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!

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 

For the tale of the tape, the TSX Exchange added 0.98%, while the TSX Gold Index rallied 0.4% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, ended the session up 0.22% with declining issuers still out paced the advancing issues this time by a 529 to 472 margin with slowing volume of 168 million shares traded.

The world’s largest gold miner, Barrick Gold earned $514 million, or $0.59 a share in the quarter of 2008 a 29% jump over last year’s quarter. The previously well known gold hedger received a price of $925 an ounce of gold in the quarter. Sales in the quarter rang in at $1.96 billion as the company produced 1.7 million ounces of gold at total cash costs of $393 an ounce. All was not rosy however, as this figure is down from the 2 million ounces produced in the same period of 2007 when cash costs came in at $309 an ounce. Barrick ended the day down C$0.01 at C$39.40.

Meanwhile AngloGold Ashanti fared much better after reporting earnings of $105 million for the first quarter of 2008 and production of 1.2 million ounces of gold. Total cash costs for the South African company came in at $430 per ounce and importantly, Anglo finally announced that its La Colosa project in Colombia holds an inferred resource of 12.9 million ounces of gold within 468.8 million tonnes grading 0.86 gram gold per tonne. Anglo ended the session up $3.50 in New York at C$38.31.

Shares in VMS Ventures rallied on news that the junior cut 1.09% copper over 102.5 metres at its Reed Project Discovery Zone in Manitoba. VMS ended the day up C$0.09 at C$0.60.

It was a good day for Sprott Resource as the company inked a deal with Altius to explore for potash in the St. George’s basin in southwestern Newfoundland. Under the deal, Sprott can earn a 60% stake by spending C$2.5 million over 4 years. Sprott ended the session up C$0.52 at C$3.75.

Profit taking was the story of the day for Goldsource Mines. After running up from C$0.30 to nearly C$5 per share on speculation of a major coal find in Saskatchewan, Goldsource ended the day down C$0.26 at C$4.29.

All lights were green for the Canadian markets as investors start to become believers that commodity prices won’t be falling off a cliff anytime soon. We will see what Wednesday trading has in store.

A year ago the Miner Diaries noted that uranium was the unexploited opportunity for South Africa’s gold stocks. It is a by-product of the gold mining process, and the price has been rising, so it could solve mounting cash costs. And it is the raw material for increasingly popular nuclear power. Bingo!

The big South African gold miners have been pretty slow to decide the best way to harness this potential. In fact, before Bernard Swanepoel, (Harmony’s last CEO), jumped ship he admitted that Harmony had been sitting on its uranium potential for five years! At one point, Harmony had even considered selling its uranium assets. Fortunately, that was not to be.

Anyway, after mulling for years over how best to exploit this opportunity, the process is over. Last month, Harmony decided to put 40% of its energy – pardon the pun – into a new company.

This is a strategy that mirrors that of Simmer & Jack Mines. It owns 63% of First Uranium. There is also interest from international companies – Australian-listed Mintails wants a slice of South Africa’s yellowcake. And, unsurprisingly, majors Goldfields and AngloGold Ashanti are also considering how to get the best value out of their uranium assets.

The race is on to dominate this new battlefield.

And there is gold here too

Though initially this baby was just referred to as “newco”, Harmony’s new JV now has a name. The guys have kept it simple. Led by John Munro, former VP and head of corporate development at Goldfields, “newco” has been registered as “Rand Uranium”. Logical! After all, the core assets are at Harmony’s Randfontein site, south of Krugersdorp which is West of Joburg.

The remaining 60% in “Rand Uranium” will be held by Pamodzi Resources Fund. This is backed by private equity investors, First Reserve and also AMCI Capital. The t ransaction is said to be worth $420m.

So, unsurprisingly, Harmony is being energetic about the project. In fact, CEO Graham Briggs has been quite clear that he intends to retain that 40% holding even if that means investing more to avoid dilution of its shareholding.

Gold companies in South Africa need all the help they can get. Using Rand Uranium as a platform for growth seems a step in the right direction. The plan is to maximise returns from its uranium assets while not breaking the bank.

Recommended

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Drilling has already taken place and the reserves fall into the more reliable ‘measured and indicated’ categories. That is a grade of 0.215kg of U308 per tonne of excavated material, versus 0.05 to 0.07kg/tonne at other dumps around South African’s West Rand. By the way, U308 is ‘yellowcake’ – the impure mix of uranium oxides which are obtained while processing uranium ore. It is used to prepare fuel for nuclear reactors.

In addition to those reserves, there is said to be some underground resource which will yield more uranium and possibly gold. Let’s not rush, though. The project is still in the pre-feasibility stage, so any profit or resource projections would be premature.

The measure of the man

Forty-year old Mr Munro has a degree in chemical engineering from the University of Cape Town. Working at Goldfields since 1991, he has worked his way up the ladder to the top. Soon that seemed a bit run of the mill. He wanted to be closer to some real action with visible pay-offs. The energy sector offers that.

Another key attraction was the “private equity angle”. Spared the disciplines of stock market reporting the company can take a softly, softly approach. Absent are the pressures of quarterly reporting.

Before taking the job he spent two months assessing Cooke’s viability. He is pretty confident! Some estimates value Cooke’s resource at US$40/tonne. Gold accounts for $6-7/tonne of that, and uranium for $33/tonne. Very nice! And Munro is confident that whichever way you look it, the margins are “significant”.

And also desirable! First Uranium and Russia’s Renova apparently also tried to bid for Harmony’s assets.

Timing is everything

As an unlisted company with no share price to assess performance, what should Harmony want to see from its new venture? The immediate plan is to bring the existing assets to production. Uranium production will come first, followed by gold.

There are two critical periods ahead. The first is to complete the feasibility study – that should happen by the end of 2008. Then developing production will take a minimum of two years after that.

Once in production, Rand Uranium could qualify as the world’s tenth biggest uranium producer. And in three years time the plan is to list.

Right now the sale may help Harmony to pay down some of its ZAR4bn debt! And it should certainly mean big profits when the company reports in June. (Admittedly an exceptional profit, which won’t affect headline earnings.)

Still, Pamodzi could just be the energy boost Harmony is after.

Keep mining,

Erin and Isabel