Gold shines as China dumps US dollar

From the article:
“We’ve been reading reports during the week that indicate the Chinese government is about to starting encouraging its 1.3 billion people to invest in gold and silver.”

“If you’re Chinese, you’ll soon be able to walk into any bank and buy, over the counter, those metals in four bars of various sizes (in the case of silver, the largest will be 5kg). The explanation — and it sounds plausible — is that China wants to convert more of its US currency holdings into gold and silver. It is working day and night to buy hard assets with its billions of US dollars before the greenback tanks.”

“Here’s another piece of the puzzle. On Friday the Hong Kong Monetary Authority was reportedly removing all its physical gold holdings from depositaries in London and transferring them to a new high-security facility close to Chek Lap Kok airport.”

Related articles:
Hong Kong pulls all gold reserves from depositories in London
Gold: Royal Mint doubles gold coin production to meet surge in demand
Central Bank net gold sales show huge drop in first half 2009
Northwestern Mutual: Buys $400 million in gold, price could double or even rise fivefold

World’s top hedge fund manager has a gold position of at least $5.5bn (!)

China has already effectively written off its US dollar reserves and is now preparing its people for the collapse of the US dollar.


gold-bars

NOT before time — and great timing, at that. After problems in recent years with declining gold output — production fell by 4 per cent in the 2009 fiscal year — Australia is back on the growth path.

Australia May Pass US, Become Second-Biggest Gold Producer (Bloomberg)

Melbourne-based Surbiton Associates, which produces quarterly statistics on the local gold sector, tells us production of the yellow metal not only turned around and rose in the June quarter (by two tonnes) after three quarters of decline but we’re on track to become the world’s second-largest producer within a year (behind China but ahead of present No.2, the US).

Surbiton’s Sandra Close says gold production should get a further boost in the present quarter from the startup of the Boddington mine in Western Australia and several other companies joining the list of producers over the next nine months.

Between now and Christmas these include A1 Minerals (AAM) with its Brightstar mine and Range River Gold (RNG) at its Mt Morgan project near Laverton. The latter has upgraded the resource at Mt Morgans to 517,700oz, at an average grade of 3.08 grams per tonne.

The other companies joining producer ranks in early 2010 are Focus Minerals (FML), Saracen Mineral Holdings (SAR), Catalpa Resources (CAH) and Integra Mining (IGR).

What a time to be churning out gold, with the metal so close to $US1000/oz.

Ask yourself this: if, as some politicians would like the world to believe, everything is on the brink of being hunky-dory, how come investment demand for gold is growing?

You should ignore the hand-wringing of some commentators about demand for gold in jewellery being down. It’s irrelevant. You only have to look at China to see why.

We’ve been reading reports during the week that indicate the Chinese government is about to starting encouraging its 1.3 billion people to invest in gold and silver.

If you’re Chinese, you’ll soon be able to walk into any bank and buy, over the counter, those metals in four bars of various sizes (in the case of silver, the largest will be 5kg). The explanation — and it sounds plausible — is that China wants to convert more of its US currency holdings into gold and silver. It is working day and night to buy hard assets with its billions of US dollars before the greenback tanks.

Here’s another piece of the puzzle. On Friday the Hong Kong Monetary Authority was reportedly removing all its physical gold holdings from depositaries in London and transferring them to a new high-security facility close to Chek Lap Kok airport.

The plan, according to investment sources, is to turn Hong Kong into a global hub for bullion trading.

Nothing important happens in Hong Kong — and gold is very, very important — without the instigation by, or approval from, Beijing.

South of the border

MEXICO’S role as a leading producer of gold and silver was all but destroyed by the revolution that paralysed the country from 1910 to 1920. Gold output fell by 80 per cent and silver by 65 per cent.

For more than 80 years, relatively little of the country’s still substantial resource of precious metals was pulled out of the ground.

Since the mid-1990s, however, exploration and mining have blossomed again.

Many local investors did very well from the sharp price gains made by Bolnisi Gold, and then from its takeover by Coeur d’Alene Mines (CXC).

We continue to keep an eye on Azure Minerals (AZS) and await further news after a mining study showed its copper-gold-silver deposit in Mexico looked to be an economic proposition.

Now Kings Minerals (KMN) says a study of its Cerro del Gallo project has identified 120 million tonnes of gold-silver material, much of it treatable by heap leaching, and test work has resulted in good metals recovery.

Familiar story

BACK in October 2001 the then Minotaur Resources triggered a land rush when it made its Prominent Hill discovery. It was only one hole, but it had a 107m section that averaged 1.94 per cent copper. Then it started. Heron Resources (HRR) announced it had lodged applications covering 8336sqkm on South Australia’s Stuart Shelf, the structure that hosted Prominent Hill. Adelaide Resources (ADN) applied for 7950sqkm and the then recently listed Relode — now the aforementioned Integra Mining — said it was pegging 10,000sqkm.

Prominent Hill, of course, went on to be a real mine, but what happened to all the rest of the land that was pegged in that week of frenzy?

There were some winners. Tasman Resources (TAS), which had land in that area, had been close to yanking its initial public offering — remember, this was 2001 and metal prices were in the basement — but suddenly had investors rushing to take part in the float.

We were reminded of those days last week when Sandfire Resources (SFR) announced more impressive results from its Doolgunna project north of Meekatharra. The best intersections were 42m at 6.6 per cent copper (and 2.4 grams per tonne gold) and 40.7m at 4.6 per cent copper (and 3g/t gold). Sandfire’s price pattern has been like that of Minotaur after the Prominent Hill results.

The land rush is not nearly so frenetic as back then, but the area is attracting interest. Back in July, when Doolgunna first started to gain traction, Enterprise Metals (ENT) acquired another 164sqkm around Doolgunna.

Then, on Friday, the share price of Chrysalis Resources (CYS) jumped 56.7 per cent to 23.5c after the company said it had been granted an exploration tenement 20km along strike from Sandfire’s drilling zone. The tenement covers 18.5km and Chrysalis said it had 7km of “prospective strike”.

When you’re reporting on this exploration game, you get a lot of what Yogi Berra described as “deja vu all over again”.

Rock salt bore

IN a collection of letters between two London literary figures of the 1950s, one complains to the other how a dinner companion had bored him with a long discourse on the subject of rock salt. The other writes back sympathetically that he had spent hours trapped by the same fellow — although on subjects, he stressed, far less interesting than rock salt.

So it is with some trepidation that Pure Speculation turns to the topic.

When Minemakers (MAK) floated back in 2007 it did so as a multi-commodity company. Since then, of course, it has become largely identified with its phosphate project in the Northern Territory.

But, given a sudden breakthrough, it will drill a rock salt target on the NT coast south of Darwin. Minemakers had two permit areas: it has been granted the one that runs to sea from the highwater mark, but not the contiguous one on land.

However, the local Aboriginal people have proved amenable to a compromise and will allow the drill rig to be located on the beach in the ungranted area, from where it will drill out under the water.

The advantages of rock salt over the more common process of evaporating sea water in large coastal ponds are that its production takes up a fraction of the land and it is cheaper.

Tailenders

* SO what’s with the Former Yugoslav Republic of Macedonia all of a sudden? So far as we know, no Australia explorer has ever ventured there, but first last week we had news that Whinnen Resources (WWW) was acquiring a 60 per cent stake in a polymetallic (gold, zinc, lead and copper) project there just south of the Serbian border. Then we received a prospectus for Genesis Resources (GES when listed), a $3m IPO that, apart from projects here, wants to look for copper and gold in Macedonia.

* BREAKING the market bleakness last January was Richmond Mining (RHM), which sent out a very bullish letter to shareholders saying there would none of that battening-down-the-hatches nonsense for them, thank you very much. Last week’s report on assays from the Loongana nickel project was far more subdued, but they are keeping a brave face. Even though no anomalous nickel was intersected in the first two holes, the company remains confident of finding some.

* WE can’t finish without reference to the extraordinary coincidence surrounding China Copper Yunnan Australia (CYU). On Monday, one of our competitors looked at CYU, found no trace of a blemish, and described it in the most laudatory terms. The shares went from 17.5c to 28.5c on this report. The next day CYU announced a rights issue at 15c, a much more attractive offer with shares at 28.5c. If that’s not serendipity, we don’t know what is.

The Australian implies no investment recommendation and this report contains material that is speculative in nature. Investors should seek professional investment advice

brombyr@theaustralian.com.au

Robin Bromby
September 07, 2009

Source: The Australian

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