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NEWS RELEASE: Gold exploration drops 55%

Date: 20th May 2013 Release time: Immediate

Slumping metals prices, and falling equity valuations, reflect serious uncertainty about the world economy. The recent quarter ended with the Governor of the Bank of Japan announcing a huge monetary stimulus, Europe bailing out the banking system in Cyprus, disappointing employment figures in the USA and worrying signs of a slowdown in the crucial Chinese economy. This depressing scenario has had a knock-on effect over the minerals exploration sector.

Exploration activity has been trending down since the end of October 2011, and according to the latest ‘State of the Market’ report from IntierraRMG, there were drilling reports from only 355 prospects in March. Gold exploration has been particularly weak, with activity reported from just 172 prospects in March, compared with 382 in March 2012.

The figures for the next few months are unlikely to be better following the precious-metals price collapse in mid-April and a significant drop in recent exploration funding. If the exploration sector is looking for some comfort, it might come in the knowledge that the past six months of falling metals prices comes off historically high levels.

The price of gold, for example, had risen seven-fold since 2001 to an all-time high in 2011 of over US$1,900/oz. Indeed, the last time the UK saw gold at over £1,000/oz, in real terms, was in 1489 when the Royal Mint issued sovereign coins valuing an ounce of gold at £2.

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Gold’s dichotomy: Investment demand plunges, but consumers keep buying (National Post – May 17, 2013)

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

Today’s gold market is being defined by two trends: aggressive selling by investors in North America through exchange-traded funds, and aggressive buying by consumers in Asia. But for now, the ETF investors are overwhelming everyone else.

Gold prices settled below US$1,390 an ounce on Thursday, and after five rough trading days in a row, they are approaching the lows that were reached during last month’s dramatic collapse.

Amid that turmoil, the World Gold Council (WGC) issued a report that shines a light on how rapidly investors are dumping their holdings.

The report shows that overall gold demand fell 13% in the first quarter of 2013 compared to the same period a year ago. While that is not too bad on the surface, investment demand fell an astounding 49%. Investors sold a net 176.9 tonnes of gold through ETFs in the quarter, or roughly US$9.3-billion worth of the yellow metal.

The gold market is very small, with total demand of about 1,000 tonnes per quarter, according to the council. That means fluctuations in ETF holdings can have an outsized effect on the paper price.

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Gold Bears Pull $20.8 Billion as BlackRock Says Buy: Commodities – by Elizabeth Campbell (Bloomberg News – May 13, 2013)

http://www.bloomberg.com/

Hedge funds increased bets on lower gold prices after investors pulled a record $20.8 billion from bullion funds this year while BlackRock Inc. (BLK), the world’s biggest money manager, said it’s still bullish.

Speculators held 67,374 so-called short contracts on May 7, 6.4 percent more than a week earlier, U.S. Commodity Futures Trading Commission data show. The net-long position dropped 10 percent to 49,260 futures and options. Net-bullish wagers across 18 U.S.-traded raw materials climbed 5.8 percent to 582,265, with gains for cocoa, cotton and hogs.

Gold is having its worst start to a year since 1982 after dropping 15 percent and sliding into a bear market in April. Holdings in exchange-traded funds backed by bullion tumbled to the lowest since July 2011 even as central banks print money on an unprecedented scale to boost growth. BlackRock’s President Robert Kapito said May 9 he would still buy the metal, echoing billionaire John Paulson, who’s sticking with a bullish view even after losing 27 percent in his Gold Fund last month.

“People have been told the world is going to end for five years, and it hasn’t, so they’re finally moving on,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees $325 billion of assets. “So even when crisis flashes now, you don’t get the same upside, and then in good times, you get more downside, and that’s what you’re getting in gold as the Armageddon premium is coming out.”

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A nugget of wisdom for gold miners: Think small – by Eric Reguly (Globe and Mail – May 11, 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.

ROME — I think I have figured out Canadian gold mining executives. They assume that gold is not a mineral; it is a perishable commodity that will rot in the ground, like a potato, unless it is dug up immediately.

And not just immediately but in vast quantities. Canadian gold mining executives are obsessed with the concept of bigness. They want projects they can label “game changers,” ones capable of vaulting medium-sized firms into the big leagues, or thrust the biggies to the very top of the global heap. Bigness permeates their lives. They drive big cars, live in big houses. Some, like Barrick Gold Corp. boss Peter Munk, bob around the planet in the biggest of yachts.

The problem with bigness is that it translates into trouble when it’s extended to corporate development. Big projects are big gambles. They invariably come in far over budget, sometimes billions over budget, which gets shareholders rather annoyed. Big projects also attract lots of attention from environmental activists, politicians and aboriginal peoples. The result is expensive delays and bad publicity.

Canada’s gold mining sector is a mess, with share prices down by about half even though the gold price is down by only 20 per cent from its high of almost $1,800 (U.S.) an ounce last October. Executives are being tossed into the garbage like the remains of a steak lunch. Returns on equity are sinking into single-digit territory or, in Barrick’s case, turning negative. Problems at flagship projects are not going away – in some cases they’re intensifying – after years of fix-it efforts.

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South Americans Face Upheaval in Deadly Water Battles [Mining conflicts] – by Michael Smith (Bloomberg Markets Magazine – February 13, 2013)

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

People streamed into the central square in Celendin, a small city in the Peruvian Andes, the morning of July 3, 2012. They were protesting the government’s support for Newmont Mining Corp. (NEM)’s plan to take control of four lakes to make way for a new gold and copper mine. By midday, there were 3,000.

Some hurled rocks at police and brandished clubs. Then assailants shot two officers and an Army soldier in the leg.

Blocks away, construction worker Paulino Garcia left home on foot to buy groceries. As he approached the central square, he encountered chaos. People ran for cover as federal troops fired their weapons, Bloomberg Markets magazine will report in its March issue.

One bullet struck Garcia as he watched the mayhem. It ripped open his chest and exited through his back. The 43-year-old father of two fell to the ground and died. Another three people were shot and killed, and more than 20 were wounded.

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Lake Shore Gold readies for growth – by Liz Cowan (Northern Ontario Business – May 10, 2013)

Established in 1980, Northern Ontario Business provides Canadians and international investors with relevant, current and insightful editorial content and business news information about Ontario’s vibrant and resource-rich North.

Lake Shore Gold in Timmins is expecting 2013 to be a breakout year. “We are on track now to really transition from junior exploration company to a producer,” said president and CEO Tony Makuch at a presentation in April. He was addressing an audience of more than 150 at a luncheon put on by the Canadian Institute of Mining’s (CIM) Northern Gateway Branch in North Bay.

“We built everything from scratch, starting with greenfield discoveries. We have raised and invested close to $650 million since 2008. And, we are building a mine. We have had a lot of challenges but some big successes,” he said.

With 525 employees, and about 200 contractors, the company operates the Timmins West Mine, which is about 20 kilometres west of Timmins; the Bell Creek Mine, about 20 kilometres northeast of the city; and the Bell Creek mill. The Fenn-Gibb Project, 60 kilometres east of Timmins, has the potential to become an open-pit operation.

“Since 2008 we have discovered seven million ounces. Our challenge is not just to discover, but to show we are profitable. We know there is still a lot of gold there and we can find it, but we have to demonstrate how to turn it into a profitable business,” he said.

Last year, the company met its guidance, achieved a lot of development success, mined and processed 720,000 tons of ore, developed more than 2,000 metres of mine ramps and produced 86,000 ounces of gold.

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Barrick/Goldcorp remove overhang in Pueblo Viejo deal, but at a cost – by Peter Koven (National Post – May 9, 2013)

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

When the Pueblo Viejo mine entered commercial production early this year, it took about 20 seconds for politicians in the Dominican Republic to demand a bigger piece of the pie from the two Canadian owners (Barrick Gold Corp. owns 60% and Goldcorp Inc. owns 40%). Negotiations ensued and a revised agreement was announced Wednesday night.

After taking some time to chew it over, analysts weighted in on Thursday morning. Their views are decidedly mixed: the deal is positive in that it removes the political overhang, but negative in that it takes substantial benefits away from shareholders and hands them to the government. Also, payments to the government will be brought forward.

A number of changes were made to the Pueblo Viejo agreement, including the elimination of a 10% return embedded in the initial capital investment before a 28.75% tax kicks in, an extension to the period in which the miners recover their capital investment, a delay in the application of tax deductions, and a reduction in depreciation rates.

Barrick calculated that the total economic benefit to the government will rise by US$1.5-billion in this agreement, assuming a US$1,600 gold price. The Dominican was already expected to receive more than US$10-billion from the mine.

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This week in junior gold quarterlies – lower gold price weighs – by Kip Keen (Mineweb.com – May 10, 2013)

http://www.mineweb.com/

Adding pain to the the junior gold miner balance sheet: lower gold prices this year than last.

HALIFAX, NS (MINEWEB) – The lower price of gold in the first three months of the year, as compared to same in 2012, started to weigh on junior gold producers quarterlies. It wasn’t the only factor in dropping net incomes, to be sure, as operating costs remained flat or worsened. But this just made the lower gold price all the harder to bear.

A year ago spot gold prices over the January to March period averaged a bit higher, around $1,690 an ounce, while in the first three months in 2013, they averaged around $1,630. That difference, around four percent, took its toll, adding to pressure on balance sheets as junior gold producers contend with the cost of mine expansions and longer term projects.

The lower spot price this year in January to March might be viewed as a small difference, yes, and one confounded by such idiosyncracies as when a miner sold its loot. However, it’s not looking like a one-quarter blip. Rather, the effect is set to worsen for gold miners in the coming quarter.

Last year the spot price of gold averaged about $1,650 and 1,585 per ounce in April and May, respectively. This year it was $1,485 and $1,462 in the same months, to date, setting up junior gold producers for an even tighter squeeze in the coming round of quarterlies. It could only be reversed if the price of gold makes a strong U-turn over the next month and a half.

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Darfur gold mine collapse kills 100, traps rescuers (Japan Times – May 4, 2013)

http://www.japantimes.co.jp/

KHARTOUM – Around 100 miners are estimated to have died inside a collapsed gold mine in Sudan’s Darfur region, and nine of the rescuers trying to free them have become trapped as well, a miner said Friday.

“Nine of the rescue team disappeared when the land collapsed around them” on Thursday said the miner, who had visited the scene.

The unlicensed desert gold mine in the Jebel Amir district, more than 200 km northwest of El-Fasher, the capital of North Darfur state, began to cave in Monday.

The stench of death is now seeping out of the baked earth, the miner said. “Yesterday (Thursday) eight bodies have been found and still they are looking for the others,” he said. “According to a count by people working in the mine, the number of people inside is more than 100.”

On Thursday, the Jebel Amir district chief, Haroun al-Hassan, said “the number of people who died is more than 60,” but added it was unclear whether anyone might still be alive.

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UPDATE 2-Goldcorp profit drops more sharply than expected – by Julie Gordon (Reuters U.S. – May 2, 2013)

http://www.reuters.com/

TORONTO, May 2 (Reuters) – Miner Goldcorp Inc said on Thursday that its first-quarter profit dropped by a steeper-than-expected 35 percent as lower metal prices and higher costs outweighed a boost in gold sales.

Shares of the world’s largest gold miner by market capitalization fell 2.1 percent to C$28.46 on the Toronto Stock Exchange.

Even though gold prices have plunged recently, the Vancouver-based miner said it was still committed to spending $2.8 billion this year as it brings three new mines into production through 2015.

With those new mines in Canada and Argentina, Goldcorp plans to boost its output by about 50 percent by 2017. That bucks a trend among many of the top gold miners of scrapping new projects to return cash to shareholders.

“Our shareholders can count on continued discipline as we advance our growth strategy and focus on execution and prudent cost management at our mines and projects,” Chief Executive Officer Chuck Jeannes said in a statement.

While long-term fundamentals should support a strong gold price, Jeannes said the company had put a “contingency plan” in place to defer spending should market conditions warrant.

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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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Kinross Gold sees US$2.7-billion initial capital cost for Tasiast mine – by Peter Koven (National Post – April 30, 2013)

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

TORONTO – After two and a half years of work at its troubled Tasiast project, Kinross Gold Corp. still has a lot to prove.

On Monday, Kinross released a long-awaited pre-feasibility study on the proposed expansion of Mauritania-based Tasiast. The company called the results “encouraging” and elected to move ahead with a full feasibility study. But analysts and investors were far from thrilled.

Put simply, the study results did not confirm that the project would generate a strong return on investment. Instead, they confirmed a lot of work still needs to be done.

The initial cost to get Tasiast up and running would be US$2.7-billion, according to the study. While the proposed mine would produce roughly 830,000 ounces of gold a year at low costs, the estimated net present value is only US$1.1-billion at a gold price of US$1,500 an ounce, while the internal rate of return (IRR) is a meagre 11%.

That is a low IRR for such a large and high-risk project, especially given that the assumed gold price is higher than the current one. At lower gold prices, analysts estimated that the numbers get significantly weaker.

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Gold Rush From Dubai to Turkey Saps Supply as Premiums Jump – by Glenys Sim (Bloomberg News – April 30, 2013)

http://www.bloomberg.com/

Surging demand for gold from Dubai to Istanbul has pushed physical premiums in the region to levels not seen in years as the biggest price slump in three decades lures consumers, according to MKS (Switzerland) SA.

Premiums paid by wholesalers and bulk buyers in Dubai to secure a 1 kilogram bar of bullion are being quoted between $6 an ounce and $9 an ounce over the London cash price, said Frederic Panizzutti, global head of marketing and sales at the Swiss-based bullion refiner. That compares with about 50 cents before the rout, Panizzutti, also chief executive officer of MKS Precious Metals DMCC, said in an interview from Dubai.

Gold fell to the lowest in more than two years this month on speculation that the global economy is recovering, unleashing a purchasing frenzy among coin and jewelry buyers from China to the U.S. Consumer demand for jewelry, bars and coins in Turkey and the Middle East represented about 9.4 percent of the global total last year, according to the World Gold Council. Bars have been cleared from display in the souks, according to Gerry Schubert, head of precious metals at Emirates NBD PJSC.

“Physical demand has been tremendous in a way I haven’t seen for a number of years,” said Jeffrey Rhodes, global head of precious metals at INTL FCStone Inc., who’s worked in the industry for more than three decades.

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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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Religious groups keep an eye on global mining giants – by Kari Lydersen (Global Post – April 27, 2013)

http://www.globalpost.com/

Faithful activists converged on London to continue lobbying on behalf of those hurt by industrial mines.

LONDON — When he was studying to be a priest, Richard Solly mulled founding a group called Clergy Against Gold Exploitation — CAGE.

While presiding over weddings, his idea went, clergy would profess shock during the exchange of rings and ask, “Is that gold? Do you know how many people suffered for that?”

CAGE was just a joke. But religious activists like Solly, part of a coalition including Protestants and Catholics, have become central to the international mining watchdog and opposition movement which has developed over the past three decades. The movement has become increasingly focused on multinational mining companies headquartered in London and traded on the London Stock Exchange, some accused of damaging ecosystems, displacing residents and disrupting local economies around the world.

On April 17, just before the annual general shareholder meetings of mining giants Rio Tinto and Anglo American, Solly and a group of people impacted by the companies’ mines around the world visited the Church of England.

They asked church officials to pressure the companies to improve their labor and environmental practices, or risk divestment by the church’s fund. In 2010, the church pulled its investments from the London-based global mining company Vedanta Resources based on its record in India.

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