Tbilisi, Georgia

It was soul singer Edwin Starr who asked (and answered) the following rhetorical poser: “War. What is it good for?”

Starr’s conclusion was that war is good for “absolutely nothing”.If events of the past week are anything to go buy, the price of gold can be included in the all-encompassing “absolutely nothing” category. It continued to slide as Russian tanks rolled into South Ossetia, and kept going after President Medvedev called a halt to military action.

I’ve been observing events — both the war and the action on the gold market — from Tbilisi, the Georgian capital.

As the Russians advanced, frightened Georgian women were taking comfort from their jewellery boxes.

Georgians prefer the dollar to gold

No one, however, has been adding to this store of realisable wealth. Rather, the dollar is back in favour as the safe haven asset of choice. First wallets are being stuffed full with local currency to fill the car with petrol, stockpile food and for airfares (when the airport reopens). Then dollars are being stashed away for future needs.

In 2008, gold in any quantity is just too cumbersome. It is also too expensive. And too volatile! Ask any woman in Georgia’s capital, Tbilisi. First the price shot up. Now it seems to be falling at the rate of knots. This doesn’t exactly inspire confidence…

That’s why their husbands are locking dollars — and not gold — in their safe boxes.

Demand, both from jewellers and investors, has taken a hit

Outside this crisis region, where ready cash is less of a priority, others too are shunning gold. India, a gold mega consumer, has seen a heavy fall in buying. The latest World Gold Council figures show that jewellery and investment demand there dropped by a whopping 45% between April and June. Demand also fell in the other traditionally heavy gold buying areas of Turkey and the Middle East.

For weeks, Asia’s traders had been warning that the price volatility was bad for business. The price has, after all, tumbled from over $1,000 earlier in the year down to less than $800 an ounce.

Western jewellery buying has, says the World Gold Council, also fallen. This time because of threatening recession. “Deteriorating conditions in across many economies …. acted as a further barrier to spending on gold jewellery,” its latest quarterly report says.

The speculators are running scared too!

Even speculators seem to be abandoning gold (along with other commodities) amidst the dollar’s resurgence. “The speculative element is coming off,” admitted Jill Leyland, economic advisor at the Council’s London office. Hardly surprising when the Central Banks had been talking widely of selling gold to help the dollar…

In their current pessimistic frame of mind, gold bugs also fear a rise in gold output. This is despite the fact that output actually fell by 4% in the last quarter. Australia, South Africa and Indonesia all saw lower production.

More volatility ahead

Gold’s price volatility is expected to continue. Why, after all, should it be any different to all the other markets which are wildly swinging around?

Barclays Capital’s precious metals analyst, Suki Cooper, puts the price range for the rest of this year and 2009 at $800-900.

The scaremongers are not yet predicting the big doom scenarios — a collapse to 2007’s $600 an ounce, or even 1999’s $250. But investors remember those levels. They know how bad it could get…

One thing we can be sure of — it’ll be a bumpy ride. Keep your courage!

Erin Hamilton

Source: Why Gold Investors Are In For A Bumpy Ride

We think it must be the “better to push on an opening door” syndrome!

The miners are being outshone by the metals themselves. Yet mining shares continue to outperform the general market. The FTSE Global Mining Index was up 10% in the first half, compared to a 13% decline in the FTSE Global All-cap Index.

Miners of gold, however, have not been among the best performers… yet!

Still if these forecasts materialise, the worst could be over for some. Take Randgold Resources (NASDAQ:GOLD), a mid-tier explorer, developer and — importantly — producer in Africa.

Randgold first roused our interest back in July 2007 when the share price hovered around R12. By April 2007 it reached R28 — a gain of more than 130%!

But then, it all started to go wrong…

Then the slide began, as a result of cost and production fears. More than a third of its value was wiped out, along with other mid-tiers.

But Randgold still has all the ingredients for success. Chief executive Mark Bristow is not deterred by a market driven “purely by instant gratification”. He is going for continued “organic” growth. That means Randgold finding its “own gold, so we’re not forced to buy ounces at a premium by the demands of a bull market.”

Hitting its targets by 2011 will increase attributable annual production from Randgold’s West African mines by 50%. The figure will be a whopping 600,000 oz.

Randgold has great key objectives — to make falling output and ore grades a thing of the past and to aggressively tackle soaring costs. It may have raked in higher gold prices this quarter, but cash costs were up 47%.

In spite of that, net profits still rose 42%. And the production pipeline holds promise. Two existing open pit operations have just produced 63,249oz at a cost of $470/oz . They are on target to deliver 265,000oz this year. A new high grade underground mine has started to deliver, too. By 2010 it will be producing 400,000 oz — result! Another is in the final planning stages.

Randgold has its fingers in plenty of pies

Its project in the Ivory Coast is enjoying a “steady improvement in the political climate”. Randgold has also recently announced a 52% increase in the more reliable “probable” reserves category.

In a world where production is falling, new deposits are crucial. Randgold has a good track record here. In Tanzania, it has decided to enter phase two of the 500,000 oz joint venture with AIM-listed African Eagle (LON:AFE). A geological model has given good reason to do so.

All in all, Randgold’s net profits could increase by as much as 70% this year, Bristow reckons. Not bad!

And it is scanning the horizon for more! Africa may be Randgold’s “home-turf”, but it is not averse to taking its skills elsewhere to new and profitable gold targets.

So, keep mining,

Erin and Isabel

Source: Randgold Still Has the Ingredients for Success

A load of performance tables have just been published. On average the last 12 months has seen tier 1 gold companies shed 20% of their stock market values. And even a safe bet like big boy BHP Billiton has lost 16%.

A warning comes from international consultant Pricewaterhouse Coopers. In its latest mining report it says earnings overall in the sector may have peaked. Revenue for the top 40 companies might have grown 32% last year, but cost rises of 30% are up with that.

Mining houses are having to absorb many of their costs. Net result? The “boom cycle may make way for a bust cycle”, says top South African analyst Gary Quinn. He works at Prudential Portfolio Managers, one of South Africa’s leading investment houses.

Of course, the current, much-publicised supply shortages are a factor in rising prices. But that is not much good to the miners when costs are going through the roof. The inevitable result is lower earnings. Quinn has just published his sums. They show that earnings for South Africa’s miners could be flat through all of 2009.

The gloom is global! Investors have been selling off big time – even the usually acquisitive Russians! Much is being made of the sale by Suleyman Kerimov (35th on Forbes’s rich list) of his stake in Russia’s top silver producer, Polymetal.

Kerimov got out at a 30% premium to the then market price. But traders are reading his move as a clear indication that this sage investor thinks that silver and gold valuations have peaked. And he is not alone.

Unsurprisingly, South African mining shares have been hammered hardest. Boards there are having to deal with a ghastly range of value-destroyers. There are labour issues, safety issues, power issues and the longer term concern that gold yields are declining. These have slumped over 25% since 1999. Miners have had to seek gold at deeper and deeper levels and at a much higher cost.

Take Gold Fields, one of the world’s largest producers of gold. Given the high gold price, now hovering around the $900 mark, one would have thought markets would be moving in this tier 1 producer’s favour. Wrong! In fact Gold Fields’ share price has nearly reached 12 month lows.

Other South African based companies haven’t fared too well, either. AngloGold Ashanti is some 36% off its 12 month high. Harmony, South Africa’s third biggest producer, is down 27%.

Further down the chain, tier 2 producers are more than 30% off the 12 month weighted average. Even an old market favourite — RandGold Resources — has taken a pounding in recent weeks. It has lost a whopping one third of its market value in just three months.

RandGold management says that is down to the fall in gold bullion prices earlier this year. That and — surprise surprise — the cost of energy!

Randgold’s key operations in Mali, Loulo and Morila, depend on diesel power. So, in spite of producing more, Randgold’s profits fell 10% compared to last year’s figures. Management also blames the weak dollar and increased costs of royalty payments.

Total despair? No. We remain optimistic. Along with the likes of resources bank Macquarie, we believe the key is to be selective. We are taking out our calculators to search for low cost producers.

Macquarie has done some of the work for us, highlighting Goldcorp, Agnico-Eagle and Yamana. Goldcorp maintained the lowest costs among senior miners at $240 per ounce of gold. That compared to the overall top gold producers’ average of $385/oz!

So keep looking,

Erin and Isabel

Source: Investing In Gold Miners? Be Selective – And Look at Those Costs!

Kimberley Consolidated Mining (KCM), a junior diamond miner, explorer and developer made a sparkling appearance. Its share price soared by 11% as it listed on Johannesburg’s alternative exchange (AltX).

For South Africa it’s – what commodities boom?

Still, the economic outlook remains gloomy in the southern hemisphere.

According to Statistics SA, South Africa has “seriously missed the commodities boom”. It reckons the mining sector’s contribution to first quarter GDP plummeted some 22%.

Of course everyone expected the mining sector to shrink what with the power crisis, not to mention safety issues and violence against migrant workers. But even economists didn’t think it would be that bad. Most predicted a 10% fall.

Gold, platinum and diamond producers – South Africa’s worst performers – are to blame. They’ve not been producing enough precious material!

Platinum production was down 15% in the first quarter year-on-year… gold was down 19% and diamonds 18%. This was a major reason for South Africa’s economy growing just 2.1% versus 5.3% in the previous quarter.

So, South African miners are trapped in a recession in the middle of a commodities boom. Most lay the blame for this at the door of Eskom, the state electricity supplier. But other reasons are beginning to emerge…

The reserve bank’s efforts are one — it’s trying keep inflation between 3% and 6% at a time when the oil price is going through the roof. This means the bank was forced to hike interest rates to keep inflation within its target. Propping up the currency is another move that has caused many miners to move their production boosts — they’ve gone offshore!

Then there are the new mining regulations. While they came into force as long ago as May 2004, they’ve taken some time to implement. And, of course, new royalty payments came into affect this year. This was the subject of heated debate between the mining industry and the government.

Now, it looks like things are about to get worse…

Electricity supplies may have been stabilised, but winter is on its way. Domestic consumption is expected to rise. More stress on the system does not bode well for its major mining users.

Still, there are gems down there…

You can’t blame South African miners for downing their tools and investors for making for the exit!

But the little newcomer shows that there are still gems in there.

In spite of fears about prospects in South Africa, KCM still managed to arouse a lot of interest when it listed on the JSE’s AltX. Even as Statistics SA announced the mining sector’s demise, the first day’s trade in KCM saw its share price soar.

So what has KCM got going for it?

CEO Hein Le Riche reckons there is massive demand for high quality gem diamonds. And there is a lot of promise in KCM’s prospects. The company’s two main mines (Bo-Karoo and Taung) are on the Orange River. This territory is famous for large high value gemstones.

Mining at Bo-Karoo kicked off in mid-2005. Between then and now the mine has produced an average of 250 carats a month. For the year ending 2009, the mine is forecast to produce 4,840 carats, rising to 6,000 the following year.Bo-Karoo has “indicated” diamond resources and more certain “probable” diamond reserves of 25,490 carats.

Already the mine has produced some significant white and coloured sparklers – a 98 carat stone in 2006 and a 123 carat stone in 2007. The latter went for $22,000/carat. Then in April this year a 46 carat blue-white stone sold for an impressive $28,000/carat.

At its other alluvial mine, Taung, 3657 carats of diamond have sold for an average of US$751/carat. Better still, 90% of these diamonds are of gem quality and 40% are bigger than one carat stones. A 42 carat Cape yellow diamond from Taung sold for US$918 per carat.

Then there is The Carter Block in the Northern Cape Province near to one of De Beers mines. Here there are known kimberlite pipes – the other type of diamond mining that takes the form of an open pit. There are also alluvial deposits.

KCM has entered a joint venture on this with JSE listed Trans Hex, a company that has kimberlite mining expertise. While this mine is still in the exploration phase, prospects have been judged good enough to begin bulk sampling.

Exploration is also underway at Batloung, another area in the Northern Cape where KCM holds mining rights.

The company may raise capital to fund the development of these Kimberlite prospects particularly the one at Carter.

…and prices are rising for its gems, not just KCM shares

All in all, it sounds as though Mr Le Riche’s confidence is justified.

In two years KCM and its subsidiaries produced more than 12,000 carats. These, he said, sold for more than R120m (just under £8m). In February alone Bo-Karoo and Taung produced more a 1000 carats. These brought a gross income of more than R10m.

Since 2005, KCM has sold diamonds worth R150m. Come February 2009 the company expects to generate an annual R91m in sales. It has already achieved a third of that this year!

Even KCM has underestimated the buoyancy of diamond prices. In its pre-listing statement it said average prices would be around $1900/carat, but that has already shot to $2400/carat.

And Mr Le Riche reckons demand is strong enough to push prices higher still. That means KCM is not limiting itself to South Africa. It has plans to enter Sierra Leone, Angola and Lesotho, too.

One word of warning though! Diamond stocks have been the worst performing of resource stocks.

Still, KCM is already ahead of its revenue targets for this financial year by 30%. It has profits of R4.5m forecast for February 2009. By the end of 2010, the company is forecasting profits of R30,5m.

Even better news! It is talking of paying dividends to shareholders. That would make it the first AltX mining company to do so. And it could send the share price higher!

So, if all goes to plan, this one could be just be a glimmer of light in the South Africa’s darkness.

Keep exploring,

Erin and Isabel

By Erin Hamilton and Isabel Turner,
First published on Wednesday, June 04, 2008

Source: Junior Diamond Miner And Explorer KCM Makes A Sparkling Appearance

For some reason, Gambia’s president, Dr Yahya AJJ Jammeh, has it in his mind that Carnegie Minerals is stealing his precious metals. So he threw one of Carnegie’s mining engineers in jail.

All of this is a lesson in risk. Carnegie’s share price graph now looks like someone’s been jamming on the brakes to stop within ten yards. The shares are bouncing sharply around 3p having crashed from 8.25p. This is a bit sad as it raised money from investors in February at 4p.

Britain’s Foreign Office (FO) website for Gambia gave no warning that this sort of thing could happen. Perhaps this is because the drama has been going on since February. The site was last updated on January 2. Not a lot of help for UK investors!

So the FO has Gambia down as a republic under multi-party democratic rule. The ruling party currently holds a huge majority (45 of the 48 elected seats). The president came to power in a bloodless military coup which toppled the elected government in 1994. Only 1.7m people live there. The economy is all about tourism and peanuts. Foreign aid fills the gaps.

The site does state that trade with the UK is strong. The UK is consistently among Gambia’s top two or three trading partners — not that this means a lot!

UK exports to Gambia to 2006 amounted to £14.0m, down from £16.47m the previous year. Trade in the opposite direction was valued at £3.5m, up from £3.3m the previous year.

Jammeh obviously has ambitions to boost Gambia’s status. He wants the country to become an oil state. He’s been quoted by the BBC as saying that this could usher in a “new future”.

Trouble is, no one has yet found any oil!

He also made a claim to be able to cure AIDS in three days. Last year he said he was treating ten patients with secret herbal-based medicines.

The “economic crime” of finding uranium

So, warnings of more than one kind are in order here, even if they’re not spelt out on the FO site! The best to be said of Gambia is that it seems a mite bizarre. So what were Carnegie and its investors doing there?!

Carnegie was floated on AIM to tackle the Astronhe SeneGambia Mineral Sands project. This is a cross border project extending along the coastlines of Gambia and southern Senegal. Its aim was to produce zircon/rutile concentrate for sale at the mine gate.

This project was a 50-50 joint venture with off-take partner Astron, which has ties to China. Any concentrates were to be shipped bulk in containers to China for final processing. Washed sand was to be sold to the local construction industry.

Carnegie also has exploration projects in Australia and the US. Until January 16 it was getting on with its business of keeping all this work ticking over. Then, the bomb shell hit.

A presidential dictat ordered Carnegie to stop working in Gambia. As alleged by the president, Carnegie was commercially mining titanium and uranium. This was an economic crime. It had a licence only for mineral sands.

Mineral sands are an important source of zirconium, titanium, thorium, tungsten, rare earth elements, as well as the industrial minerals diamond, sapphire, garnet, and occasionally precious metals or gemstones. So if it was processing uranium this was out of order.

Presidential claims of super-power status to come

Two days later the president announced the good news to the Gambian people, amidst the celebrations of Islamic New Year. Gambia was now a source of strategic mineral resources! Hurrah for all of us!

And he reminded them that a few years before he had announced the country also had oil.

Now the biggest find was uranium! It had been there all along, but he had not been able to announce it!

“But I wanted to make sure that what I announce is a reality,” his speech went. So the country must stop being divided and work together on the oil and uranium to become a great superpower…

This was to be a superpower of hope for humanity, where people of all kinds could live and work together in peace! Obviously, that excluded Carnegie’s people.

On February 14, Carnegie’s licence was cancelled. Then, a couple of days later, in spite of reassurances that Gambia accepted that it had not found uranium, Gambian police detained the new country manager.

Charlie Northfield, who had only just been appointed, was bundled into prison on landing.

Carnegie pointed out in vain that traces of uranium are found in soil everywhere. So, of course there was some in the Gambian soil — but not in anything like the commercial quantities the president dreams about.

A few days later, and $450,000 poorer after bailing out Charlie Northfield, Carnegie wrote off its Gambia operations.

Now Carnegie is sticking to more normal places

Now Carnegie is sticking to more normal places. It is still operating in Senegal, a country where there are fewer funny stories to be found (a good barometer).

And it has announced a three-year co-operation agreement with the US Geological Survey to look for rare earth deposits in the US.

No-one is forecasting any profits for a long while. Last year Carnegie made a pre-tax loss of £1.7m, or 3.19p a share.

Yet, before its Gambian adventure, Carnegie had been tipped as an interesting little speculation for those precious rare earths.

The lesson is — beware of any country where the stories of its rulers are as bizarre as they are in Gambia!

Keep mining!

Erin and Isabel

Source: Carnegie Minerals’ Gambian Adventure

Floating out Fresnillo, the world’s largest primary silver producer, Penoles is valuing the subsidiary at a whopping $4bn.

The logic is that analysts prefer simple stories rather than trying to evaluate multiple-asset miners. Fresnillo contains just the group’s major precious metal operations. The Penoles structure, which survived 120 years of revolution and crises, is being dismantled to suit 21st century investors.

This IPO is deemed to be a success for London. Commentators are saying that Fresnillo’s launch in the City is part of a shift in corporate Latin America. Instead of using Madrid or New York for its capital raising, these guys are coming to London.

Of course, the London Stock Exchange (LSE) has worked hard to cultivate links with Central and South America. There’ve been loads of road shows extolling the virtues of a FTSE or Alternative Investment Market (AIM) listing. The LSE has met chief executives in Sao Paolo and Lima. Further road shows are planned in Chile and Argentina.

Hochschild, a Peruvian silver and gold miner, became the first Latin American company to float in London for a century when it listed in November 2006. Fortunately for the LSE’s marketing drive, its shares have since risen 20%. Andrew Wray, at bankers JP Morgan Cazenove, said: “New York used to be in the backyard for Latin American companies but they are increasingly turning to London, particularly resources companies, as so many others are listed here.”

The IPO is a success for its parent

The IPO seems to have been a success for Bailleres, too. Penoles’s shares jumped 8.14% on the Mexico City bourse to 346 pesos a share following news of the spin-off.

Fresnillo sold about 23% of its shares in London. It was hoping to raise around $1 bn in total. In the event, it brought in around
$900 m, but plans are to sell a further 2%.

Anyway, the company is large enough to move straight into the top London share index, the FTSE 100. The remaining shares will be held by Penoles.

Penoles’s precious metals division produced 34.4 m ounces of silver last year and a further 280,000 ounces of gold. It is Mexico’s second largest gold producer, with a turnover of $648 million.

The new company is named after its largest mine, in the Zacatecas region of central Mexico. Fresnillo also has a gold mine in the Sierra Madre mountain range of northern Mexico and another in central Mexico.

The money raised from the share placing will be used to pay off debt, finance the expansion of the Fresnillo mine and develop three other mines.

CEO Jaime Lomelin said at the IPO press conference that Fresnillo will ramp up annual production of gold to 400,000 ounces and silver output to 60 million ounces. “We have a lot of projects in the pipeline,” he told reporters.

Continues below

Recommended

Cash in on the loophole Google doesn’t want you to know about!

Imagine cash filling your bank account – on autopilot… Imagine how great life would be if you claimed a guaranteed income each month – with NO day to day work!

Now it’s possible: Just take advantage of the loophole Google doesn’t want you to know about! This is a lucrative, LEGAL ‘crack’ in the Internet… In fact, ANYONE with half a brain can cash in…

Would you like to?

Weaker metal markets took off some of the shine

Understandably, Fresnillo is forecasting that silver prices will stay high. Chief financial officer, Mario Arreguin does, however, expect “increasing volatility.”

His words might equally apply to the share price. The stock opened on the London Stock Exchange at 530p, touched an intraday high of 539.5p and hit an intraday low of 502p. The shares then closed at 520p, a decline of 6.3% from the IPO price.

Analysts said the fall reflected the recent retreat in precious metals prices. They also thought there was a lack of appetite for new issues after Czech coal miner New World Resourcesraised £1.1 billion pounds with an IPO in the same week.

But BlackRock fund manager Graham Birch, a big name in precious metal investing, hastened to defend Fresnillo’s virtue. He told journalists that he had bought shares in the IPO and was confident they would perform well over time.

“I think this is a really excellent company. We’re very pleased to have it in our precious metals portfolio,” he said.

Silver is certainly a way below its peak. It is around $17 an oz, having crossed the magical $20 line in March. Kitco, the precious metal commentators, share Fresnillo’s view that the price will remain volatile. They expect it to revisit $15.50 an ounce at some stage.

At the moment, however, chartists reckon the price movements are looking good. The 200 day moving average is on the up… an excellent sign!

The case for silver shouldn’t fade

Analysts GFMS believe that as long as gold prices remain strong, the case for silver investment will not fade.

They expect the rally to continue at least to the end of the year, and quite possibly into 2009. So, they see silver investment demand and price strength persisting.

More importantly perhaps, since investor sentiment can turn on a speck, industrial use of silver is still rising. Electrical and electronics fabrication accounted for the greatest increase.

So, keep mining.

Erin and Isabel

PS Make sure you don’t miss out on getting all the latest industry news in one daily hit with a brand new free eletter from Fleet Street Publications.

Source: The Case For Silver Investment Should Not Fade

To complicate matters it is an area of extraordinary natural beauty. And needless to say there are a fair few people who are none too happy about the arrival of a bunch of miners.

Of course, the miners see a glittering opportunity to deliver huge value to shareholders! And if you believe what it says on paper, this could be significant.

Anglo Maerican estimates that for every 3.9bn tonnes grading of 0.99% copper equivalent, there could be 45m oz of gold. And that is before mentioning the copper and molybdenum there.

But… there are the environmental issues!

Anglo bags a big catch

Before going any further, a bit of history.

Back in 1988, Pebble West was discovered by Cominco, now Teck Cominco. After exploring the property until 1997, defining a significant resource, Cominco sold out to Northern Dynasty (”Northern”).

That was in 2001, when the industry was experiencing a bit of a downturn. Northern’s timing was good!

By 2005, Northern controlled 100 % of the Pebble project and had already carried out several exploration programmes. By 2004 it had upgraded 75% of its Pebble West resources to the “measured and indicated” categories.

Things got better in 2005. Northern struck a “world class” deposit at what is now known as Pebble East.

Drilling, environmental and socio-economic studies got underway and are still ongoing. By 2007, Northern had stirred the interest of some of the world’s biggest miners.

First Rio Tinto took a 19.8% stake in the project. Then in July last year Anglo decided it was time to get in on the act.

Behind closed doors, Northern was convinced that a partnership with a mining heavyweight would be the fastest way to production. Not surprising, given that Anglo ranks Pebble’s resources as “among the world’s most important accumulations of copper, gold and molybdenum.”

Anglo has made a significant commitment to the project, which is known as the Pebble Partnership. But to keep hold of its 50% interest, it must make staged cash investments to the tune of $US1.425 bn over the next few years.

2008 — Pebble partners take the plunge

This year it would appear that the Pebble Partnership board is taking the plunge. It will spend US$140m this year to really stir things up.

First of all, US$61.6m will be spent on drilling to upgrade some of the inferred mineral resource at Pebble East to so-called “indicated” category. That implies greater economic certainty, and means the pre-feasibility study can be completed. Drilling will also test the full extent of the deposit.

Then US$30.2m will go to an engineering programme to back up the final pre-feasibility study. And, of course, there is money allocated for an environmental study programme (US$24.9m). Funds have also been put aside for a community engagement and public affairs project (US$14.8m).

The plan is to complete the pre-feasibility study by December 2008, the feasibility study by 2011 and to start production by 2015. That will bring the total invested in Pebble to US$220m since 2002. US$87m of that will have gone to environmental and socio economic studies.

Dirty money for dirty gold?

Obviously it is still early days. Comprehensive studies are underway to collect the data necessary to complete pre-feasibility and feasibility studies. And, as yet, management hasn’t even applied for an environmental impact statement (EIS).

There are two key hurdles to overcome. First, these are nothing more than inferred resources. Pebble partners give a clear warning to investors that there is no guarantee that these are even minable.

Second, environmental campaigners are vehemently opposed to the project. They say the mine risks the Bristol Bay watershed, home to the world’s biggest commercial wild salmon fishery and the planet’s greatest fly fishing wilderness. That is already worth between $20m and $100m to the area. So who needs gold?

Big name jewellery companies, like Tiffany’s are believed to have said they aren’t interested in gold from here. Bob Gillam, an uber-rich Alaskan who owns a holiday home on Bristol Bay, has been a major supporter of the anti-Pebble lobby.

But there has been an interesting turn in events recently, as revealed by the “Truth about Pebble”, which brings us good news about the project. It so happens that Mr Gilliam manages a fund (McKinley Capital Management) which has made huge investments in Anglo American.

According to an SEC filing in the first quarter of this year, McKinley held over 138,000 shares in Anglo stock, worth about US$4 m. And, according to some reports, McKinley’s investment for state retirement funds includes 119,315 Anglo shares, worth $7.7 m.

So, does Mr Gillam have his finger in both pies? In the age of internet information and misinformation it is anybody’s guess. One thing is certain: Mr Gillam can always buy a holiday home elsewhere, says Erin. Of course we want the mines to take care of the environment, and keep disruptions to a minimum. But if all goes well the mine will bring jobs and prosperity to this region.

And it might just prove a worthy investment too.

Keep mining,

Erin and Isabel

Source: The Pebble Mineral Project, Leaving No Stone Unturned

Okay, okay, so it has been described as mining’s worst kept secret. Columbia’s President Alvaro Uribe spilt the beans of a major gold find last December. But AngloGold kept mum in spite of widespread media speculation that it was the lucky company.

We knew for sure back in February that it was indeed AngloGold, and that the resource was not only real but significant. One of Isabel’s insiders confirmed that a fair few ounces of the yellow stuff had been struck.

And he wasn’t wrong.

Phew! A significant resource!

According to AngloGold, there is a 12.9m oz glittering gold resource at its wholly owned Columbian project, La Colosa.

And there is still room to increase the resource as drilling to date has only tested a relatively small area.

“Three quality targets require follow-up,” says Anglogold.

So this is only an “inferred” resource, the earliest stage of quantifiable exploration. But it is JORC compliant, so has met Aussie set standards for reporting.

Better still, La Colosa is not Anglogold’s only Columbian project. The Gramelote deposit, discovered in 2006, hosts an inferred resource of 2.12m oz. For now it seems that Gramelote will be put on the backburner.

In fact, the funding and pre-feasibility study of Gramelote will be done by joint venture partner B2Gold. AngloGold has handed over a 51% interest to this Vancouver-based exploration company.

So, quite clearly it believes that La Colosa should take centre stage. After all, it owns a 100% stake in the project, and La Colosa is a much bigger resource! So it is pushing ahead — the plan is to take La Colosa to pre-feasibility by the third quarter of this year.

A frontier worth braving!

AngloGold was the first company to brave Columbia back in 2003, when nobody wanted to touch it.

Columbia is a highly stratified society, with Spanish descendants enjoying much greater wealth than much of local population. Not unlike the British and Dutch in South Africa!

And as in South Africa, crime is a real issue in Columbia. Aside from politically motivated violence, drug-related crime is a major problem — it is the most common cause of death after cancer!

No wonder then that many investors have steered clear! And no wonder AngloGold, with its South African roots, feels at home! It is quite used to operating in challenging environments.

But now AngloGold has some 37,500 sq km of land. The company seems reasonably confident in the current Columbian government, which it says is effective.

It also feels general conditions are good. President Uribe has taken a tough line with both left-wing guerrillas and right-wing paramilitaries. Fair play to him — murders and kidnappings have fallen as a result.

Judging by La Colosa and Gramelote, AngloGold’s foray into Columbia was a risk worth taking. Clearly, it is good news for Columbia too. This could double Columbia’s gold production by 2011!

The safe haven of the big boys

It is this sort of news that reminds us why mining majors are a long-term safe bet. New gold finds are increasingly rare. And investors in these jittery times have become a little jaded. Some are even wondering whether there is, in fact, any gold left underground.

As we’ve mentioned in recent diaries, junior explorers are struggling to raise capital. Understandably, many investors would rather bet on bigger players. They might not yield the massive upside that could be had from junior explorers. But it is possible to get the best of both worlds.

And clearly AngloGold has the experience, and the wisdom that comes with that, to make a project like La Colosa economically viable. Of course we know that this is still very early days— it is going to be six years at least before we see an AngloGold Columbian gold bar.

But even if that never materialises, at least we know Anglo is producing elsewhere. In the first quarter of 2008, output was 1.2m oz, with cash costs of $430 per oz.

The other big news is that AngloGold now has a clear strategy for reducing its hedge book, with plans to raise ZAR11.9bn from shareholders. It is a decision that must still be approved at an extraordinary general meeting next week. Since Aussie chief Mark Cutifani is a firm believer in the outlook for gold, he’ll be doing his best to convince shareholders this is the way forward.

Clearly the market thinks it is a good idea. The share price of what one analyst calls “the cheapest gold stock in the world” rose nearly 10% after the news broke. Cutifani too calls AngloGold “the most undervalued story in the gold industry”.

But perhaps the tide is finally turning.

Keeping mining

Erin and IsabelSource: When AngloGold’s Risk Paid Off 

Investors are wary — and rightly so. In these uncertain times, it’s tough predicting which way the commodities run is going.

Take junior platinum producer Sylvania Resources. This Aussie and London-listed player recently released first quarter results. By all accounts the news was pretty good. But the share price barely moved.

Clearly juniors, even if they are good, are out of vogue. And they are even less fashionable if they operate in South Africa. With all the negative news about power cuts, safety and labour issues, foreign investors are understandably cagey.

Despite all that, Sylvania seems to have done pretty well. In fact, it can barely even be called junior anymore!

Stepping up production

Take a look at its recent third quarter financial results to March. Shimmering indeed!

One of Sylvania’s key strategies has been to access platinum tailings dams held by South Africa’s big boys. This is the rubbish they discard.

Of course that is not the only plan. Sylvania is an active explorer. But CEO Terry McConnachie said last year that aggressive growth would come from extrating platinum group metals (PGMs) from chrome tailing dumps. And it seems to be achieving its objectives.

Cash costs here are lower than those of other platinum producers for a number of reasons. Less power is needed, building the retreatment plant comes cheaper than a deep mine, and so on.

That is good news in this precious metals environment. Even if prices remain high, which we think is likely for the short term at least, costs are rising. Anglo Platinum, the world’s biggest producer, saw cash operating costs increase by a whopping 41% for the year ended December 2007.

Wages are up, safety is an expensive headache. Capital costs are up. And as for fuel prices… need we say more!

But in spite of all this, Sylvania’s production is expected to meet the targeted output of 70,000 PGM oz by 2009/2010. Already production in this financial period has risen by 34% with Sylvania’s PGM output hitting over 4,800 oz.

So what has it done? Well, it has gone about improving grades and volumes at its dump treatment operations. The most successful has been the retreatment of the Samancor Chrome dumps for PGMs. Samancor is one of the biggest ferrochrome producers in the world.

And it has been pretty successful. These Samancor dump operations alone saw production rise 48%. Okay, so this was tempered slightly by lower output at its 25% owned Chrome Tailing Retreatment Programme (CTRP) (an operation is 50% owned by Aquarius Platinum). But on the whole it was work well done.

A vision for growth in dark times

The future looks pretty shiny too. In the next quarter production is expected to rise again. That is down to focusing on improving output from the dump operations. It has already improved recoveries and processes at two key Samancor operations — Millsell and Steelport.

It is not the first time treating tailings has been successful. AngloGold, for example, has done it profitably too. And, of course, the plants to retreat the tailings are not that expensive.

And by the end of this calendar year, Sylvania will complete the construction of another plant known as Lannex. That will feed a further 70,000 tonnes of feed per month, doubling the size of the existing two operations.

So, the future may look bright — but Sylvania has not escaped South Africa’s power cuts. Yet, due to the surface and near surface nature of its operations, it uses less power than South Africa’s deep mining operations.

An active explorer too…after all we do need new finds!

Sylvania is more than a one horse wonder. It’s an active explorer too.

Take the Everest North project on a farm in the eastern bushveld of South Africa. There is apparently an inferred resource of some 796,000 ounces of PGMs. Obviously more tests are needed to test the viability of the project — that is happening at Aquarius Platinum’s Everest South Mine, which is currently under construction.

It is quite a complex arrangement, which looks something like this: Sylvania pays ZAR2m to Aquarius for the privilege of testing viability at Everest South and for that gets to prospect the Everest North project area. At its own expense! If the project proves viable the two companies will apply for a mining right to be transferred to Sylvania. Sylvania will then pay Aquarius ZAR6m when the right is granted.

CEO McConnachie appears to be the right guy to be behind this operation. He has 25 years’ mining experience. He has a good track record with black empowerment (crucial in South Africa). Plus, he has experience launching and listing a successful business. (He founded SA Chrome which is now Merafe Resources and the empowerment partner for mining major Xstrata.) He is also keen to keep costs under control.

Add to all of this that Sylvania is a prime takeover target and we can’t help wondering whether here is a horse worth backing!

Keep mining,

Erin and IsabelSource: Platinum Producer Sylvania Resources

Sad too is probably how early stage explorers are feeling in these uncertain times. Raising capital for new projects has become increasingly difficult. Funding from traditional investment sources has all but dried up.

Take London’s Alternative Investment Market (AIM). It is increasingly reluctant to list companies in the early stages of exploration. Miners coming to AIM today tend to be producing, or at the very least close to producing.

That is the golden rule we tend to apply too! But we also recognise that exploration is important. After all, minerals are in short supply and in spite of US slowdown, the commodities bulls reckon demand from Asian economies will rise and rise!

So while producers, or near-producers, are certainly preferable, we’d be crazy to write off all explorers. They might be risky but there is always a chance that they will deliver. Even if share prices have taken a hammering!

African Eagle… soaring to production

In spite of a disappointing slump in the share price since August (it is not alone here!), London and now Johannesburg-quoted African Eagle Resources might be one of those.

African Eagle is a copper, gold and now uranium explorer with interests in Zambia, Tanzania and Mozambique – all countries with relatively stable political and economic regimes and good infrastructure.

Better still, a successful secondary listing on Johannesburg’s Alternative Exchange (AltX) last year means African Eagle’s exploration projects are fully funded for 2008 and 2009. And the plan is to fast track the two most advanced of those to production sooner rather than later.

Continues below

Recommended

Around $135 billion in oil is waiting to be shipped from a small African country.

A grossly undervalued company with a share price of just pennies has total control over it’s departure.

America and China will have to pay them some serious money before they let a single drop depart…

Own this company now before their share price reflects what they’re actually worth…

Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you
can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. Customer Services: 0207 633 3600.

Other projects in a relatively advanced state are the Ndola and Mokambo Copper projects in Zambia. Also in Zambia is the Sasara Eagle Eye copper-gold project… It holds a large iron-oxide-copper-gold system as well as uranium rich mineralised targets.

But for the moment, Mkushi and Miyabi look most promising. Production is expected within three to five years. And from our precious metals vantage point, there is plenty of shine on Miyabi!

Randgold takes a shine to African Eagle

Here is why. First of all Miyabi is located in Tanzania in East Africa, where mining is considered to be a key foreign exchange earner and growth sector. Over the past ten years there have been substantial economic and structural reforms here. The result is that Tanzania is now the third biggest gold producer in Africa, with more than 50m ounces of gold reserves and resources. Fair play to them!

Miyabi, a gold bearing corridor of 7km by 2km, is African Eagle’s most advanced gold project. Drilling in this area has to date defined a JORC-compliant resource of 520,000oz of gold. (For the record, JORC is a professional code that is now widely accepted for reporting resources and reserves.)

More reassurance comes from the fact that London and Nasdaq-listed Randgold Resources, one of our favourite junior gold companies, has been involved in the drilling process.

Randgold and African Eagle have entered a joint venture whereby Randgold not only funds but also carries out the pre-feasibility study. So Randgold obviously wants to get it right. Because getting it right means that it could earn a 50% interest in the project.

African Eagle then has the option to co-fund a full feasibility study or dilute its interest to 35% if Randgold funds the full study. So there is everything to play for.

Clearly Randgold brings its drilling expertise to the project. It recently completed 4068m diamond drill programme across the Miyabi Structural Corridor. Why? To better understand the geology and mineralisation of the area.

After all, African Eagle has pointed out that the area, covering just over 500 km², has only been part drilled. And it seems pretty confident that it can expand that resource to 1m oz.

…and TWP Finance gets in on the act too

Now African Eagle’s strategy is clearly one of finding partners with skills and experience, financial support or local knowledge.

But more recently it sold a 4.48% stake to TWP Finance, a subsidiary of consultant engineers TWP Holdings.

TWP has made it quite clear that it intends to up that to a “strategic stake” in African Eagle. Now, TWP Finance positions itself as company that trades mining skills and intellectual property for sweat equity or mineral rights. A company that is committed to “becoming increasingly involved in early stage exploration projects around the globe,” says TWP Finance’s chief exec Dean Cunningham.

It is a risky strategy but one TWP reckons is worth taking. Explorers are finding it increasingly difficult to find capital. But the world says Mr Cunningham needs “these new projects to supply the current commodity and resources boom”.

So TWP brings its small team of financial and mining experts to a project in return for shares. Then it brings its skills base to the party and helps to fast-track key projects.

Risky but potentially rewarding? African Eagle may just be a takeover target for bigger players. At last look the share price was trading at around 8p a share.

Management can’t say loudly enough that it is undervalued.

Neither can Mr Cunningham, who reckons “African Eagle shares are an attractive prospect at present, as they are relatively undervalued despite the high metals prices in the extended commodity cycle”.

Spin if ever I heard it, says Erin. But even she has a twinkle in her eye.

Keep mining,

Erin and Isabel

PS Make sure you don’t miss out on getting all the latest industry news in one daily hit with a brand new free eletter from Fleet Street Publications.