Gold prices slipped 1 percent on Tuesday, failing to hold earlier gains, as the stronger dollar versus the euro weighed on prices.

The precious metal ticked higher in earlier trade as a healthier tone to the equity markets boosted prices. However, dollar strength pushed it back into negative territory.

Spot gold was quoted at $767.50/769.50 an ounce at 1426 GMT, off a low of $761.80 but down from $771.30 late in New York on Monday. Earlier it touched a session high of $776.45.

U.S. gold futures for February delivery slipped 90 cents or 0.12 percent to $768.40 an ounce.

“The euro came off a bit (versus the dollar) and gold is following suit,” said Afshin Nabavi, head of trading at MKS Finance in Geneva.

“It is a very quiet week, with most of the Middle East closed throughout the week and a lot of the Far Eastern countries also on holiday,” he added. “There has been very low volume in the last couple of days.”

The dollar gained against the euro as risk appetite waned, with investors focusing their attention on the dire outlook for the global economy.

The precious metal is often bought as an alternative investment to the U.S. currency and moves in the opposite direction to it.

The euro suffered as the main reading of the German ZEW economic sentiment index for December came in better than expected, but the current conditions component showed a larger than expected deterioration in the euro zone’s biggest economy.

The other main external driver of gold, the price of oil, also slipped on Tuesday at just over $43 a barrel.

The market is awaiting a demand report from the U.S. energy department later in the session and the production meeting next week of the Organization of the Petroleum Exporting Countries (OPEC) for signs of the next direction of trade.

Falling crude prices can undermine confidence in commodities as an asset class, and dent interest in gold as a hedge against oil-led inflation.

However firmer stock markets are providing some support for prices. The pan-European FTSEurofirst 300 <.FTEU3> index rose 1.2 percent, reversing earlier losses.

The European Central Bank said gold and gold receivables held by euro zone central banks fell by 42 million euros in the week ending December 5.

PLATINUM WILTS

Among the other precious metals, platinum slipped a touch as investors worried slowing economic activity would hit demand for the metal, which is chiefly used to make catalytic converters.

Economic news was weak on Tuesday. Data showed Japan’s economy contracted at a faster pace than anticipated in the third quarter, while British industrial output fell at its sharpest pace in nearly six years in October.

A survey from the Organisation for Economic Coperationa and Development (OECD) also said the U.S. economy will probably get worse before it gets better. [ID:nL9125400]

News on Monday of developments in U.S. government plans to bail out ailing carmakers boosted the precious metal that session, but the fillip was short-lived.

“We would still exercise caution in the current environment, particularly since there is a risk that the package would be viewed as simply a short-term solution that does not resolve the underlying problem,” said Barclays Capital analysts in a note.

Spot platinum eased to $800/820 an ounce from $821 late in New York on Monday, while palladium was steady at $173/178 an ounce from $173.

Spot silver was quoted at $9.76/9.84 an ounce against $9.95.

Jan Harvey

LONDON, Dec 9 (Reuters)

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