesheuvel (Bloomberg News – August 8, 2014)

http://www.bloomberg.com/

Peter Hambro dared to go where few others would, in search of gold in 1990s Russia. Investors who followed him reaped tenfold returns over eight years through 2010.

A repeat of that rich success now looks far away as Petropavlovsk Plc (POG), the company Hambro co-founded, confronts a mountain of debt.

The company was on the cusp of a place among the blue-ribbon names on London’s stock exchange until it borrowed more than $1 billion to expand production at its mines in far-eastern Siberia, six time zones from Moscow. The strategy unraveled when a dozen years of gains for bullion prices ended abruptly in 2013.

“The worst position you ever want to be in a falling commodity environment is having a half-built mine,” said Cailey Barker, an analyst at Numis Securities Ltd. in London. “It’s very hard to turn the Titanic around. It may be difficult to come back from here.”

In 2010, Petropavlovsk’s market value exceeded $3 billion and it was mentioned as a future member of the benchmark FTSE 100 Index. That’s shrunk to $111 million, dwarfed by about $819 million owed to banks that the company says now effectively control cash flow from its mines.

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Door still open for mega-merger between Newmont Mining and Barrick Gold – by Peter Ker (The Age-Business Day – August 7, 2014)

 http://www.theage.com.au/business

A $US35 billion ($37.6 billion) merger of global goldmining companies Newmont Mining and Barrick Gold may not be dead, after the chief executive of Newmont told an audience in Melbourne that he would not “close the door” on a future deal.
The two North American gold companies conducted merger talks earlier this year but the deal fell over in April amid reports they had disagreed over how to handle their respective Australian assets.

While neither company is listed in Australia, a merged entity would wholly own the nation’s biggest goldmine, Boddington, and the nation’s second-biggest goldmine, Kalgoorlie’s Super Pit, as well as other smaller assets.
When asked if he had shut the door on the proposed deal, Mr Goldberg indicated a revival of the deal was not impossible.

“I wouldn’t shut the door on it – we are focusing on running our business as effectively and efficiently as we can going forward and we will see what happens,” he said.

“Clearly we overlap and we work together, [the Super Pit] is an example, and we have a joint venture in Nevada and I wouldn’t close the door on it at all.” But he said he had not heard from Barrick since April.

During a presentation to the Melbourne Mining Club on Thursday, Mr Goldberg said the deal had failed because there were not enough “redundancies” between the two companies.

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Gold Industry Takeovers Climb to Highest in Three Years – by David Stringer (Bloomberg News – August 4, 2014)

http://www.bloomberg.com/

There’s no sign of a let up in gold industry takeovers as a surge in acquisitions by producers, led by Agnico Eagle Mines Ltd. (AEM) and Yamana Gold Inc. (YRI), has pushed deals to a three-year high.

Mid-sized and small producers are seizing on assets discarded by larger competitors as they trim portfolios to focus on their most profitable operations after gold last year notched up the biggest annual drop in more than three decades.

“The hunters have feasted for the last six months,” said Raleigh Finlayson, managing director of Saracen Mineral Holdings Ltd. (SAR), which in May completed a deal to buy OAO GMK Norilsk Nickel’s mothballed Thunderbox operations in Australia. “There are projects still out there and the field might have opened up for those that are left, so that’s an opportunity for some.”

Finlayson is among mining executives gathering this week in Kalgoorlie, the Western Australian town 595 kilometers (370 miles) east of Perth, for the annual Diggers & Dealers conference through Aug. 6. Former Bank of England governor Mervyn King addressed the forum ahead of presentations by executives from Fortescue Metals Group Ltd., AngloGold Ashanti Ltd. and Gold Fields Ltd. in coming days.

Deals worth about $14 billion have been announced or completed so far this year, according to data compiled by Bloomberg, the highest annual total in three years and led by Agnico Eagle and Yamana’s $3.44 billion acquisition of Osisko Mining Corp., the industry’s biggest deal since 2010.

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Gold miners report weaker-than-expected earnings; Barrick names two new directors – by Peter Koven (National Post – July 30, 2014)

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

Canada’s gold miners maintain they are operating well and continuing to find ways to cut costs. However, their second quarter earnings still fell below expectations.

Barrick Gold Corp., Kinross Gold Corp. and Agnico-Eagle Mines Ltd. all had positive things to report as they released Q2 results on Wednesday evening. Notably, Barrick lowered its cost guidance for the year, while Agnico raised its production guidance. But the stocks dropped in after-market trading as each result was slightly below consensus analyst estimates.

Barrick’s earnings were highlighted by the surprise announcement that it is naming two new directors, one of whom is a longtime associate of chairman John Thornton.

Michael Evans was a Canadian gold medalist in rowing in 1984, and was formerly vice chairman at Goldman Sachs. He worked closely with Mr. Thornton in their Goldman days, and his appointment will likely fuel further speculation that Mr. Thornton is consolidating his power at Barrick . Some investors already believe that is the case following the gold miner’s move to replace chief executive Jamie Sokalsky with two co-presidents earlier this month.

The other new director is Brian Greenspun, a prominent publishing and telecommunications tycoon in Nevada, which remains Barrick’s most important mining jurisdiction.

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Quebec lawyers optimistic about revived Plan Nord – by Julius Melnitzer (National Post – July 30, 2014)

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

Quebec’s mining lawyers are cautiously optimistic about the impact of the Liberal government’s revival of the Plan Nord mining project.

“What lies ahead for Quebec’s mining industry is better than what the future looked like during the last two years when there was no clear signal from the PQ that the mining industry was welcome here, ” said Jean-Philippe Buteau in Norton Rose Fulbright Canada LLP’s Quebec City office. “That’s not to say we’re just a few weeks or months from being back to the good old days, but now there’s a majority government that has both hands on the steering wheel.”

Indeed, the stars seem to be lining up. On July 8, Stornoway Diamond Corp. closed a $946-million comprehensive funding package for the construction of the company’s Renard Diamond Project in north-central Quebec.

“The government assisted Stornoway in building the access road to the project and was instrumental in obtaining financing,” said Michel Brunet in Dentons Canada LLP’s Montreal office. Significant support from the new Liberal government, then, was instrumental in the deal’s culmination.

“Stornoway is a great signal that Quebec will stand beside the mining companies if their business plan makes good sense and they are willing to play by the rules,” Mr. Buteau said.

About one month earlier, Agnico Eagle Mines Ltd. and Yamana Gold Inc. completed their acquisition of Osisko Mining Corp. The new owners will take over operation of the Canadian Malarctic gold mine located in the Abitibi-Témiscamingue region about 550 kilometres northwest of Montreal.

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