• Hedge Funds 'Could Cause Disaster' for Gold TANA GOLDFIELDS Mining Fraud Investment Tips

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    Hedge Funds 'Could Cause Disaster' for Gold TANA GOLDFIELDS Mining Fraud Investment Tips

    Peter Hambro, one of the leading figures in Britain’s gold mining sector, has criticised hedge funds for distorting the market for gold and warned that there is potential for “disaster” in the industry. Mr Hambro, co-founder and chairman of Russian gold miner Petropavlovsk, made the comment in an interview in The Sunday Telegraph.

    The gold price, fixed at $1,376.12 per troy ounce in London on Friday, has fallen more than 30pc from a 2011 peak of more than $1,900.

    Figures from the World Gold Council last week showed that ownership of the world’s gold shifted further East during the first half of 2013.

    Overall demand for gold was 12pc lower in the three months to the end of June than in the comparable period for 2012, as Westerners dumped their exchange-traded holdings and Asian consumers responded to lower prices by adding to their hoards of jewellery and bullion.

    “It’s rather odd,” said Mr Hambro, “Gold is streaming into the Far East. Russians are still buying; the Chinese are buying. There’s no secret. It’s in the international statistics. “Where the selling came from that knocked the gold price down, I really don’t know. It was such a very strange thing.

    “I’ve been in the gold business for 35 years and never known a big change like that where it wasn’t obvious where it came from.”

    Asked whether he is concerned that hedge funds are distorting the market, he said: “The quantity of gold available for delivery on the Commodities Exchange in New York is at its lowest level ever.

    “The size of the contracts is at its highest, but the deliverable is at its lowest. There is the potential for disaster in those numbers.”

    “Fractional reserve banking in gold is responsible for a lot of the strange things going on. You can set yourself up as a hedge fund and nobody knows who you are.

    “Because of these strange machinations and the distortion between the physical market and the paper market, it’s very hard to say what’s going to happen.

    “There’s a real risk that the people who’ve sold 'paper gold’ won’t be able to deliver and there will be some official ruling that will settle all the bargains at today’s price. Something like that will happen.”

    Source: Tana Goldfields Articles

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  • Output from the world's gold mines is set to hit record highs this year, disappointing bulls who are impatiently waiting for production cuts following this year's 24 percent plunge in prices. Some gold miners have felt the squeeze of lower prices this year, and a number, including Canada's Kinross and Russia's Polymetal, suspended marginal mines and projects after a dramatic first-half price drop.

    But as prices fall, others are actually increasing output to maintain revenue and profit levels. In some cases, they are targeting higher grade ore to keep marginal mines operating and generating cash, at the expense of future production. Furthermore, several large projects put into motion during gold's 12-year rally, which took it as high as $1,920 an ounce in 2011, are coming to fruition.

    "Our expectation is that we're going to see a fresh record high in gold mining output this year," GFMS analyst William Tankard said. "What we're seeing is an ongoing response not to the slide in prices, but the decade-long stretch of fairly heavy capital investment into the mining industry that preceded it." The world's top three gold miners - Barrick Gold, Newmont Mining and AngloGold Ashanti - all reported higher production in the most recent quarter.

    For some marginal mines, firms are planning to tap better grades up front, a practice known as high-grading, which often comes at the expense of shortening the life of a project and giving up lower grade ore that could have been economic later. African Barrick Gold, for example, re-engineered its lowest grade and highest cost mine, Buzwagi, to tap higher grades and move less material, hoping to ensure the operation generates cash.

    "In the short term, when they have got flexibility, you can see companies changing the ore mix to keep themselves operating," Nomura analyst Tyler Broda said. During the boom years, the cost of gold mining soared. But this year the average cost of producing an ounce of gold is already showing signs of retreating, according to metals consultancy Thomson Reuters GFMS.

  • CISITU, Indonesia — In the remote mountains of West Java, workers like 15-year-old David Mario Chandra are an integral part of Indonesia’s gold industry. A workshop next to his family’s house in Cisitu, in Banten Province, contains machinery that turns gold ore into usable nuggets. The procedure seems simple enough: The crushed ore is tumbled with other ingredients in cylinders called balls until the valuable stuff is amalgamated. But there is a crucial material — and a final step — that alarms environmental and health experts around the world.

    “We put 15 kilograms of gold ore and water into each ball, and we use 100 grams of mercury per ball,” or 3.5 ounces for 33 pounds of ore, said David, who runs the family’s workshop. Workers then purify the nuggets using an open flame, burning off the mercury in sites among residential areas throughout the village.

    Yuyun Ismawati, an environmental campaigner based in Britain, says the scope of the problem is evident in the amount of mercury being exported from around the world to Indonesia, her home country. Most of it, she says, is brought in illegally.

    According to the Indonesian Ministry of Trade, the country imported slightly less than one metric ton of mercury in 2012 through two local companies, primarily for commercial manufacturing, including the production of light bulbs and batteries, and for use in hospital equipment. According to United Nations trade statistics, however, 368 metric tons of mercury, about 810,000 pounds, were legally exported to Indonesia in 2012 from countries that included Singapore, the United States, Japan and Thailand.

    The yawning gap between what Indonesia officially reported as receiving and what was actually exported to it is not an anomaly. In 2011, the country officially imported 7.8 metric tons of mercury, while the United Nations reported that 286 metric tons was exported to Indonesia. The same disparity is evident for numerous other recent years.

    In fact, the only data that added up for Ms. Yuyun, 49, a graduate school alumna of Oxford, was not about mercury but global gold prices, which nearly doubled from an average of $872 an ounce in 2008 to $1,669 in 2012. Gold ended 2013 at just over $1,200 an ounce.

    To Ms. Yuyun, the conclusion was obvious: Hundreds of tons of mercury had been smuggled into Indonesia for illegal, small-scale miners in a modern gold rush that analysts and activists say is causing major environmental and health crises.

    “It’s quick cash,” she said. “You dig, you get money — and you get poisoned.”

    The quick and dirty production process emits mercury into the atmosphere. The metal has also seeped into soil, rivers, fish ponds and rice fields. Mercury is known to cause health problems, which may not appear for years, that include brain damage; kidney, skin and eye problems; miscarriages; and dysfunctional neurological development in infants and children.

    Then there are the environmental impacts. According to the United Nations Environment Program, small-scale gold mining is responsible for 37 percent of global mercury emissions and is the largest source of air and water mercury pollution.

    According to a study by the Blacksmith Institute, a nonprofit research organization in New York that focuses on pollution, one-tenth of global mercury emissions from such mining originate in Indonesia. Those emissions can spread from country to country and continent to continent.

    Parts of Indonesia, including the resort island of Lombok, where illegal gold mining is rampant, have the highest mercury contamination readings on earth, according to studies by Blacksmith and other groups.

    Industrial gold mining companies in Indonesia are forbidden to use mercury during processing, government officials said. They would not anyway, as they can afford safer, more effective alternatives. But the country does not ban mercury use outright in small-scale gold mining operations.

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    The gold mining sector is braced for asset writedowns and a fall in the amount of reserves in the ground after the precipitous drop in the price of the metal this year.

    Some of the world’s largest gold miners face having to tell investors that their growth has gone into reverse because the falling price has made it uneconomic to mine some of the areas previously classed as reserves. Miners’ reserves are vital to their prospects and valuations, since companies would quickly shrink if they did not replace what they dug from the ground each year. Rising price expectations have until now helped gold miners be more optimistic about their reserves and to include ounces that they would previously not have been able to mine profitably.

    “Gold has been going up for 12 of the last 13 years and reserves have gone up with the price. This [2014] is definitely the year we will see reserves falling across much of the sector,” said Jorge Beristain, an analyst with Deutsche Bank. “Reserve calculations have been based on a series of suppositions that in the present environment are no longer tenable.” Gold miners including Barrick Gold and Newmont Mining, the world’s largest by ounces of annual production, have had a difficult year in 2013 because of the effect of the gold price on some of their most important projects.

    Miners usually update their reserve statements early each year, and do not all assume the same price. Barrick’s last reserve statement assumed a gold price of $1,500 per ounce for most of its 140m oz of reserves, while Newmont based its statements on a $1,400/oz price. Gold started the year at about $1,600/oz but fell sharply in April and has been hovering at about $1,200/oz in recent days. Newmont, whose 99m oz of reserves are the industry’s second-largest, said early this year that a $100 fall in the gold price would cut reserves by 7.6 per cent. Barrick has previously said a $300/oz change in the assumed gold price would see its reserves fall less than 10 per cent, with a lower impact at its larger, more important mines. “I would guess some miners might have to use $1,100 as the price for their reserves,” says a senior executive at one UK-listed company. “Or they might take the view that the gold market is in a very strange place in terms of volatile behaviour at the moment, which they might use to justify using a higher price.”

    Some miners use lower gold prices in reserve calculations. Kinross Gold, a large Canadian miner, based its latest reserves on a $1,200 price. Barrick and a number of other gold miners including Newcrest Mining, Australia’s largest, have already made billions of dollars of writedowns during 2013 as the gold price fell. However, some miners face having to acknowledge further impairments connected to goodwill held on their balance sheets or the carrying value of projects.

    “The writedowns of the past quarters in 2013 have tended to be connected with the costs of projects. What we are talking about now is cuts to the value of companies’ land holdings and the gold that they hope is in the ground,” Mr Beristain said. Silver miners also face writedowns and reserve cuts because their price assumptions are well above current spot prices, he added.

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